Three traps for novice spread betters

published 26 October 2011

Right now spread betting firms of all shapes and sizes are bombarding investors with adverts, free guides, books and even seminars. So it's easy to be lured in. And once you know the rules of the game, there's no reason not to be. But before the marketing hype bewitches you, keep the following three things in mind.

Spread betting is easy - making money isn't

Once you know the basics, spread betting is mechanically straightforward just a few mouse clicks are all that is often needed to start a trade. But remember that making money from it is anything but. You'll need to spend time mastering your chosen market and then practicing. The next step? More practice. Don't forget there are lots of people just like you all hoping to strike it rich. But just as in other markets, hard graft pays off here too.

The professionals are mostly not looking for that one trade that will transform them into multi-millionaires overnight. See spread betting as more like picking pennies up in front of a steamroller. To get rich you need a lot of pennies. In other words, spread betting is actually often quite dull. You find a pattern and you stick to exploiting it, recognising that you'll be wrong quite a lot of the time. As long as it's 49% of the time, or less, you'll make some money but perhaps more slowly and steadily than you thought.

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There is no harm in learning from other successful spread betters. Plenty of them write books and run seminars. But remember one thing they didn't get rich by telling you and others how they were doing it. But once they had made a decent pile, hey why not add to it by flogging a few books? I am not saying you shouldn't buy one and try and learn from someone who has been successful. But just bear in mind that if a spread betting system works, a trader will carry on using it rather than spending time penning a tome!

Tim graduated with a history degree from Cambridge University in 1989 and, after a year of travelling, joined the financial services firm Ernst and Young in 1990, qualifying as a chartered accountant in 1994.

He then moved into financial markets training, designing and running a variety of courses at graduate level and beyond for a range of organisations including the Securities and Investment Institute and UBS. He joined MoneyWeek in 2007.