Lessons to learn from your spread betting losses

Anyone who spread bets for any length of time is going to lose money at some point. So how do you minimise your losses? Here are a couple of lessons to learn from trades that go wrong.

Like it or not, no matter how skilled you are, anyone who spread bets for any length of time is going to be on the wrong side of a losing trade at some point more likely sooner rather than later.

But, like every trade, you can learn from your mistakes. Better yet, you can make an effort to learn from other people's mistakes. City Index has come out with some useful tips on how to minimise your losses and what you can learn from trades that go wrong.

Mistake 1: Riding your losses

When a spread betting position starts to move against you, it's easy to convince yourself that the situation is temporary and will soon turn around. After all, you entered that spread bet for a reason. And the more the market goes against your spread betting position, the greater chance it has of coming back eventually, surely? Besides, your spread bet has already reached an unrealised loss, what difference would a little more make?

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This is how you turn a small loss into a big one. Of course, the market might turn around in time. But as City Index points out, chances are that you'll have been wiped out by then.

The lesson

Have a system and stick to it. Have a plan for when you'll enter a bet, how much you want to make, and how you plan to get out. And if you decide on a stop loss level, don't go moving it further out if it looks like the bet is moving against you.

Mistake 2: Not thinking about why you lost money

The last thing you feel like doing after you've lost money is to conduct a post-mortem on how you messed up so badly. It just feels like having your face rubbed in it. But as City Index puts it, "a loss can actually be more valuable to your financial spread betting education than a profit."

The lesson

Accept that everyone makes mistakes, and try to work out what went wrong. Was your rationale for buying simply wrong in the first place? Did you move your stop loss in the hope that things would turn around before you got stopped out? Or did you try to let a profit run for too long?

If you can sit down perhaps even with a notepad and analyse where you went wrong, there's a far better chance that you won't make the same mistake twice. Better to endure the discomfort of dissecting your own error than to waste money by making it over and over again.

John Stepek

John Stepek is a senior reporter at Bloomberg News and a former editor of MoneyWeek magazine. He graduated from Strathclyde University with a degree in psychology in 1996 and has always been fascinated by the gap between the way the market works in theory and the way it works in practice, and by how our deep-rooted instincts work against our best interests as investors.

He started out in journalism by writing articles about the specific business challenges facing family firms. In 2003, he took a job on the finance desk of Teletext, where he spent two years covering the markets and breaking financial news.

His work has been published in Families in Business, Shares magazine, Spear's Magazine, The Sunday Times, and The Spectator among others. He has also appeared as an expert commentator on BBC Radio 4's Today programme, BBC Radio Scotland, Newsnight, Daily Politics and Bloomberg. His first book, on contrarian investing, The Sceptical Investor, was released in March 2019. You can follow John on Twitter at @john_stepek.