Featured Broker: CMC Markets - FX, CFD & Spreadbetting on 10,000 instruments, LSE Listed, Est. 1989
In a nutshell it is because they are amateurs. The tax advantages of spread betting only apply to individual investors. So professional trades will be trading through a commercial vehicle or tax efficient structure any way.
So by it’s very categorisation of the spread betting client base, they are the least likely to lose money.
The second reason is that clients do not in general follow some fairly basic rules of investing i.e don’t over leverage, don’t over trade, cut you losses and run your profits.
This is easy to do as when you have a good trade idea you want to make as much money as possible. you you set your trade to take up as much margin as possible. the problem with this is that it doesn’t leave much room for error. In trading you need breathing space for when a trade does not go your way straight away. If the trade moves against you and you can’t afford to run a small loss to start with you will be on margin call and the broker will close your position because you can’t afford it.
There is not always a trade in the market and trading just for tradings sake will lead to quick losses early on. Traders who are new to the market must be patient and wait for the fundamental and technical indicators to be right before execution.
Cutting your losses and running your profits
This is a key element of trading. Most professional traders only get it right about half the time. But they win because the can spot a good trade and let it run. More importantly they can admit when the make a mistake and cut the position. This is vital strategy and most new spread betting customers get too emotional. They hope on hope that a bad trade will turn around, but get too excited or scared when they turn a profit and close it out too early.
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