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Spread betting is the
flexible and tax-efficient*
way to back your judgement
on a range of financial
markets. However, without an
effective risk management
strategy, it can also lead
to substantial losses. It is
therefore important to
understand risk and learn
how to manage your portfolio
effectively.
Why do I need to manage
risk?
Leverage
Unlike most traditional
financial dealing services,
spread betting is a
leveraged product. This
means that your initial
deposit payment gives you
exposure to a comparatively
larger portion of an
underlying market than if
you bought the instrument
directly (via a stockbroker
for example). Leverage is
one of the key advantages of
spread betting, as it allows
you to profit from a market
without having to put up the
full value of the position.
However, this magnified
exposure also means that
spread betting can result in
losses that exceed your
initial deposit. And without
good risk management, it
becomes possible to make
significant losses over a
short period of time.
How do I manage risk?
Understand your market
Before dealing, it is
important to understand the
market on which you are
taking a position. Knowing
the potential for each
market to experience
volatility and establishing
the likelihood of sharp
price movements is essential
when considering the risk
associated with each bet.
For example, historically,
some markets are less likely
to make sudden discontinuous
jumps, while others, such as
shares (which can be subject
to profit warnings and the
like), may be more likely to
make abrupt movements.
We offer daily-updated
Economic Indicators which
include analyses of upcoming
financial announcements, as
well as a Monday Morning
Briefing email to keep you
up-to-date with financial
events scheduled for the
forthcoming week.
Enrolling in our TradeSense
course will allow you to
benefit from a full module
on risk management,
including information about
how to maintain a balanced
portfolio and manage your
personal risk/reward
expectations. We also offer
a range of free, online
seminars.
Monitor your open positions
An equally important risk
management strategy is
simply to closely monitor
your open positions. This is
particularly relevant if you
have not attached a
Stop-loss. Volatile markets
can move hundreds of points
in minutes, and while a good
understanding of your market
may help pre-empt extreme
fluctuations, there is no
substitute for actively
monitoring your account.
However, there will
inevitably be times when it
is impossible to keep an eye
on your open positions. This
is why we offer you a
powerful range of tools to
help you manage risk without
capping your potential for
profit.
Using Stop orders
When you open a position,
the most effective way to
manage risk is to put an
absolute cap on your
potential loss by using a
Guaranteed Stop. This means
that you specify the level
at which you want your bet
to be closed should the
market move against you. In
return for a slightly wider
dealing spread, we then
guarantee to close your
position at that exact
point, even if the market
gaps suddenly. With a
Controlled Risk bet (a bet
with a Guaranteed Stop
attached), your maximum
possible loss is known as
soon as you open the
position, making it an
extremely effective risk
management tool.
We also offer non-guaranteed
Stops, which do not incur
the premium associated with
Guaranteed Stops but can
also help manage risk. A
non-guaranteed Stop will
trigger an order to close
your position once the
selected level has been
breached. However, you
should be aware that it
will sometimes not be
possible for the Stop Order
to be transacted at the
price you have selected.
This may happen overnight or
when the market moves very
quickly. In these cases
the
Order will be transacted at
a worse, and sometimes much
worse, level than you have
selected. This is known as
'slippage', and is
determined on a basis which IG believe to be fair and
reasonable. For more details
on slippage please see our
Dealing Handbook.
Trailing Stops are
non-guaranteed, but track
your position while the
market moves in your favour,
providing protection if it
starts to move in the other
direction. This allows you
to lock in profits without
the need frequently to
re-adjust the level of your
Stop.
Using Limit orders
A limit order triggers an
order to close once a
specified market level has
been reached. It is an
instruction to take profit
if prices move in your
favour. This means you can
realise a pre-selected level
of profit, even if the price
later moves against you.
Stop and Limit orders are
available over the phone as
well as online, meaning you
can manage risk wherever you
are.
Types of Bet
Some of the bets we offer
are automatically limited
risk and these can be of use
when trying to minimise risk
on your spread betting
portfolio. For example, if
you open a Bungee Bet, the
amount you can lose is known
in advance but you can
benefit from favourable
market movements. Binary
Bets also allow you to work
out your maximum potential
loss before opening the bet.
Buying an Option is also an
inherently limited risk bet.
Please note that this is not
true when selling Options,
for which risk is, in
principle, unlimited.
Risk and Account type
The amount of risk you are
willing to take may affect
your choice of account. We
offer two main accounts, the
Limited Risk and the Plus
account.
With a Limited Risk account,
a Guaranteed Stop is placed
on every position you open
and you can never lose more
than the amount of your
initial deposit. Please note
however, if you place a bet
denominated in a currency
other than your base
currency, you will be
exposed to currency
fluctuations. We may then
convert any profits or
losses in this currency to
your base currency. Due to
the possibility of currency
fluctuations, this could
result in your account
incurring a further loss,
beyond your initial deposit.
The Plus Account allows you
to make bets with or without
Controlled Risk. If you open
a position without a
Guaranteed Stop and the
market moves against you,
you must have sufficient
cash on your account to fund
the deposit requirement as
well as the total of your
running losses. If you do
not, we may cut back or
close your open positions.
If we choose to do so, this
can help prevent your losses
becoming more substantial.
While this offers some level
of risk protection, you
should not rely on us to
close your losing positions
and should use any of the
risk management methods
mentioned above.
The Select Account, which is
not available to open
online, does not require
immediate margin payments.
As such, if you are using
this account type, it is
important to monitor your
positions closely and make
use of our risk-minimising
tools to avoid heavy losses
in unfavourable markets |
