Even with all the market research in the world, a sudden event such as Lehman Brothers going under, or even an unexpected Nonfarm payroll reading, can throw the markets into disarray.
In spread betting, while such volatility can create large profits, it can also result in you losing more than your initial deposit. So how do you reduce your risk?
Use Stop Loss Orders
So there are risks, but at the same time you can put orders on your bets which can limit your losses without impacting your upside.
The most common and popular order is a 'Stop Loss', this is an order to close a position at a particular price point.
E.g. If you speculate on the FTSE 100 with a £2 per point stake, and it goes up by 65 points then you would make 65 points x £2 per point = £130.
On the other hand, if the UK index dropped 45 points, then with your £2 stake you would lose 45 points x £2 per point = £90.
That wouldn't be the best start.
However, most firms would let you can add a Stop Loss order at, let's say, 30 points.
If you were betting on the FTSE 100 this would mean that your position would be closed if the UK index moved against you by 30 points. Therefore, instead of losing £90, you'd only lose 30 points x £2 per point = £60. (Not all Stop Losses are guaranteed).
However, assuming you correctly predicted the direction of the market, your upside would still be £130 if it moved 65 points or £80 if the FTSE 100 moved 40 points.
Where to Get a Stop Loss Order?
Most firms these days let you use normal Stop Loss orders.
Reader should not that these orders are not 'guaranteed'.
'Minimise Your Spread Betting Risk' last update by James White, 20-Feb-2017
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