How much money can I make spread betting?
Short answer is a lot. Long answer is you can make a lot of money spread betting however you can also lose a lot. Most people enter the world of spread betting with the thought of getting rich quick. If this is you then stop spread betting now, go and slap yourself in the face and then come back. Entering the world of spread betting with the get rich quick attitude is dangerous. Here is a real life story that I have altered slightly for the purposes of our site.
Jimmy’s spread betting story
Jimmy had always had a keen eye on the stock market. He’d dabbled in a few shares here and there and had done alright. He’d managed to save a nice little nest egg of £10,000 and was now shopping around for a place to invest his hard earned cash.
On his quest to find a sound investment he stumbled on spread betting purely by chance. He read about what is involved and was attracted by the tax free appeal of spread betting. Having a keen eye on the stock market over the years he figured he knew enough to start trading the financial markets and promptly opened a spread betting account with his £10,000 savings. While he could afford to lose this money he didn’t want too as it had taken a long time to save.
The first day he opened his spread betting account he decided to trade the FTSE. Jimmy thought the FTSE was going up today so he placed a £50 per point trade in the FTSE. By the end of the day his position was over 20 points in profit and Jimmy thought he would take his £1,000 profit. Not bad for a days work he though. The next day he thought the FTSE was going up again. He placed the same £50 per point trade. At the end of the day he made 5 points profit. Not too bad he thought. £250 profit was better than nothing. By now Jimmy thought spread betting was easy. The next day the FTSE was hovering around the same price it had been for the past few days. Jimmy thought he’d had his fill of going long and thought surely the FTSE must fall a little. He placed a short bet again at £50 per point. At the end of the day Jimmy checked his account and disaster. The FTSE had rallied by over 100 points from his entry price and his loss for today was £5000. Jimmy was in shock and couldn’t believe what had happened. Sure that the FTSE would fall, he decided to leave the bet open in hope of it recovering overnight. He checked his account again in the morning and the price hadn’t moved too much. Having time to think about what had happened Jimmy thought the best thing he could do is place another £50 per point short bet that way the FTSE would only need to fall by 50 points for him to break even. He left it alone and checked his account again at the end of the day.
Jimmy couldn’t believe his eyes. Looking at his account is seemed that it was saying his balance was -£1000. There was no FTSE position open. He checked his e-mail and had several e-mails from his spread betting company. The FTSE had another good day and risen by over 70 points. With Jimmy now short at £100 per point this meant another day of losses this time amounting to over £7000. With losing so much and his account going into minus the spread betting company closed out his FTSE position when his total account was £1000 down. Jimmy now owes the spread betting company £1000.
Jimmy can’t believe what has happened. Not only has he lost his £10,000 savings he now owes the spread betting company £1000.
So what are the lessons to take away from this?
Firstly Jimmy was betting way to big and trading with out a stop loss. He had no idea of why he was making the trade and when he was going to get out of the trade. Jimmy was lucky the first couple of days. This made Jimmy overconfident which ultimately ended in his downfall.
Don’t fall into the same trap that Jimmy did. Spread betting like any other profession will take time to learn. Don’t rush in with pound signs in your eyes thinking you will be rich in a few weeks. The probability is that you won’t. It’s widely thought that 90% of all spread bettors fail and give up. Don’t become one of those. Learn your trade, develop a winning attitude and become one of the 10% of winners.
