James Hughes, senior markets analyst at CMC Markets, offers some pointers on the best ways to trade
- Mobile trading
Even if you have stops and limits set with each trade that you do, it is always advisable to check your positions on a regular basis. Spread betting iPhone apps, for example, allow you to check your market prices, your positions and account details on the move.
- Margin calls
Hopefully you won’t encounter these, but it is your duty to monitor your positions so never leave it to a spread betting firm to liquidate your position. It is much better to use a stop loss than to prevent you getting into a margin call.
- Be reasonable
Do not trade because there is not much happening in the markets. Always have a reason for every trade that you do. Always use a stop loss. When you first start trading, every single trade should have a stop loss attached to it. This enforces your exit levels and will help to protect your capital. Moving stop losses further away is the same as not placing a stop loss at all. Discipline is key to running profits and cutting your losses.
- Avoid doubling
When faced with a potentially losing trade, some traders will look to ‘double up’. This means buying more of an instrument at a new lower level, bringing down the average price. This is a very risky strategy which might work once or twice but in the long run will more than likely result in further losses. You should double up only if you have a very good reason for thinking that the trade will go in your chosen direction.
- Plan your exit
Most traders plan what level they want to get into a market but don’t give as much thought to their exit level, which is possibly the more important of the two. The classic mistake that most traders will make at some point is ignoring their exit plan for a trade when things go wrong and hoping or praying that the market will come round in time. Be firm about exiting the market when you planned to and always set a stop loss.
- Use demo accounts
Before committing your own cash, it is advisable to practise first on a demo account. This will help you get a feel for how markets move and how the trading platform works. When you do start trading remember that spread betting is a bit like learning to drive. You will only get better when you make mistakes – so start sma ll!
Of course, it sounds obvious but never ever trade with money that you cannot afford to lose. Alternatively, paper trading on a demo account is a good way to get a feel for the markets without committing any of your own money and it works by writing down what you would have done over a time period and monitoring how you would have got on.