You heard that spread betting was lucrative, so you entered the markets after learning a few basics, thinking it was just a matter of time before you could swim in profits. Well, the trend went against you and you lost a big chunk of your account balance.
Well, that same scenario is typical of traders who lose money most of the time. To be realistic, there is actually 5% of traders who are making it spread betting for a living. The rest either have a bad trading plan, or are treating it as fan and not business.
If you want to know the biggest problem with spread betting and how to fix it, this article will give you a clue on how to go about it.
The biggest problem with spread betting and how you can fix it
Let’s say you signed up with the CMC Markets and funded your trading account with $250. Would you be able to triple that capital in the long run? Of course yes. But how are you planning to realize this success?
You will probably answer this question by saying that you will use the right trading instruments like the MACD, RSI, and moving averages to gauge market sentiments. But in as much as this answer is correct, these things only play a small part in your entire performance. The real impediments that make people fail in spread betting are listed below:
All strategies are correct
Traders tend to think that losing their entire trading capital is an indication that their strategy isn’t working.
If you lose the entire $250, or lose multiple times of that amount, it doesn’t really mean that your system is ineffective. Most newcomers don’t understand that success in spread betting or Forex is not pegged on the win/loss ratio, but is rather dependent on how much they stand to lose when they are wrong and how much they stand to win when they are right. As a matter of fact, losing 5X$250 and making 1X$5000 would still place your account in good standing regardless of the strategy you used. So please understand that it’s never about the win/loss ratio.
Many traders are too impatient to make good profits
We have agreed that the only acceptable way to lose is to get knocked out of the game. If you’re able to preserve your capital no matter which trading strategy you use, then there’s always an opportunity to profit.
The problem, however, is that most traders are impatient when they think of the potential profits they are likely to make.
And the only solution to fixing this is to develop a plan, back-test it, modify and back-test again before trading it either to success or destruction. If this plan happens to be profitable, you should consider trading it with small stakes (remember greed is one reason why traders lose money). The game also changes when you switch from demo to a real account, so only ramp up your stakes when you have built a decent income.
Most traders ignore the fundamentals of successful trading
Most traders don’t make it because they have a gambling mentality towards spread betting. Consequently, they end up gearing up to ridiculous levels, thinking the market would favor them by chance.
Others have a very short term view of the market. They don’t truly listen to where the market is going.
When it comes to observing the sins of trading, they don’t take them seriously yet these things determine whether or not one will be successful in their trading.
Newbies trade against the trend when a weak signal emerges suggesting the trend will turn. That’s an impatient way of trading, and it often leads to more losses than profits.
Other traders ignore stop losses, or at best, they keep extending their stop losses in the hope that the market will eventually turn in their favor. This is the quickest way to blow an account.
Finally, the same traders ignore the 2% money management rule. They risk over and above 2% of their account balance. To add salt to the wound, they open multiple trades hopping to make substantial profits from the running trades. Again, this is one of the surest ways to lose money spread betting, why, because each trade carries a risk with it. If you place 5 trades at the same time, you are essentially multiplying your risks.
Conclusion
The only way to keep the markets from swallowing your capital is to correct those mistakes and be patient. There is no magic bullet for those who are looking for working strategies to benefit from spread trading. Also, remember not to bet for the sake of doing so. Treat it as you would with a serious business.