Three ways to keep spread betting losses low

published 12 May 2011

The wild gyrations in the silver price it recently recorded its biggest weekly fall since 1975 should have reminded all commodity spread betters about risk.

And since spread betting is leveraged (you only put down a relatively small proportion of the value of the underlying asset up front) those risks are magnified compared to someone trading the 'cash' market. So the question is what can you do to avoid a wipe-out? Here are three tips.

Use stop losses

Ideally, pay a little extra for a guaranteed stop. This does what it says on the tin if you are long silver (you have bought), a guaranteed stop will get you out once the price falls to a specified point. To even think about betting on commodities without stop losses is to invite catastrophe.

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Keep bet sizes small but bet often

If you are in spread betting to make money, you will do it by accumulating small gains regularly. Sure, you might get lucky and bank the odd big payoff too. But if that's your objective from the outset, better sign up to appear on a quiz show such as Who Wants to be a Millionaire (where the prize is also tax-free, like a spread bet), or pop off down to the betting shop. For serious spread betters, small bet sizes (the amount you risk per 'point' or per 'tick') will help ensure you don't get wiped out.

Keep calm

Emotion is not your friend as a spread better. So if you lose money on a trade, don't get angry to get even. Punters who start doubling up bets in anger to recoup earlier losses - or who abandon a once sound strategy by reacting to short-term noise -often rack up the big losses. If you feel your hackles rising, better to switch off your computer and walk away.

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.