Financial spread betting can be a lucrative way to make money. Unlike traditional forex and financial asset trading, you don’t need an intimate understanding of market conditions, meaning there’s arguably a lower barrier to entry.
Better yet, there are numerous professional strategies that even beginners can use, provided you’ve got a rough understanding of how they apply to placing a position on a financial market.
In this article, we’ll look at 5 of the top financial spread betting strategies that pros use, and how beginners can utilize them.
Top 5 financial spread betting strategies for fast and slow gains
The above example is a very basic example of financial spread betting. It’s worth learning more about strategies and market conditions before you start financial spread betting. So, let’s do just that!
1. Scalping for quick gains
Scalping, in short, is the process of quickly using trades to make small profits. It’s typically done by selling your spread position as soon as it becomes profitable, even if this means for a small amount of money. You do this regularly and efficiently and can end up with a notable profit.
Another way of looking at scalping is that it prioritizes wins over the money made. From a beginner’s perspective, this isn’t just a good way to learn about financial markets, but it’s also a good way to make some starter cash that you can use for more complex trades.
To use scalping in financial spread betting, you’ll need to be aware of some market indicators:
- Moving averages. These are technical tools that plot a market trend on a graph, showing whether it’s moving in a positive or negative direction. You use it to identify trends and suitable entry and exit points.
- Relative strength index. RSI is a measure of how strong or weak the market is based on its closing price. This helps you identify turning points and whether the market is being overbought or oversold.
- Moving average convergence divergence. MACD illustrates the strength, momentum, duration, and direction of a trend. Its two lines show whether prices trends are going up or down.
There are many other tools you can use for scalping, but start with these to build up your understanding. For a closer look at how to manage potential losses, check out this guide on leveraged trading losses.
Some other tips for scaling include:
- Know when to exit. Scalping is about making small, frequent profits, so set yourself a clear exit point and stick to it.
- Focus on buying trades initially before moving on to more complex selling trades.
- Technical analysis is a must. Familiarize yourself with the tools, understand what they show, and what this means for you.
2. Breakout trading for fast markets
Breakout trading in financial spread betting means opening a trade once your chosen asset reaches a previously limiting price level. You’re therefore placing a position on the assumption that the value is going to continue going up or down.
To breakout trade, you need to know support and resistance levels, which are:
- Support levels are also called “the floor”. This is the lower level of an asset’s price that, when reached, has a wealth of traders ready to buy because they see it as good value.
- Resistance levels are basically the opposite. Once an asset price reaches a set amount, it encounters resistance in trading that prevents it from going much higher. Limit orders will exist at the resistance level to reduce risk.
Finding a candidate for breakout trading of a financial spread involves some technical analysis – you can use RSI for this. Look for consistent resistance and support levels and, ideally, an asset that touches these often.
A good signal is to look at the trade’s price towards the end of the day. If it’s broken through the level and stayed above it, you’re likely looking at a breakout. This would be a good time to open your position. Allow it to test using its previously broken level, and be ready with your defined exit position.
Understanding how to use leverage in trading responsibly is crucial when placing breakout trades. Beginners should familiarize themselves with negative balance protection to avoid losses exceeding their initial deposit.
3. Trend following
On paper, trend following in financial spread betting is straightforward: You identify a market or asset trend, assess its momentum, and use this to inform the position you place. It’s based on the assumption that the asset will continue to move (trend) in the direction you’ve identified.
Again, you’ll need some technical analysis to achieve this. Moving averages are a good starting point, as you’ll be able to see general directions as well as highs and lows. You can also use RSI to find your entry and potential exit points.
For beginners with small accounts, selecting the best leverage ratio can make trend-following trades more manageable and less stressful. Learn more in our guide on the best leverage for beginners.
To implement this strategy in financial spread betting, you’ll need a fairly decent understanding of the tools required. From there, it’s a case of deciding whether you’re trading on a long or short trend and following the data. Once you reach your desired profit level, or you think the trend is going to end or reverse, you end your position.
4. Range trading for stable markets
Range trading can be seen as the opposite strategy of trend following. In financial spread betting, you’ll trade on both long and short positions at different times depending on the financial pair’s position within a set range.
So, rather than buying into a spread and following its upward or downward trend, a range trade is more about taking advantage of price fluctuations to make your money. For this to be worthwhile, you want to identify an asset that has hit its support and resistance levels at least twice. This provides you with entry and exit points and sufficient data for making your trade.
For example, you identify a spread trade with fluctuations but steady sideways movement. You buy at the support level and then sell when it reaches its resistance level to make your profit.
You’ll want to use RSI to identify a financial asset that’s fluctuating nicely between its resistance and support levels without any signs of breakout. Longer-range charts can be helpful for this, as you’ll want clear evidence that the asset is fairly solid. From there, perform a deeper analysis to identify its levels.
If you are looking for a certain result while trading more calm markets, you can use our spread betting calculator to estimate potential profits and losses.
5. News-based trading for major events
This is perhaps one of the simplest strategies to explain, although it’s not necessarily less complex than the others. News-based trading essentially involves using situations outside of technical analysis or financial market conditions as the basis for the financial spread position you decide to open.
For example, say a FTSE company (in this case, an aviation services provider) makes the news for canceling hundreds of flights, leaving many passengers stranded. This is an unfavorable condition for the company and could be an ideal time to open a spread position on a decrease in stock price. Here, you’d buy stock and open a position on a significant fall. Once it reaches the desired level, you sell for profit.
Generally, news-based trading in financial spread betting is a short-term approach because the news cycle leads to large but short fluctuations in asset price. However, if you have your ear to the ground, it can be a great way to make money.
For those interested in news-based short-term trades, learning more about short selling with leverage can offer additional opportunities to profit from negative price movements.
There are two ways you can approach this strategy. The first is to know where to get your news. Identify sources that usually have first scoops on areas related to your chosen market. Set up alerts and try to take advantage of a trading position before the story hits mainstream news. If you’re careful, you can get in before this to make an extra cunning trade.
The other option is to know what times of year you could take advantage of news stories. For example, when a public company announces its end-of-year profits, when a country’s national budget is announced, election periods, etc. Again, you’ll want to find situations you can leverage, ideally before they happen.
How to match strategies with personal trading goals
The above strategies have different required experience and time commitments as well as barriers to entry. These should be the factors you consider when choosing which will work best for your goals and trading style.
Experience level
This seems like an obvious place to start. If you’re completely new to financial spread betting, consider something like scalping. It’s fast-paced, relatively low risk, and requires technical analysis tools. As such, it can teach you decent fundamentals for more complex strategies.
Alternatively, go for news-based trading. This requires a different approach but generally doesn’t involve technical tools. However, by extension, you won’t gain the kind of experience necessary to tackle the other strategies.
Time commitment
Scalping and breakout trading are fairly quick, whereas trend following and range trading require analysis and more time to execute. Even so, none of these strategies is super long-term. Rather, it’s more about the time you put into analyzing and opening your position.
Your goals
Do you want to make money quickly? Do you have high or low risk tolerance? Do you want to learn the intricacies of trading, or is profit your main objective?
Whatever your goals, it’s worth thinking about how each strategy aligns with them. Scalping and range trading are relatively low risk, while news-based trading, for example, is riskier because you’re not opening a position with clear technical analysis.
Common pitfalls to avoid with spread betting strategies
Unsurprisingly, financial spread betting has the potential for high risk and big losses, especially for beginners who don’t prepare properly. Make sure you consider the following pitfalls before picking your preferred strategy.
1. Lack of planning
This might be obvious, but address the following questions:
- Why are you trading? What do you plan to gain?
- What asset or market will you trade? Do you know anything about it?
- Can you afford to lose?
These questions, more than anything, will help you assess risk. For example, if you don’t know whether you can afford to lose, what’s stopping you from making a leveraged trade worth thousands? This isn’t a sensible position to take, especially as a beginner. If needed, prepare too much and be more risk averse than you’d like to be, at least in the beginning.
2. Over leveraging
Leverage is the ability to trade more money than you have using a small margin. However, there’s no reason why you should take advantage of the maximum leverage a spread broker offers. Doing so risks you losing more than you invested.
Instead, start small, give yourself flexibility, and take time to learn how to open a position on a financial spread. When you’re experienced, you can start taking more risk.
Financial spread betting with leverage requires understanding the relationship between margin and risk. Read more about spread betting leverage and margin to trade responsibly.
3. Over trading
Trading on financial spreads gives you so many options – possibly too many. The more trades you open, the more risk you’re exposed to. Having lots of open positions at the same time can be distracting and overwhelming, particularly for beginners.
Don’t ever feel like you’re missing out. There will always be more trades available tomorrow. Take your time, start small, and understand how to trade before you start taking on more risk.
Final thoughts
As a beginner in financial spread betting, you’ve got a lot to learn. The 5 strategies above are all good options for learning the process in different ways with different applied skills. See which aligns best with your goals and risk tolerance and get started!
