Spread betting is a fantastically tax efficient way to trade on the currency markets. But be warned, there’s no advantage to tax breaks if you don’t make any money in the first place. What’s more, if you lose money (which most people do), you won’t be able to offset it against any gains, as you can do with share trading for example.
Despite the fact that many fail, there are still plenty of people making a lot of money trading forex. But most of them have travelled a rocky path on the way to gaining the knowledge they need to be successful.
The idea of this page is to give you a few words of warning, and hopefully help you avoid some of the major mistakes that most people make when they start.
1) NEVER TRY TO CATCH A FALLING KNIFE. Just because a price has dropped 100 points, doesn’t mean it can’t drop 100 more. There’s no surer way to lose money faster than by trying to stand in front of an oncoming train. Wait for it to stop, turn around, and then get on if you must. Better still, go with it. Just think, if it’s got that much momentum behind it, what are the chances it’s going to suddenly turn around when you place your bet? Why not try to jump on for a quick profit.
2) ALWAYS GO WITH THE TREND. Similar point to above. Don’t try to fight the markets. Hitch a lift with the big boys. Establish the direction of the trend, wait for a pull back, then go with it once it resumes its main direction.
3) TREAT TRADING AS A BUSINESS. Meaning, don’t lose perspective on money. Keep your trading money in a separate account. Transfer in an amount that you’re willing to lose, and plan your trades carefully so that you don’t blow it all at once.
4) STOP AND TAKE A BREATH. The markets will always be there. Resist the urge to always be in the market. Better to bide your time and trade only when the outlook looks most positive. Betting just for the hell of it will eat away at your account until you have nothing left.
5) TAKE YOUR TIME. No-one gets rich quick overnight trading forex. Those that make a lot of money already have a lot of money to play with. They’ve done the time and slowly worked their account up. There are no short cuts. Try to rush it and you’ll lose everything. Be warned.
6) KEEP YOUR TRADES SMALL. If you play with money that you’re scared to lose, then your judgement will be affected. You’ll take profits too early only to find you could have made more if you waited, and you’ll cut your losses before your stops kick in, only to find it could have been a winning trade all along. Better to make a small profit than a big loss.
View your trading career as a building project. It won’t happen overnight. But if you work on one brick a day, you’ll be amazed how your account can build with a bit of patience.