One of things I often discuss with other spread bettors is what to do when they are winning.
The question is often accompanied by an element of surprise. Yes, financial spread betting can catch out the unwary but there are lots of ways to reduce your trading risk these days like using:
1) Stop Losses or Guaranteed Stop Losses. These help close bets that are going wrong
2) Smaller Stakes. You can trade $1 or £1 per point on the FTSE, Dow Jones etc
3) Limit Orders. These help close your bet when you are winning and have reached a profit level you are happy with
4) Live Charts. These provide historical as well as up-to-the-minute trading trends
However, the question still pops up. What should I do when I am winning?
That clearly depends upon a lot of factors and as the adverts say, you should consult an independent financial adviser when necessary.
However I can point out a few things to watch out for. You might be a Star Trader. You might not. Either way most spread bets are a two horse race and you win or lose. With any such set of events, like tossing a coin, if you do it long enough you will hit a series of wins.
You may also have had a good few losing streaks along on the way.
Some of your ‘wins’ will come through luck. In the past, despite thorough research, I have sometimes benefited from external market factors like New Analyst Recommendations, Directors Buying Shares, Increased Dividends, Takeover Rumour etc.
All of these things and many other factors can help produce a winning sequence of trades. A lot of these things can also help convince you that you are, indeed, a Star Trader. However you hit your winning sequence try to ignore your ego and remember how you got there.
After a bit of luck, you will often be tempted to:
1) Increase your stake size
2) Not use stop losses
3) Trade more frequently
4) Trade markets you are less familiar with
5) Trade after less research
In reality though, you need to stick to your trading strategy. If your strategy needs altering, that is fine. But any such changes need to be thought through.
One of the most common errors is increasing your stake size (coupled with less research).
You may accept that you are increasing your risk but you are also changing other variables eg how you trade. Most investors trade best when they are calm and rational. Or at least rational. If you increase your stake sizes you can easily lose your head and alter your trading style. Probably for the worst, ie closing winning bets too quickly and trading losing bets for too long.
Less research will only exacerbate any irrational trading behaviour due to a lack of information.
Also, whatever you do after your winning streak, do not forget to put some funds to one side for when your trading is going less well.
In summary, enjoy your winnings, keep your head, plan any changes and do not try to give your money back to the spread betting companies as quickly as you can.
Spread bets carry a high level of risk to your money and may not suit all forms of investor. You can lose more than your initial investment so make sure you only speculate with capital that you can afford to lose. Likewise make sure you understand the risks involved and seek independent financial advice where necessary.
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