How Speadbetting too much per point could blow up your trading account
Spreadbetting too much per point/pip can easily blow up your trading account if you get confused with the share prices. I have been asked to do a tutorial on how to avoid spreadbetting too much per point and how much should you risk per point on each trade.
Understanding the numbers is very important especially for beginners/newbies to trading. The same rules apply whether you are trading forex, shares, indices, bitcoin, commodities or even ETF’s.
You will see the difference in the video between spreadbetting on Lloyds TSB where you might trade £5 to £15 per point to USA shares such as Amazon where you would be living on your nerves minute by minute at that level and so likely to trade as little as 10 pence per point and you would still need a pretty sizeable trading account to cover the margin requirements with your broker. These have changed since recording this video following the new ESMA rules starting on 1st August 2018.
If you were spreadbetting Amazon at £1 per point and saw the price move 1000 pips do the maths as to how much you would be in the red by if you were the wrong side of the share price movement. With Amazon now being at 193000 ($1930 per share) you will get days when the price can move by 5000 points so be very careful and make sure you have trading stops in the right place to avoid getting into trouble and blowing your trading account up!!
Please note that the Amazon number has changed from 53000 when recording this video to 193000!!! Not bad if you had been trading them at just 10 pence per point!!
Also since I recorded this video you will see that the numbers on Bitcoin have changed considerably too. This is a good reminder how so much can change in the financial markets in a short time.
Go for high probability trades where your reward is at least 3-1 for the risk taken. So if you lose on two trades totalling 40 pips but the third trade makes you 60 pips you are still 20 pips in profit! If you trade too much per point you risk blowing up your trading account so I recommend not risking any more than 2% on any trade.
Get the numbers right as I demonstrate in this video. It’s okay to trade Amazon as long as you understand what you could potentially lose if you trade too much per pip and that you have enough to cover the margin requirements with your broker.
As I keep saying though is it ever worth risking more than 2% on any one trade?
There is only one time you should ever consider doing this. Just send me an email and I will tell you when this is!!
To your success, Adam