Spread Betting: Your First Trade
Placing a trade in the stock, forex or commodity markets might seem a daunting task if you’ve never done this before, but remember that all these markets are relatively similar in terms of trade execution and, once you’ve completed the process a few times, it becomes almost automatic. Here we’ll break down the process a little further so you can feel more confident when real money is at stake.
Select your asset
The first step in trading is to determine which asset you want to trade. Imagine you walked into a supermarket and had no idea what you should buy. This would make your shopping experience very difficult and the financial markets are no different. Traders will typically select the type of asset they want to trade (stocks, commodities, currencies, etc) and then choose an asset from that category.
If, for example, you decide to trade currencies, you will then choose from the list of forex pairs available from your spread betting provider (GBP/USD, EUR/USD, USD/JPY etc). Spread betting providers make their markets accessible directly from the trading platform, so you can always see the assets available for trading at any given time.
Determine your direction
Once you’ve chosen your market, the next step is to determine the direction. Do you want to buy or sell this asset? If you believe prices will rise in the future, you want to buy that asset in order to make a profit. If you believe prices will drop in the future, you want to take the reverse approach and sell at the highest possible price.
Determine your position size
You’ll now want to consider your position size, that is, the amount of money you want to risk on this trade. The more money placed on a position, the more you can win (if the trade is successful) or lose (if the trade is unsuccessful). With a spread betting position, the size is determined in terms of tick value: you stake a certain amount per point/pip and make or lose this amount for every point/pip the price moves from your opening price.
Set your stop-loss and profit target
The next step is a critical component of setting a trade: the stop-loss. A stop-loss is the level at which your trade will close if prices move in the opposite direction, a vital element of any spread betting position as it prevents a trader from excessive losses on bad trades. Stops can be set as an absolute price level or as a number of points away from the opening price and they can be adjusted at any time for as long as a trade runs.
To provide risk protection, InterTrader gives you the choice to place a stop-loss on any spread betting position you open. You should note, however, that stop-losses are not guaranteed and may be subject to slippage and market gaps in volatile market conditions.
Equally important is to set a profit target for each trade, also known as a limit order. This is the level at which your trade will automatically close, if the price moves in the right direction, thus realising your profit. Limit orders can also be set as an absolute price level or a number of points away from your opening price and can be adjusted in running.
Monitor your open positions
Once all these factors have been considered, the final part of any trade is to monitor the open position. A diligent trader will analyse price movements and potentially adjust the profit and loss parameters, if market conditions change. It is important to watch a trade until it is closed, so that all available opportunities can be identified. This should allow you to maximise your returns over the long term.