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FT SPECIAL REPORT
Trading Insight
Friday December 7 2012 www.ft.com/reports | twitter.com/ftreports
Wall Street’s post-election jitters
Fears over the economy and the fiscal cliff may drive US investors to seek havens Page 4
Inside »
Overview
Markets assured
by global political
continuity
Page 2
UK recovery
Retail is among
the sectors that
have upside
potential
Page 3
China
Change of
leadership
may kick-start
the economy
Page 6
Play the game
Experts say
research and
discipline is vital
for rookies
Page 7
On FT.com »
Moving markets
Why you should
learn to love
volatility

2 FINANCIAL TIMES FRIDAY DECEMBER 7 2012 FINANCIAL TIMES FRIDAY DECEMBER 7 2012 3
For most Republicans, Mitt Romney’s
defeat by Barack Obama in November’s
US presidential elections was a crushing
blow. But perhaps not for Ben Bernanke,
the chairman of the Federal Reserve and a
registered Republican voter.
Mr Bernanke’s current term as Fed chairman
ends in 2014 and Mr Romney had said he would
seek a different chairman. Many in the Republican
party were uneasy about the Fed’s exceptionally
easy monetary policy. With Mr Obama installed in
the White House for another four years, Mr Bernanke’s
reappointment – and a continuation of current
policies – seem more likely than not.
Such continuity is reassuring for markets. Whatever
else economists and strategists may argue
about when they consider the outlook for 2013,
they are mostly agreed on one thing: easy monetary
policy is here for a while yet.
“Going into 2013, we think monetary policy will
remain supportive and past initiatives are unlikely
to be reversed,” says Willem Sels, UK head of
investment strategy at HSBC Private Bank. “Interest
rates in the west should stay unchanged, and
the liquidity injected by central banks should
remain in the system for the foreseeable future.”
This will have the same effect as in previous
years. Cash and benchmark government bonds are
likely to remain low-yielding and unattractive.
Though many think government bonds are overvalued,
there are few signs of the bubble deflating.
The old maxim of “don’t fight the Fed” seems apt,
especially given that the Bank of England, the
European Central Bank and the Bank of Japan are
also engaged in unconventional monetary policies.
Investors looking for real returns will be forced
into higher-yielding sovereign and corporate debt,
emerging currencies and equities. More of the
same from the central bankers means market
attention will be on politicians, especially in the
US, where Capitol Hill mathematics make finding
a solution to the “fiscal cliff” a daunting task.
The newly installed leadership in the world’s
second-biggest economy faces different challenges.
China’s rampant growth slowed in 2012, and many
investors are expecting some sort of stimulus
package in 2013 to reinvigorate the economy.
That could have an effect on commodities, given
that China is the key consumer of industrial metals
in particular, and on the outlook for currencies
and shares in the important supplier countries,
such as Australia, Canada, Chile and Brazil. The
Canadian and Australian dollars reached US dollar
parity in the past few years; a weaker outlook for
commodities might push them back.
Opinions vary on the outlook for Chinese equities.
“Chinese stocks remain very cheap . . . and we
are hopeful policy measures will become more
supportive for economic growth following the
recent leadership transition,” says Mr Sels.
Others are more circumspect. Robin Parbrook,
head of Asia ex-Japan equities at Schroders, the
investment manager, says: “What is driving the
recent pick-up in growth forecasts for China is an
acceleration of fixed asset investment. In short,
this is exactly what we don’t want to see – more
excess capacity and more questionable infrastructure
build-out equals falling returns on capital for
shareholders.
“We remain cautious on China’s stock markets
and nothing on the political front indicates any
commitment to real change.”
Europe is another area on which opinion is
divided, largely on whether sufficient economic
and political risk has been factored into earnings
estimates and share prices. Jason Hollands, head
of business development at Bestinvest, the advisory
firm, feels it has. “European equities are
simply very undervalued both compared to bonds
and to US equities,” he says.
Others disagree. Aberdeen Asset Management,
in its latest World Markets View, says: “Europe
still faces the prospect of a prolonged period of
Trading Insight Trading Insight
Continuity reassures markets
Overview The lack of political change and ongoing monetary easing are comforting, writes Jonathan Eley
austerity and recession. Given weakened economies
and lowered earnings expectations, valuations
now appear less appealing after a four-month
rally in share prices.”
Politically, some still predict an eventual Greek
exit from the eurozone, but most commentators
think “muddling through” is the likely scenario.
A key factor in 2013 will be the German federal
election. Chancellor Angela Merkel seems likely to
retain power. The question is what government
she will lead – another coalition with the Free
Democrats or a grand coalition with the main
opposition – and whether a growing eurosceptic
movement can force her into a more strident tone
towards eurozone bailouts.
Another big theme for 2013 could be France,
whose credit rating was downgraded by Standard &
Poor’s at the start of 2012 and by Moody’s towards
the end. Given the heavy exposure of its banks to
Europe’s weaker economies, its hefty commitments
to euro-area rescue schemes and subdued domestic
growth, some wonder if French bond yields can
remain at their current levels for long. “They look
fiercely expensive and a number of headwinds
could push prices lower,” says Barclays Wealth.
One area that could surprise on the upside is
southeast Asia, says Schroders. “Previously
seen as a region wrought with fiscal indiscipline
and political turmoil, countries there have
managed to establish political stability. They’ve
improved the investment environment and further
strengthened their economic fundamentals, with
Thailand, the Philippines and Indonesia in
Election looms:
Angela Merkel,
Germany’s chancellor,
hopes to retain
power in 2013 AP
Investors looking for real returns
will be forced into higher-yielding
sovereign and corporate debt,
emerging currencies and equities
particular performing well,” says Mr Parbrook.
Nobody seems to be expecting much of India.
There is widespread frustration among investors
that the country’s noisy democracy has made
implementation of liberalising reforms difficult.
Overall, the picture is one of continued monetary
easing and supportive central bankers, gradual
political progress towards fiscal and budgetary
reform and a subdued economic recovery, with
growth remaining below trend in many areas.
The potential for nasty surprises is ever-present,
from bickering in Congress over tax cuts to Middle
East stand-offs over Iran’s nuclear programme.
How will investors respond? Already, there are
signs that the long love-in with bonds is ending.
Caution remains the watchword, but figures from
the UK’s Investment Management Association
show equity funds outsold bond funds in October
for the first time this year, and pan-European
research by Morningstar has shown that exposure
to equities is increasing on the continent too.
Many share offerings were called off during 2012,
but high-profile floats such as Facebook in the US
showed that if the pricing is right, companies can
still be sold. The “grey markets” that develop ahead
of the official start of trading are being opened up
to retail customers by spread betting firms.
Investor appetite for carefully priced initial public
offerings is a reminder that corporate prospects
are not necessarily the same as economic ones, a
point not lost on strategists at Aberdeen Asset
Management. “Despite the poor health of many
developed market economies, many companies are
in very good shape. Healthy balance sheets and
diverse revenue streams mean they are well positioned
to weather the tough economic conditions
in their domestic markets,” the group says.
This is especially true in the US. Joanna
Shatney, head of US large-cap equities at
Schroders, the fund manager, says: “We feel company
balance sheets will continue to be repaired as
the benefits of a pick-up in consumer spending, an
improving employment picture and a housing
recovery in 2013 come through.”
Recovery hopes
give boost to
cyclical shares
UK economy
Retail is among the
sectors with upside
potential, reports
Tanya Powley
Any flickering hopes of a
rapid UK economic recovery
were dashed last month as
economic data pointed to a
gloomy outlook.
Poor retail sales figures
and rising inflation have
added to concerns the economy
has lost momentum
since it left recession in the
third quarter. Retail sales
fell 0.8 per cent between September
and October in volume
terms, to their lowest
since May, while consumer
price inflation rose from 2.2
per cent in September to 2.7
per cent in October.
“The rise in third-quarter
gross domestic product is
likely to be a one-off if
recent economic data for
the fourth quarter are anything
to go by as inflation
remains high,” says Michael
Hewson, senior market analyst
at CMC Markets.
Although signs of a full
recovery are far off, analysts
say traders should
keep an eye on ways to benefit
from better economic
news. Ashraf Laidi, chief
global strategist at City
Index, says that because of
the risk of a renewed economic
contraction, investors
could consider trading
a combination of early
cyclical companies, those
benefiting from the early
stages of economic recoveries,
and defensive shares.
Cyclical shares mirror
trends in the general economy
and include the construction,
property, retail
and technology industries.
“Such a strategy enables
traders to capture potential
price upside from improved
economic data while hedging
against disappointment,”
says Mr Laidi.
Traditionally, trading the
FTSE 100 would have been
a good way to gain exposure
to a UK recovery, but
experts caution against
this, saying the index is no
longer a true reflection of
the UK economy.
“In recent years the FTSE
100 has morphed from an
index predominantly populated
by UK companies to
an index dominated by global
commodities and financial
services companies,
whose earnings are overwhelmingly
international,”
says Angus Campbell, head
of market analysis and
communications at London
Capital Group.
To allow clients to trade
the UK economy directly,
the group created the Capital
Spreads UK 30 Index, a
tradeable stock index
comprising 30 top UK-based
companies whose earnings
are 75 per cent or more
derived from the UK.
Retail stocks are a popular
trade for those looking
to bet on a recovery. “The
retail sector, apart from
some high-profile bad news
stories, has proved to
be quite resilient this
year, outperforming the
broader FTSE 100 by some
margin,” notes CMC’s Mr
Hewson.
Outperformers, he says,
include Debenhams, the
department store, whose
share price has risen 80 per
cent in the past year, and
Dixons, the electrical
retailer, which has benefited
from troubles at rival
Comet.
Others have not fared as
well. Last month, Marks
and Spencer reported a 10
per cent fall in pre-tax
Experts caution
against trading the
FTSE 100, as it no
longer truly reflects
the UK economy
profit to £289.5m in the six
months to September 29.
Argos, owned by Home
Retail Group, has also
underperformed.
“If we see some form of
recovery, some of the
underperforming companies
could enjoy a bit of uplift as
the more richly valued
shares are likely to find
there is less upside potential,”
says Mr Hewson.
A pairs trade or spread
trade is one way to play the
retail market. Mr Hewson
says buying an undervalued
stock and selling the more
expensive stock in anticipation
of a narrowing differential
in price can be a
fairly low-risk strategy.
Investors could also
spread bet on various FTSE
350 sector indices. “If you
have a broad view on a particular
industry’s fortunes
but are not so stock specific,
you can still position
yourself to profit from a
wider recovery,” says
Brenda Kelly, technical
analyst at IG, the spread
betting providers.
On FT.com »
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4 FINANCIAL TIMES FRIDAY DECEMBER 7 2012 FINANCIAL TIMES FRIDAY DECEMBER 7 2012 5
Fiscal cliff remains focus of
investors after Obama win
Post-election Parties need to work together on a solution, says Elaine Moore
Barack Obama’s re-election as
president of the US was met with
cheers and confetti in his home
town of Chicago, but the enthusiasm
of his political supporters
has not been matched in Wall Street.
The morning after the presidential race
was over, the S&P 500 – an index of the
largest companies in the US – fell sharply.
Bank, oil and defence stocks dropped, as
those who had bought in the hope of a Mitt
Romney win sold their holdings, and shares
of gun companies, such as Smith & Wesson,
rose due to speculation that gun lovers
would stock up ahead of possible ownership
restrictions.
But the focus of investors remains the
so-called “fiscal cliff”. Regardless of who
won the US election, the $600bn package of
tax increases and spending cuts was always
due to come in at the end of the year.
Many US investors worry the automatic
cuts and tax increases could tip the US
economy back into recession. If no deal
appears in the next few weeks, markets are
expected to be choppy over the short term.
“Obama’s victory is a historical and political
landmark, but financial markets have
plenty to worry about,” noted Angus Campbell,
head of market analysis at London
Capital Group. The clash of ideals between
Republicans and Democrats left last year’s
plan to raise the US debt ceiling in gridlock,
sending markets into a “volatile tailspin”.
“There will be plenty to discuss in
the weeks leading up to the new year,”
says Mr Campbell, referring to both the
political and financial worlds.
In spite of the immediate drop in the US
stock market, there are some positive
aspects to Mr Obama’s re-election, thinks
Michael Hewson, senior market analyst at
CMC Markets. “From a continuity point of
view, Obama’s win is a positive for
investors, as it gives certainty with respect
to US monetary policy and the governance
of the Federal Reserve over the next four
years,” he says.
But the fiscal cliff still looms, counters
Christopher Beauchamp at IG Markets.
Trading Insight US View Trading Insight US view
“The sharp drop in markets following his
re-election should give Mr Obama a useful
reminder of how important this event is,”
says Mr Beauchamp. “The combination of
spending cuts and tax increases could
result in a sharp contraction in US GDP, so
markets are understandably nervous.”
What investors want, he believes, is a
clear commitment from the White House to
work with both political parties to craft a
solution. The problem is that this would
require both sides to give up some of their
sacred cows (defence for Republicans,
social security for Democrats).
If they cannot work out their differences,
and the fiscal cliff becomes a reality, then
over the short term investors may seek out
havens – a strategy that has been regularly
employed over the past few years.
If investors do choose to flee to havens, it
might result in a bout of stock market
weakness, with uncomfortable echoes of
August 2011, when the debt ceiling crisis
increased market volatility.
“We have seen with the eurozone crisis
A New York Stock Exchange trader anxiously awaits the election result Bloomberg
how unguarded comments from political
leaders can cause rapid gyrations, and the
same could take effect with regards to the
fiscal cliff,” says Mr Beauchamp. He picks
out the yen, the Japanese currency, as an
investment haven that could see a new
lease of life, in spite of efforts by the Bank
of Japan to hold the currency down. But
not all traditional havens will be favoured.
“Usually the US dollar and Treasuries
would be another destination, but these
would be less attractive while the arguments
fly,” he says. Instead, German Bunds
could be the preferred choice.
Market volatility in the weeks leading up
to the budget decision has the potential to
create plenty of trading opportunities, suggests
Mr Campbell. Investors would be wise
to consider the dollar, gold, the Dow and
even the FTSE as the impact of the cuts
and tax increases will be felt beyond the
shores of the US.
“The belief is this [volatility] will support
gold, and could potentially see it test new
all-time highs above the $1,920 mark,” he
suggests. “Gold is traditionally seen as a
haven, but if more stimulus is forthcoming
to help prop up the US economy, this could
also support other risk assets such as the
Dow, and weaken the dollar.”
Regardless of the ultimate decision made
over cuts, it seems likely that US growth
could well show some signs of slowing next
year, says Mr Hewson.
However, he adds, barring a calamity, the
US should still outperform Europe, which
is likely still to be dealing with all its
sovereign debt problems and a Spanish
bailout request. “This means that the US
dollar is likely to outperform, particularly
against the euro and the pound,” he says,
presenting numerous opportunities for
investors interested in currency trades.
Bigger betters backed the loser
Democrat victory
Wealthier clients
tended to support
Mitt Romney, writes
Huw Richards
When Barack Obama was
declared the winner of
Florida’s 29 electoral votes
some days after the other
results in last month’s US
presidential election were
announced, it seemed to
most an academic matter.
But for one customer of
Spreadex, a spread betting
firm, it was anything but.
The day before the poll on
November 6 he had sold
Mr Obama’s electoral votes
total at 290. He would still
have been a loser had
Republican challenger Mitt
Romney taken Florida,
since it would have left Mr
Obama with 303, equalling
John F. Kennedy’s winning
tally in 1960.
However, Mr Obama’s
win in Florida transformed
the scale of the Spreadex
customer’s losses. “He
would have lost around
£60,000, but instead lost
more than £200,000,”
explains Andy MacKenzie,
Spreadex marketing
communications manager.
Quite a few punters were
left totting up their losses
after Mr Obama won by a
wider margin than was
generally predicted in the
last month of the
campaign.
“Money was generally
going on whoever had the
momentum. So after the
first debate people were
getting with Romney, then
when super storm Sandy
hit, clients were getting
with Obama due to his
handling of the disaster,”
Mr MacKenzie says.
There was a difference in
betting patterns on the two
candidates. “The generally
bigger-staking clients
seemed keener to get with
Romney and the smallerstaking
ones with Obama,”
Mr MacKenzie says.
Intrade, the Ireland-based
predictions market, also
saw big losses on the
Republican. “We had a lot
of money on Romney and
some fairly heavy losses, a
few of them over £200,000,”
says Carl Wolfenden,
Intrade politics trader.
Such losses, and
comparable wins, are part
of the volatility that
underpins spread markets.
“Losses of this kind are
not uncommon among our
top tier of wealthy clients.
We have a number who
trade in large sizes across
all parts of the market,”
‘He would have lost
around £60,000,
but instead lost
more than
£200,000’
Mr MacKenzie says.
Business increased for
both firms. “We had 4.3m
trades on the presidency
markets in 2008 and 12m
this time,” says Mr
Wolfenden, who attributes
part of the increase to a
change in Intrade’s charges
from transaction fees to
subscriptions.
Intrade also upheld its
reputation for displaying
“the wisdom of crowds” as
a means of predicting
elections. As in 2008, 48 of
the 50 states went the way
its markets were pointing
at the start of polling day.
“We missed Florida and
Virginia, which is hardly
outrageous, and you have
to remember that our
markets are not making
actual predictions but
assigning a probability,”
Mr Wolfenden says.
Nor did Intrade ever
show Mr Romney as being
ahead of Mr Obama, with
the president running at
about 60 per cent for most
of the year. “His lowest
close was 55.1 per cent on
October 23, but he had
closed at 60.8 the day
before and was back to 59.7
on the 24th,” Mr
Wolfenden says.
If 2012 was good for the
spread companies, 2016
promises to be even better.
“Unless Joe Biden runs for
the Democrats, which
many consider unlikely, we
will be back to 2008, with
no incumbents on either
side and a whole range of
possibilities,” Mr
Wolfenden says.

6 FINANCIAL TIMES FRIDAY DECEMBER 7 2012 FINANCIAL TIMES FRIDAY DECEMBER 7 2012 7
Change of
leadership
may give spur
to growth
China There are various opportunities for investors to
gain a foothold in the world’s second-largest economy,
if they can think laterally, says Tanya Powley
Those investors who remain hopeful
the slowdown in China has
bottomed out have an increasing
number of routes for gaining exposure
to the world’s second-largest
economy.
Chinese industrial production, investment
and retail sales all accelerated in
October, confirming China has ended its
nearly two-year slowdown. But while China
is still on track for growth of under 8 per
cent this year, this is likely to be its weakest
growth in more than a decade.
The official anointment of Xi Jinping last
month, who will formally succeed Hu Jintao
as president of the Chinese Communist
party in March, has the potential to
accelerate slowing growth. Experts say the
refreshed politburo appears more purposeful
than its predecessor and reforms, such
as reordering the pension system and
urbanisation of lower-tier cities, could
boost the economy.
“When looking to gain exposure to the
swings of the Chinese economy, traders
have traditionally needed to think laterally,”
says Alastair McCaig, market analyst
at IG. “It has been difficult to gain direct
exposure to the Chinese renminbi, and
trading equities on the Chinese exchange is
difficult and expensive.”
However, in October, GFT Markets
started offering clients the ability to trade
CNH – the Hong Kong listing of the renminbi
– against the US dollar or Japanese
Yen. This can be done as a contract for
difference (CFD), a spread bet or a standard
forex contract.
“Although the currency is still tightly
controlled by Beijing, the price is far from
pegged, creating some interesting trading
opportunities,” says Fawad Razaqzada,
technical analyst at GFT Markets.
Another option open to investors is to
trade Chinese companies quoted on the
Hong Kong stock exchange, the Hang Seng.
IG’s Mr McCaig suggests China Merchants
Holdings and China Overseas Land
& Investment could offer traders exposure
to an expanding economy.
China Merchants’ core business is operating
container and cargo terminals, so it
could benefit from increased economic
activity, he says. Meanwhile, China Overseas
Land & Investment develops and
invests in properties, as well as running
large infrastructure projects.
This strategy has risks, analysts warn.
“Investors in Chinese stocks will probably
know better than most that there’s no sure
bet when investing in equities,” says Angus
Campbell, head of market analysis and
communications at London Capital Group.
Chinese stocks have fallen by up to a
third – or even half, according to which
stock index you look at – since reaching
dizzy heights in October 2007, says Mr
Campbell. “When it looked like the good
times were going to roll again back in 2009,
following the mass sell off in 2008, US and
European indices raced higher in the next
couple of years. However, Chinese stocks
lagged behind over fears their economy
was going to suffer from a hard landing.”
Mr McCaig says a less risky way of gaining
exposure to the region could be to look
at instruments that have a broader scope,
such as exchange traded funds (ETFs).
Traders can spread bet on the Hang Seng
H-Share Index ETF, which tracks the Hang
Seng China Enterprises Index. This should
help to smooth out some of the volatility
Trading Insight
‘Investors
in Chinese
stocks will
know there’s
no sure
bet when
buying
equities’
of trading just one share, says Mr McCaig.
He adds: “The other advantage in using
a product such as spread betting is eliminating
the currency risk. Because it is
all about pounds per point, assuming
that sterling is your home currency, you
are insulated from what may happen to
the Hong Kong dollar or the Chinese
renminbi.”
The other option for spread betters is to
trade mining stocks that are heavily influenced
by the speed of growth out of China.
Share prices of companies such as
Xstrata, Rio Tinto and BHP Billiton are
often strongly correlated with Chinese
metal demand, which means a strong and
fast-growing Chinese economy can prove
beneficial for these stocks, explains Ashraf
Laidi, chief global strategist at City Index.
If traders are confident the new
leadership can turn things around in
China, they can go long on mining shares.
For example, if a trader were to buy
Rio Tinto shares for £5 per point at a price
of 3000p, and if Chinese growth improved
and Rio Tinto’s share price rallied to 3200p,
the trader would stand to make £1,000
(200p x £5).
Alternatively, if you are of the view that
Chinese growth is set for a correction, you
can decide to short sell mining shares.
In a similar strategy, spread betters could
trade the FTSE 350 mining sector.
As Mr Laidi explains: “The key here is
that, opposed to putting all of your eggs in
one basket, you are taking a more diversified
view on the successes or failures of an
entire stock sector. Therefore, your risk is
spread out over the performance of a
number of mining stocks, as opposed to
just one.”
Ready for a soaking:
Chinese stocks have
fallen by up to half
since October 2007
Reuters
The most commonly asked
question at spread betting
firm London Capital
Group’s seminars is “how
do I make money trading
the markets?”, says Angus
Campbell, the company’s
head of market analysis and
communications.
There is, he says, no easy
way to make money from
trading and this is something
novice traders should
realise right from the start.
“New traders often have
unrealistic aspirations and
believe all they have to do
is place a few £10 bets and
they will spend the rest of
their lives trading via a laptop
from a beach in the
sun,” he adds. “So the first
thing to appreciate is that
trading is tough and you’re
not going to become an
expert overnight.”
When traders start they
should begin in a market
that suits them, says Mr
Campbell.
“All too often people will
jump in at the deep end –
trading a very volatile market
to start off with, or a
market they simply don’t
understand,” he says.
“Research and discipline
are key to starting out and
quickly you’ll know which
market suits you.”
Another common mistake
made by traders is not
being realistic. “Rookies
often believe that one win
means they have unlocked
the secret to trading financial
markets and go on to
place a trade that uses up
too much of their available
deposit,” says Chris Beauchamp,
market analyst at
IG, the spread betting provider.
Mr Beauchamp adds
this leaves traders open to
the possibility that a loss
will remove a substantial
chunk of their account.
“More seasoned spread
betters realise they can test
the waters with a small
trade, then add to this with
new positions if the original
goes in their favour.”
The second most common
mistake is a lack of risk
management, says Lior
Alkalay, senior analyst at
eToro, the investment
trader. “Novice traders get
into a trade in the mistaken
assumption things will turn
in their favour,” he says.
“They do not take the
option that they might lose
as probable. When the market
turns against them they
discover they were not
exactly willing to lose, and
then start to panic.”
Others say successful
trading starts with discipline.
Shai Heffetz, managing
director of InterTrader,
says discipline can manifest
itself in many ways, including
decision making, such
as the resolve not to move a
stop-loss level and using
only proven strategies.
“At some point every
trader will lose money, but
the successful traders will
learn a valuable lesson each
time they make a loss and
endeavour not to repeat the
same mistake,” he adds.
Mark Priest, head of
index and equity market
Trading Insight
Research and discipline are essential for rookies
Play the game
Planning when to
cut your losses is
key, writes Lucy
Warwick-Ching
Online dream: it takes time to become an expert Pindyurin Vasily
making at ETX Capital,
agrees. “Traders should
enter into a trade with a
clear level at which they
intend to cut themselves
out and stick to it,” he says.
“Some tend to let their
emotions cloud their view –
exiting a trade is just as
important as entering it. If
you are in a position and
it’s not moving as you
expected it to, have an exit
parameter and stick to it.”
One suggestion is for
rookies to trade fewer
instruments, allowing them
to watch trades closely, so
giving them more of a feel
for an index or sector.
Another common mistake,
says Matt Macklin,
head of distribution at CMC
Markets, is to over trade in
an attempt to make up
losses. This is quite normal,
he adds, but unnecessary
given that, as with any
trading opportunity, there
will always be another one
as long as patience is
exercised.
Mr Beauchamp believes
many new traders succumb
to nerves and says the
psychology of trading is as
important as good research.
He says experienced traders
emphasise the importance
of a trading plan, with the
actual methodology of the
plan being less important
than the discipline needed
to follow the rules.
“Too often, new spread
betters develop a plan but
then deviate from it on a
whim . . . causing unnecessary
worry that might have
been avoided had they
stuck to the rules,” says Mr
Beauchamp.
There are plenty of clichés,
but that does not
make them less true. Mr
Beauchamp believes a good
one to remember is: “It’s a
marathon, not a sprint. If
trading is approached as
some sort of get-rich-quick
scheme, it usually results in
both over trading and trading
too big in proportion to
the size of the account.”