Earlier, spread betting was a form of betting or trade that was confined or restricted only to the traders of hedge funds and the investors that did not quite bother about the amount they are investing. Despite the fact that this form of trading is not allowed in the United States of America, the FCA or the Financial Conduct Authority in United Kingdom regulates the trading form. However, over the years, more and more traders have realized the benefits of this form of betting. This betting form has a high level of risk involved.
Given below are few forms of risks involved that can be tamed using appropriate measures like using stop loss, margins, and guaranteed stops.
Anomaly in price movement – It is a well known fact that in spread betting, traders decide their next step solely on the basis of speculation. This is pertaining to the price movement of the various assets or securities that are not owned by the traders or the ones that have not been held by the traders. There are times when the underlying price of these securities becomes high and so does the trading volume. This adversely affects the actual price of the securities.
Effects of frequent margin calls – In spread betting, usually a small amount of money as capital is required to trade. This is in sharp contrast to the spot markets, where the trader has to invest in the total security. Owing to high leverage, spread betting causes the traders, usually the first time traders to lose out on a lot of money. This usually happens because most of the trading houses or brokers will bank upon the deposits (in form of margins) of the traders. The frequent margin calls cause the traders to lose out on their money quite fast. As such, it is of utmost importance to sign up with a trading house or a broker that will help you to recover from the loss without siphoning out your money in form of margin calls. At least not every time. You can try out the services of the ETX Capital and browse their web portal for more information on the concept of spread betting. They also offer assistance to traders by offering information in form of tutorials, workshops, and round the clock support.
Taming spread betting risks
Just as there are risks, there are ways out too. Given below are ways in which you can overcome the risks involved in this form of trading. They are as follows-
Stop loss orders – The stop loss orders will allow you to close a trade the moment the financial market crosses the price level that has been set by you. If you are using standard stop loss order, the trade will close at a price that is best as per that particular trade.
Guaranteed stop loss orders – If for any trade, you have set a particular value for the trade to close, the same will be carried out if you are using this kind of stop loss order.