Understanding Financial Spread Betting Risks

Financial Spread Betting Risks Explained

What about the financial spread betting risks? If you have been working through the articles on this site, no doubt you’re starting to feel excited about spread trading – and no wonder, it is the perfect mix between the freedoms of gambling with the discipline and strategy behind stock market investing.

Overall it’s a pretty nifty trading system.

Understanding Financial Spread Betting Risks

The thing about it though is that there are substantial risks due to the leveraging of the product. A £5 bet can turn into a £100 loss if things go poorly which means that you have to be careful. So careful, in fact, that you need to be absolutely positive that even in a worst case scenario you have enough money to cover your liabilities. This is a rule utilized by successful investors for decades.

Traditional investors are generally a pretty cautious lot. They are careful to do their research and they don’t take wild guesses on their investments. Well, beginners might be an exception to that last bit but virtually everybody else makes educated decisions based on a good trading strategy. The successful execution over time is what makes a great investor.

Never Risk More Than You Can Afford to Lose

Part of this decision making process in managing the risks in financial spread betting is having the ability to never, no matter how optimistic you might be about the outcome, never risk more than you can afford to lose.

Do you want to lose your house? Of course not……Your car? Definitely not.

You want to make money (how sensible of you). You want a bigger house, a nicer car, and a better lifestyle. So let’s go ahead and make smart decisions that will get us there.

The problem with taking massive risks and betting more than you can afford to lose is that even if they pan out even once, you have paved a route in your own psychology for doing so again.

If you take a massive risk and win big great! But then you think you can do it again. Even if you win a second time, you will then be even more inclined to take more and more risks.

The problem with taking big spread betting risks is this: It only takes one loss to lose everything, but in order to keep growing you have to win over and over. Eventually the laws of probability catch up with you and you lose out.

Financial Spread Trading Risks: No Fear

Once you start taking big risks, you are just going to be more inclined to keep doing it.

But what if you can afford to lose it? Say you’ve got £50,000 in an investment fund and losing all of it doesn’t matter.

If that is completely true it is one thing, but for most of us, that amount buys us a great car, a deposit on a house even, or affords part of our retirement. In any case, even though you can technically afford to risk losing the money, you really can’t.

Losing that much money will probably mean a serious hit to your lifestyle. Then again maybe you think it’s worth it. If you could turn that £50,000 into £100,000 in a week but there was a 50% chance of losing everything would you do it?

Trade Wisely

Finding a reliable spread betting broker is the first step. Some people would and that’s entirely up to them. Hey, technically they can afford to lose the money but being out that much wouldn’t make for the best week (especially after you break the news to your family).

So instead of taking massive financial risks and betting everything, let’s take a step back and trade wisely. Extremity of action is rarely the smartest move. Aristotle taught us that over 2000 years ago and it seems wise advice for financial trading.