Spread betting or margined trading has emerged as a very popular trading instrument amongst retail players. Given below are some tips you’ll do well to follow when you are about to get into this form of trading.
a) The spread amount on the specific stock would always be more than the main difference that exists between your bid and gives price on that stock.
b) In order to hold on to your portfolio from a long term perspective, then you should not be doing any margined trading. This is because, each time you roll over a spread betting trade, the price increases and since there is no physical ownership from the stock, you would not get the normal benefits of dividends, bonuses or stock splits which are common with physical stocks. In today’s circumstances however, because of the fall in rates of interest, it may be helpful to roll over stocks.
c) You need to be aware of the deposit margins being charged. If that is very high on a particular stock then you would need to look to spread bet in stocks where this particular margin is a lot lower. This will help you use your funds more effectively as the leverage will likely be similar.
d) Ensure you have enough back up by means of cash or property whenever you indulge in margined trading.
e) Be sure you always trade with strict stop losses and these have to be guaranteed so you are not sleeping when any abrupt negative movement in stock prices.
f) Start out with liquid stocks so the volatility is one thing you can manage at the beginning. Small cap stocks with less liquidity possess a lot of volatility that you would have to contend with and that can lead to sharp losses should the trade not turn out as you anticipated.
g) Don’t only search for the high visible companies for your margined trading. Some of the boring stocks can provide you with better returns and also you only need to keep an eye for suitable opportunities.
h) Do your trading within the same currency you accustomed to open the spread betting account. Which will take care of exchange related risks.
i) Be aware that stock prices generally drop faster than they go up since any fall results in panic selling.
The above mentioned tips though not exhaustive should help you in your spread betting activity.
