Money management: Be responsible with your investment

Social trading can be a great way to make money, however it is always worth bearing in mind that there is risk involved. There is no such thing as a 100 per cent safe bet, so you are always going to be risking some of your investment whenever you make a trade.

The key to having a successful career as a trader, of course, is to retain as much money as possible. Too many losses will make it difficult for you to continue, even if you want to! As such, good money management skills are essential. You need to understand how to lessen your risk as much as possible and keep hold of your investment.

So, what are the best ways of keeping your money safe and succeeding at spread betting and social trading? Here are a few of our best money management tips that should help you have a lucrative career as a trader:

 

Social trading is a savings account, not a lottery!

The first thing you should remember is that, while it might seem glamorous to risk everything in a high-stakes trade with the potential for a big payoff, this is definitely not a good tactic for a long spread betting career. If a trade is high-risk then it will probably fail, irrelevant of how large the reward is should you succeed.

Treating spread betting like gambling is a mistake. It is not a casino game, where half of the fun is the thrill of risking it all for a big score. Instead, you should treat it like a savings account.

Many people invest their money in something in order to earn a bit extra on top of it, rather than leaving it in a savings account to gain nothing more than a small amount of interest. Your social trading career should be treated the same way. Aim to build up a healthy profit over a longer period rather than risking everything for a large, short-term gains.

 

Limit your risk

One of the benefits of social trading is that it gives you the ability to tightly control how much of your account you are risking each time you make a trade. This allows you to be certain that, even if everything goes wrong, you will never lose more than a fraction of your total funds.

A good tactic for social trading is to risk no more than five per cent of your portfolio on a single trade. Even then, most traders would not go any higher than three per cent, while others stick with even smaller trades that risk just one to two per cent of their total account.

The key is to keep your trades small enough that you can easily absorb one or two losses, or even several, without derailing your entire spread betting career. Again, remember that the aim is to build up a profit over a long period of time, not to win millions with one big score!

 

Slowly build up your account

If you are only betting a tiny percentage of your account each time, surely you will struggle to make any decent money off spread betting? Maybe at first, but the aim of this approach is to build up your portfolio so that those tiny percentages get larger.

If you start off with an account of £1,000, and risk three per cent on each trade, then you will be investing £30 each time. After a few successful trades, your account might be at £1,500, increasing the amount you trade each time to £45. While the amount you are investing (and the returns) gets larger, your risk stays the same.

Spread Betting and CFDs are high risk investments and losses may exceed your initial deposit.

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