If you are enjoying success as a retail spread bettor and looking to take it up to a professional level then there are some things you should consider. In this article, I’ll share how to make a living in financial spread betting and the importance of developing a professional spread betting strategy.
How to Make a Living from Spread Betting
To make a living from spread betting you will need an understanding of the markets, strong discipline, and a proven strategy. Below I’ve put together some key considerations to keep in mind while pursuing a career in spread betting:
Committing Time to Spread Betting
As a professional you will likely have more time to monitor the markets throughout the day, allowing you to analyse the markets for more potential trades. However, you should consider if monitoring the markets all day will suit your trading strategy.
I manage my time by analysing the markets in the morning, noting down the key levels of support/resistance levels and setting alerts when the markets break these levels throughout the day. This gives me a call to action to analyse the current market situation and implement my strategy. This allows me to avoid monitoring the markets all day and risk punting on trade ideas out of boredom.
Understanding your Rate of Return
By going professional you should have a ballpark figure of how much you want to be profiting each month. Equally, you are probably already aware that not every forex trading day brings an opportunity, nor does it guarantee you a profit.
You have to understand that for you to grow your account, you first have to earn enough profit to cover your cost of living and bills, then anything above this level is growing your account.
So if you need to earn £1,500 for living costs, and you make £3,000 profit – that leaves you with £1,500 profit before taxes. If you earn £500 spread betting then you’d have to withdraw £1,000 from your account to cover your living expenses.
I’ve seen many spread bettors overlook this when going professional and have a rude wake-up call when they have a negative month, making it difficult to pay living expenses.
Having A Proven Trading Strategy
This may go without saying but before you take the plunge to go full-time spread betting you need a strategy that is proven to be profitable.
As a beginner, you could have the best strategy in the world but you can lose money. In my experience, the difference between a good strategy and an excellent strategy is your experience with the markets. It’s important to clock in the miles while learning on a demo spread betting account, then scale the stakes up so it can start making you some serious money.
If you have a proven strategy to bet on the markets, it will instil confidence in your ability to spread bet making it easier to place your stakes. If your strategy is okay, but you have to second guess if the strategy’s signal is strong or weak, then you should get more experience with it before going pro.
If you want to have spread betting as your sole income then unfortunately spread betting profits will no longer be tax-exempt. This isn’t all bad news though, as it means you can now write off your betting losses against your profits to reduce your tax liability.
Tax rules for professional spread betting is different than for casual spread betting. If spread betting is your sole (or possibly main) income then you will be subjected to income tax.
If you want to go pro then you have to understand that there will be a psychological urge for you to place bets so you force a profit for the day. If you are not betting, you are not earning, this places a psychological burden once you go professional as your overheads and cost of living will become front of your mind to ensure your bets cover the bills.
While a retail trader can relieve this kind of pressure, as the income you earn will cover the bills – allowing you to focus on high-quality trades.
Qualifying For A Professional Account
If you are looking to maximise your potential as a professional, then you should consider opening a professional account with your broker. You have to meet the minimum requirements, which are:
- Traded 10 leverage derivatives in significant sizes* over the last four quarters.
- Work, or have worked in, the financial industry in a professional position requiring knowledge of derivatives trading for at least a year.
- You need a financial portfolio exceeding €500,000 (this includes cash, stock portfolios, stocks and shares ISAs, trading accounts, and SIPPs) but does not include property.
Should you meet two out of three of the requirements, the broker will allow you to have the maximum leverage on all markets. This means 1:500 leverage on forex, 1:20 on shares, 1:400 on indices and 1:500 on gold and silver. Another advantage is that some brokers pay you cash rebates depending on your trading volume, which can help reduce your costs.
*Note: the broker determines this value upon reviewing your details. Typically, it will be a minimum value of £100,000 on forex, £50,000 on indices, and £10,000 on stock CFDs.
Developing Spread Betting Strategies
Choosing Your Market
As a professional, it is important to be excellent at one market, rather than okay at several. For example, I focus on the forex markets as I find them easier to analyse compared to shares. I spent the time learning how the EUR/USD reacts to certain events and what times of day I’d expect to see more supply or demand of the asset. This isn’t something you learn out of a book but from thousands of hours watching it move, pip by pip.
I always suggest focusing on one market, mastering it and then you can use that experience and transfer it to other markets that correlate well. For example, if you focus on EUR/USD you can adapt to GBP/USD effortlessly.
Alternatively, if you want to focus on spread betting stocks you can choose a specific sector you are interested in to master. Then use the correlation between the sector and index movements to help you find more trades.
If you want a specific betting market or shares with low spreads, then IG is an excellent spread betting company with its extensive range of products.
Setting Performance Targets
Just like in business where you set Key Performance Indicators (KPIs) to achieve goals confirming you are going in the right direction, you should set your performance targets to reach.
Personally, I focus on weekly and monthly targets as I found doing a daily target while spread betting caused me to force trades that looked good on paper but went against my instincts. This can be a costly lesson, but one you’ll learn while financial spread betting.
One thing I will say is you should set an absolute hard stop at a betting account level on how much you’ll lose for the day before you walk away. Some days will not be profitable, that’s just the nature of the game. By setting a mental account stop loss, it should be the trigger for you to stop what you are doing and walk away.
For example, my mental account stop loss is £400. If I lose several trades in a day that accumulate a total of £400 – I’d log off and do something else for the day. Because your strategy is not 100% guaranteed, the financial market will not always behave as you expect.
Most spread betting companies have easy-to-read accounts that give you a general overview of your performance. However, I like ThinkMarkets’s TradersGym, a complete performance analytics tool that tracks and gives you easy-to-understand statistics about your trading.
Conduct Thorough Research
Researching the markets is important If you want to go full-time and monitor the markets, and it should include fundamental and technical research. I’d suggest you start your day off by highlighting any key high-impact economic data that will be released. Even if you don’t bet on the news, it is important to understand that markets can rally on expected pending data and then plunge once the data is released. So you want to avoid being liquidity for the bigger players.
In addition, it helps you avoid potential trade ideas that are generated around these times as you could enter your bet during these times and then get stopped out immediately because of the news. Not ideal considering it could be avoided.
A top forex broker with a solid range of trading tools is Pepperstone, it has a large range of betting platforms including the MT4 spread betting platform, which is excellent for technical analysis. If you need an extra hand finding trading ideas throughout the day, they also have AutoChartist that can supplement you with real-time technical analysis across several popular markets.
Use Risk Management Tools
To be a successful professional spread bettor your risk management has to be airtight. This is what sets the gamblers and the professionals apart. The professionals are happy to walk away and cut the losses, while a gambler remains thinking “The market may reverse any minute now”. This is not a good thought to have when you are using leverage on a high-risk currency pair for example.
There are a range of tools to improve your risk management such as setting stop loss and taking profit orders.
Even better, some spread betting brokers like City Index, OANDA, IG and CMC Markets have guaranteed stop-loss orders (GLSO) if you use their proprietary trading platform. A GSLO will exit your position at the price you set, allowing you to avoid slippage during volatile markets.
Spread Betting Professionally Takes Discipline
Discipline is the foundation of what makes professional spread bettors excel. The key areas are:
Betting on what you know:
With access to thousands of markets bringing tens of thousands of opportunities each day, it’s easy for you to drift and look at other markets for new opportunities. This isn’t a bad idea, but you should be cautious as not all markets are equal. If you trade outside your scope, e.g.) you normally bet on the SP500 but decide to bet on gold you’ll soon find out that gold moves very differently to the SP500 and it could impact your day’s profits. So it’s best to stick with what you know.
Betting what you can risk
Keeping your risk management tight is how you can preserve your capital when you are having a tough time in the markets. You should never increase your stake sizes to try and win your losses back faster. This is a surefire way to lose more money if you are on a losing streak.
I know how hard it is to take a loss (it’s not fun) but you should know that the market is never wrong. So it’s easier to take a small loss before the financial market lets you suffer a significant loss because you didn’t want to.
Spread Betting is Not Gambling
The key difference to remember is that spread betting is a derivative of an underlying asset, like shares, forex, indices, bonds and commodities. Whereas, gambling products like sports betting are to speculate on the outcome of a sports team or event coming true (or not).
The underlying market you spread bet on is the exact same markets that pension funds, investment banks, and hedge funds trade – these are assets of value. The main difference between investing, CFD trading and spread betting is that spread betting is tax-free in the UK and Ireland.
Spread betting and investing (plus CFDs) are both regulated activities by the Financial Conduct Authority (FCA), while gambling is governed by the UK Gambling Commission.
While both activities involve you placing a bet on an uncertain outcome, spread betting has a deeper level of analysis that eliminates an outcome relating to chance.
For example, in football, a heavy favourite football team can just as easily lose as it can win because the team can have an off day. You cannot price this into the risk of betting, therefore the outcome is based on chance.
Unlike the markets that are driven by global and national data projecting the health of the markets, they are backed by factual data and supply and demand. So if the US GDP is expanding it’s safe to assume markets like SP500 would rise over the next few months.
What Margin Do Professionals Need When Spread Betting?
Most professionals in the UK want the maximum leverage available which can be at a 0.2% margin. There are steps to qualify for a professional account including a questionnaire provided by the spread betting broker. If you are new to trading or don’t qualify you are eligible for a retail trader account which has a maximum leverage of 30:1 (3.33%). We explain the role of leverage in detail in our spread betting margin section.