Q. Dear Josh, what aspects are there to consider before using stop losses when spread betting?

A. Stop losses can be a good means of protecting your trading risk. The first aspect I would always consider would be whether to use a standard or guaranteed stop loss.

Of course, a guaranteed stop loss gives you that added protection by guaranteeing to close your trade out at the level specified, regardless of whether the underlying market gaps. A standard stop loss would not do this. Brokers normally apply a small additional charge for guaranteed stop losses.

I would also take a closer look at the market which you want to trade because some markets may warrant a guaranteed stop more than others.

For example, if you are spread betting on shares and leaving your position open for a number of days, then you are exposed to overnight risk. This means that shares can open at substantially different prices compared to the level at which they closed the night before.

This may make a guaranteed stop loss more important to consider. A standard stop loss does not give you full protection, but some spread bet clients do prefer a standard stop loss if they are placing fairly short-term trades or trading markets that rarely gap.

Q. Dear Josh, what is the best market to start with if you are new to spread betting?

A. Quite simply, the market you know best. At City Index, our most popular traded markets are typically the FTSE 100 and Dow Jones. This is probably because most traders know what these markets are and what makes them move.

Beginners to spread betting can learn more about how markets move by using a demonstration account with a virtual cash balance and live prices without risking real money.

Q. Dear Josh, what will the main focus for the markets be this week?

A. Company earnings continue to come in thick and fast so naturally most of the active market will be looking towards these figures, particularly since several key earnings have outperformed market expectations over the course of the last fortnight. This week we have several key UK companies reporting such as Lloyds Banking Group, Next, Barclays, Standard Chartered, Rio Tinto and Royal Bank of Scotland, to name just a few. The economic data front is busy too being the first week of a new month, and there will be a keen eye, as ever, on Friday’s US non-farm payroll data.

You can learn more about the markets and spread betting with Josh at his free City Index seminars.