Financial spread betting is a tax-free way to play and invest in the markets (all profits are 100% tax-free). One of it’s main attractions especially for new traders is that all global markets can be traded with very small amounts of money, so making spread betting a great tool for learning about the markets. Here are 5 tips that will help you make more money.

1. Watch Those Dealing Costs

Spread bet brokers charge no commissions but there are costs involved. They will always quote a wider bid-offer spread than on traditional markets. For example, on Gold futures the bid offer will normally be $0.10 or $569 bid and £569.10 offered. But the spread bet broker will normally quote around $0.50 or $568.80 at £569.30.

These extra costs can have a dramatic effect on profitability over time especially if the trader likes to do a lot of short term trades. Discount costs at your own peril because what happens to many short term traders is they make money gross but lose it net when costs are taken into account. One way to combat this is to cut back on the amount of trades you do by cherry picking the higher probability ones.

2. Use Charts But Keep Your Analysis Simple

Whether you agree with charting and technical analysis is not so important because over 80% of the market does. So if you know the majority of market participants are looking at charts you should keep an eye on them, know how your enemy is thinking so to speak!

Things to look out for are when major chart levels are breached such as the 50 or 200 day moving average as well as price breakouts from important highs or lows.

But the best traders tend to try and keep their charting simple. Anyone who has access to a £300 personal computer can now number crunch with 1001 different indicators. The use of all these indicators has been massively diluted over the years. Instead, try and focus on the shape and character of the chart, does it look bullish/bearish etc and are there any major levels of support or resistance coming up. If so, watching how the market reacts and trades around these levels can give great clues as to the future direction.

3. Don’t Be Afraid To Use Spread Bets For Holding Long Term Positions

Today, everyone seems to be obsessed with trying to trade every move in the market. But with spread betting because of the higher costs involved in short term trading it’s often a better tactic to focus on trading longer term moves.

Concentrating on the longer term moves can have a three-fold benefit. Firstly, the costs become somewhat irrelevant, secondly it’s often less hard to latch on to longer term moves and trends than catch all the short term ups and downs. And thirdly, you don’t have to waste time following the market all the time. The author for example once held a Gold position using spread bets for over a year.

4. Use Dummy Accounts When First Starting Out

Most if not all of the spread bet firms will offer ‘dummy’ accounts for new clients just starting out. Practice accounts are excellent training tools to not only introduce people to spread betting but also how to trade all the different markets as well as how to correctly place orders.

Then after a month or so deposit a small amount of money in an account and trade very small positions. As you begin to gain more confidence in your own abilities, strengths and weaknesses add more money to the account over time. A lot of money has been lost by new clients depositing large sums of money and then blowing large portions of it because they didn’t fully understand the game.

Be smart, look longer term and ease yourself and your trading capital into the markets.

5. Don’t Trade What You Don’t Know Or Fully Understand

You may understand the stockmarket and how to make money but this doesn’t mean you’ll be able to carry this knowledge and understanding to different markets with altogether different characteristics.

Commodities especially those grown in the ground are a classic example of this. Weather, drought, shortages and other fundamental reasons can drastically alter the price of the markets sometimes within a few minutes or perhaps with the market opening 10% higher or lower the following day. So if you want to trade these types of markets do a little bit of research into what can move them as well as studying historical charts to see just how the price can move if things get hairy.

A good rule for all of these commodities is that when they enter what’s called a ‘weather market’ or the time of the year when excess rain, sun or frost can seriously effect the crop automatically decrease the size of your trading positions.

Summary

Trading is as much about skill as experience, in fact they most probably feed off each other. This is why it’s so important to approach the goal of making money in the spread betting world from a position of knowledge and strength. Hopefully this article has given you some tips to go forward and increase the value of your trading account.