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The allure of Forex trading isn't limited to traditional buying and selling. Spread betting offers a unique approach to engaging with financial markets, including the foreign exchange market, without a direct exchange of currency. This derivative strategy lets you anticipate price shifts of currency pairs over a specified period , offering profits in both bearish and bullish markets.
Coupled with the advantage of leveraging, potential returns can soar. However, with heightened rewards come significant risks. It's crucial to be well-versed in the mechanism, strategic moves, and risk management in spread betting. This article delves into the realm of betting, from its foundation to advanced tactics.
The article covers the following subjects:
Spread betting allows speculating on currency pair price movements without owning the actual currencies.
Common spread betting strategies include trend trading, boundary trading, and scalping.
Spread betting differs from Forex trading in aspects like asset ownership, tax implications, and regulation.
Traders can choose how much to bet per point based on their risk tolerance
There are spots, forwards, and options for short-term, medium-term, and long-term spread betting.
Pros include tax-free profits and leverage; cons include high risk and complexity.
Choosing a reputable broker with good execution quality and demo accounts is important.
When you spread betting on Forex, you have different ways of accessing the currency markets: spots, forwards, and options.
Spots. These are spread bets on the current or spot price of a pair. They are suitable for short-term CFD trading and speculation on intraday or daily price movement. The bid price, representing the price at which you can sell a currency pair, is a critical factor in spot Forex trading. Spots typically have tight spreads and low financing costs but are subject to high volatility and market risk.
Forwards. These are spread bets on the future direction or forward price of a pair. They are suitable for medium-term Forex trading and hedging against exchange rate fluctuations. They have wider spreads and higher financing costs but are less affected by volatility and market risk.
Options: These are spread bets on the right but not the obligation to buy or sell a pair at a specified price within a specified time period. They are suitable for long-term trading and protection against adverse future price movements. They have variable spreads and premiums but offer more flexibility and limited risk.
If you want to start trading or spread betting, here are some steps that you need to follow.
Before you dive into spread betting on Forex, you need to have a solid foundation of knowledge and skills. You need to understand how spread betting works, what are its advantages and disadvantages, what are its risks and rewards, and how to use its features, methods, and risk management tools effectively.
Once you are ready to spread betting on Forex with real money, you need to open a spread betting account with reputable spread betting providers. You need to choose a spread betting provider that offers competitive spreads, low commissions, fast execution, reliable platforms, and excellent customer service, as well as the option to start with virtual funds to practice your strategies before risking real capital.
Before you place any spread bets on Forex, you need to do some research and analysis on the currency markets.
You can analyse currency markets using various sources such as economic calendars, news feeds, market reports, charts, indicators, signals, or trading tools.
As mentioned earlier, you have different ways of spread betting on Forex: spots, forwards, or options. You need to decide which one suits your trading style, objectives, and risk appetite best. Here are some factors that you should consider when making your decision:
Time horizon. Spots are suitable for short-term trading; forwards are suitable for medium-term trading; options are suitable for long-term trading.
Volatility. Spots are subject to high volatility; forwards are subject to moderate volatility; options are subject to low volatility.
Cost. Spots have low cost; forwards have moderate cost; options have high cost.
After you place your spread bets on Forex, you need to monitor your position regularly and adjust it accordingly.
A stop-loss order is an order that automatically closes your position at a predetermined price level if the market moves against you. It helps you limit your losses and prevent them from exceeding your margin.
This betting has many advantages and disadvantages that you should weigh before deciding whether it is suitable for you or not. Here are some of them.
Pros:
Tax-free. In certain countries where spread betting is allowed, profits from S[read betting might be exempt from capital gains tax and stamp duty, allowing you to retain all your profits.
Leverage. Betting allows you to trade with leverage, which means you can control a large position with a small amount of capital. This can magnify your potential returns but also your potential losses.
Flexibility. Betting allows you to trade on both rising and falling markets, as well as on different time frames and products.
Cons:
Risk.: Forex spread betting is a high-risk activity that involves significant leverage, volatility, and market risk.
Complexity Forex spread betting is a complex form of trading that requires a lot of knowledge, skills, and experience.
Betting and CFDs (contracts for difference) are both forms of derivative trading that allow you to speculate on the price movements of pairs without actually owning or exchanging any currency.
Taxation. In certain countries, Forex spread betting might be exempt from capital gains tax and stamp duty, while trading CFDs could be subject to both.
Regulation. In various regions, Forex spread betting and CFD trading might be overseen by regulators, each with distinct rules and requirements.
Trading style. Forex spread betting and CFDs are suitable for different types of traders' access and trading styles.
Spread betting risk management is the process of identifying, measuring, and controlling the risks involved in spread betting.
Risk assessment. This involves analysing your trading objectives, strategies, performance, and personality to determine your risk profile and risk appetite.
Risk allocation. This involves allocating your capital and margin among different trades and markets according to your risk assessment.
Choosing financial circumstances as a Forex spread bet broker or spread betting firm is one of the most important decisions that you need to make as a spread bet trader.
Reputation. You should choose a broker that has a good reputation in the industry and among its clients. You should check the broker’s reviews, ratings, awards, testimonials, or complaints online or offline.
Quality of Execution. Consider the broker's execution quality, especially when spreads widen. A reliable broker maintains consistent spreads even during high market volatility.
Demo Accounts. Use demo accounts to observe how spreads perform in real-time trading scenarios without risking actual funds. This helps in assessing their impact on trades.
Spread betting Forex is a form of derivative trading that allows you to speculate on the price movements of pairs without actually owning or exchanging any currency. It has many advantages, such as tax-free profits, leverage, flexibility, accessibility, and variety in the financial markets.
The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteFinance. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive /39/EC.
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{{value}}( {{count}} {{title}} )Currencies in Forex are always traded in pairs, with one currency value being quoted against another. A classic example is the EUR/USD pair, which denotes the exchange rate between the Euro and the US dollar. When trading Forex, you'll encounter two prices for a currency pair: the bid price, representing the price at which you can sell the base currency, and the ask price, representing the price at which you can buy the base currency.
Leverage lets you command a sizable position with a fraction of its value as capital. This amplification can swing both ways, enhancing potential gains and losses. If you were to place a $10 bet per point on EUR/USD at a % margin requirement, a mere $ deposit funds can control a $10, position, exemplifying the scale of leverage. A long spread betting position in this scenario means you're speculating on the Euro's value rising relative to the US dollar.
One of the advantages of spread betting on Forex is that you can control your position size. You can choose how much you want to bet per point of movement in the pair, depending on your risk appetite and trading CFDs objectives.
Betting is a derivative trading strategy enabling speculation on pair price movements without actual asset ownership or currency transaction. It's essential to understand the intricacies of spread betting Forex before engaging in this form of trading. At its core, a Forex spread bet is an agreement between you and a broker where the difference between the initial and final price of a currency pair gets multiplied by your staked amount. Spread betting enables traders to participate in Forex market without owning the underlying asset in foreign currencies. You can use this strategy to trade Forex.
Different Forex traders choose varied strategies for spread betting, shaped by their trading style, goals, and risk tolerance. A few of the most common strategies include:
Trend Trading. This strategy, based on technical analysis, rides the wave of a prevailing market trend, capitalizing on its same direction of momentum.
Boundary Trading. Here, more successful traders focus on a market that moves within specific boundaries or ranges, oscillating between established support and resistance levels.
Scalping. A high-frequency strategy, scalping aims at pocketing minor profits from a multitude of trades over short periods, often ranging from mere seconds to a few minutes.
Before you start spread betting on Forex, there are some important things that you need to know and consider.
If spread betting in Forex interests you, there are some essential points to understand and evaluate.
Both spread betting and Forex trading are ways to speculate in currency markets, but their differences are noteworthy:
I prefer spread betting to traditional foreign exchange dealing, but that's just me. A lot of people lose money at spread-betting just as with any form of trading (but perhaps all the more so because the potential to "play with small margin" makes it even more dangerous for people who don't know what they're doing!). Few people care to admit to themselves that they don't know what they are doing. However, it's easy enough to get the feel for it. All you need to do is try out one or two of the spread betting firms in "demo mode" [try opening a demo account at Bux Markets to practice]. The forex brokers tend to have better platforms but from a spread/ bias perspective, you have an equal opportunity to profit with a good sb company in comparison to a good forex broker.
Just ask yourself this: If the foreign exchange brokers charge a 3 pip spread and a spread betting firm charges exactly the same, what is the benefit of using an FX broker? As I have pointed out in the past, if the forex spread being offered by Deal4Free is the same as that being offered by CMC Plc (the same company), there is no incentive whatsoever to execute the trade through the latter. Assuming you make a profit of £ from the trade, you would have to hand over £22 to £40 (depending on your circumstances) to the Inland Revenue just because you want to call yourself a 'trader' as opposed to a 'gambler'. Assuming that happens just times a year, there is a difference of £2, to £4,; not an amount to be sniffed at.
Personally, I have an account with eunic-brussels.eu which I don't use very much, and an account with Bux Markets in London, which I use every day. Dealing in one 10, contract with fxcm is the same as doing a £1 per point spread-bet. To me, the differences are (i) that the spreads are typically smaller with Capital Spreads, (ii) the customer service is typically better and (iii) the profits are completely tax-free from "betting" but not from "investment". This last point is a peculiarity under UK tax law and probably not relevant to non-UK residents, though it's very relevant here, of course! A lot of people have out-of-date and/or even prejudiced information about spread-betting. (iv) they are safer and better regulated (by the FSA, a real watchdog with active involvement and real teeth). My own view as a part-time forex trader is that spread-betting definitely has the edge.
If you don't use spread-betting and choose forex trading at a traditional broker such as Oanda, FXCM or Refco, you then have a choice. You can either declare yourself as a "professional speculator" and pay income-tax on your profits, or not. This option may not be as terrible as it sounds, because it's pretty easy to claim/off-set lots of things against income-tax. But that depends on whether you have a job as well, of course. (The reality is that very few people do this). If you don't want to/can't do that either, then you will have to pay CGT (Capital Gains Tax) on profits (this is what almost everyone does who does not use spread-betting). You get a certain amount a year as a tax-free allowance. Unlike income-tax, it's very much harder to claim things against CGT, but this is where a suitably experienced accountant will be able to advise you further.
And not only because of the tax position. Spread betting is simply perfect for swing trading. It is not however suitable for intraday trading, since the house controls the spreads, not the market participants if scalping, the spread can make an adverse move at precisely the wrong time. The charts dominate currency trading. If you get involved, make sure you get to gripe with the principles of technical analysis.
There are a quite a few people that make decent money spread betting and they are not as stupid as people think they are. SoI say, keep it very, very simple, don't fill your head with pretence or snobbery and if you DON'T feel a bit of trepidation when you are about to trade. Stop right there and walk away. Spreadbetting is as profitable as any other method if it suits you.
The size of the spreads very much depends on the company one chooses and they are not as wide as one is led to believe. Those that argue otherwise have not checked these facts properly and might be surprised at what they find eg. IG Index's option quotes are only slightly wider than those available on LIFFE and move relative to those quotes.
There is always the house edge but if you can find a way of neutralising the house edge, spread betting can offer a convenient, tax efficient means of trading, particularly from limited capital at the start of a longer term plan. Now that competition among spreadbetting firms is increasing some of them have realised that making and keeping it trader-friendly is the way forward and its improving all the time.
Comparing Forex Trading versus Spread Betting -> The Facts# An advantage of forex brokers is the platform flexibility. A key advantage with dealing with a forex broker is the functionality of being able to place contingent orders (which we are led to believe will soon be available on some spread betting firms) # Dedicated FX services offer you all the tools in one place, essential in such a volatile market; all the news and research you need is focused on the FX market so it may pay to open accounts with forex brokers just to have access to their advanced trading applications. # Spread betting also offers the spread better increased leverage. Leverage is a great thing if you know what you are doing - but it is perilous if you don't have a clue. Few people care to admit to themselves that they don't know what they are doing. # There is one hidden charge most FX brokerage firm fail and avoid to mention. How many forex traders get victimized by interest charges by holding Forex trades more than one day? When I traded Forex, I held a position in GBP-USD from Wednesday to Friday and it cost me an additional interest charge of over $ The majority of forex spreadbetting nowadays takes place on "rolling" products, which have no expiry and no daily charge for keeping the position open. # When you look at the business models of these sorts of companies, they are essentially the same when it comes to forex. In terms of spread/ bias etc, there is no real noticeable difference between the more reputable forex brokers/ spread betting companies. i.e. both make their own market, both base their prices on the spot interbank market. # Another hot argument is whether spread betting companies do or don't lay off their bets. They probably do. To be brutally honest though, I really don't give a tinkers cuss whether they do or don't. I'm only interested in my PnL, not theirs! # If you want to trade directly into the spot market, you need a lot of capital (don't ask how much, I just know I am nowhere near)! Other than futures, retail traders really only have two choices. FX broker or spread betting company. # Some of the old-fashioned traders have been slow to learn some of the advantages but are making the move as and when they realise that the spread on the FTSE is 2 points rather than 6 as they've wrongly imagined for so long. Many, many people have expensive and extensive losing experience of spreadbetting, usually because they've over-traded, used inappropriate position-sizing, and/or treated it like a form of gambling rather than as a serious business. Understandably, this sometimes makes them very blinkered and prejudiced. # There is a hot debate going on whether gains from spread betting will or will not remain tax-free if they are one's main source of income. In case anyone's lost among all the words and argument here, let's just state a couple of things openly, simply and clearly here: # Some spread betting firms give you FREE CREDIT, when was the last time HSBC brokers offered you this? # Some spread betting firms give you FREE CREDIT, when was the last time HSBC brokers offered you this? # When you trade forex with an ecn broker you regularly experience slippage. This is because they can only pass on trades in blocks of 1 full lot. If they can't pass your trade on due to low liquidity then your trade will experience slippage whether it is your stop/limit order or take profit/stop loss. Now, when you trade with a "stp" (straight through processing) broker who claim to pass your trade on direct to the market you rarely experience slippage unless there is a gap due to a news item, etc. # What matters to the successful trader is the overall cost of doing business. The overall cost of doing business is by no means limited to the bid-offer spread of the product dealt in! There are many other factors to take into account. It's naive to pretend otherwise. |
Please do not copy/paste this content without permission. If you want to use any of it on your website contact us via email eunic-brussels.eu (remove the AT and substitute by @).
Spread betting forex is a type of spread betting that involves speculating on the price movements of currency pairs. Spread betting in forex involves opening a position based on whether you think the price of a currency pair is due to rise or fall, resulting in either profits if the market moves in your favour, or losses if the market goes against you.
This article discusses the best tips and strategies for currency spread betting, along with the differences between spread betting and CFDs. We offer + forex pairs on our online trading platform, including major forex currency pairs, such as the EUR/USD and USD/JPY, as well as minor and exotic crosses.
KEY POINTS
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Spread betting forex is a tax-free* method of trading the currency markets. Traders are able to speculate on the price movements of currency pairs by opening a position based on whether they think the currency will appreciate or depreciate. If you expect the value to rise, you would open a long or ‘buy’ position, or if you expect the value to fall, you would open a short or ‘sell’ position.
With a spread betting account, you never own the underlying asset. If the market moves in your favour, this will lead to capital profits, but equally, if the market moves against your position, this will result in losses.
When trading currency pairs, there are usually two quotes given: the bid price and the ask price. The difference between the bid (sell) price and ask (buy) price of a currency pair is referred to as a spread in forex. In general, traders prefer currency pairs with tighter spreads, as this allows them to enter and exit trades more quickly with lower transaction costs.
View our forex market page for a full breakdown of the spreads, margins and leverage ratios that we currently offer for FX spread betting.
Whereas spread betting is a product or method that allows traders access to the financial markets to speculate on price movements, forex trading is simply the market involved. Spot forex requires an investor to buy and sell currency pairs at the current market spot price, whereas spread betting allows the trader to speculate on the price movements of the underlying asset, without taking ownership.
Many independent spot forex brokers charge tax on profits, as there will be some sort of ownership involved. No physical purchase takes place in forex spread betting; therefore, traders do not need to pay stamp duty or capital gains tax with a forex spread betting account. This is the main difference between spread betting and forex trading, along with the use of leverage. There is also no commission to pay when spread betting forex.
Choose between a live account to deposit funds and start trading now or a demo account to practise beforehand with £10, worth of virtual funds.
There is a wide range of forex spread betting strategies that can be applied to the market, and some that are particularly effective when trading in the short-term, as linked above. These include trend following, news trading, forex scalping and hedging forex, of which the latter is a method of protecting against currency risk.
Before you begin trading, you should strengthen your knowledge of spread betting first. Read our spread betting tips and strategies guide to learn how this trading method can be applied to all markets, including foreign exchange.
Forex trading can often be volatile, therefore we advise you to brush up your knowledge of forex to learn the basic rules of currency pairs. We have a team of dedicated market analysts that provide daily updates on the financial markets in our news and analysis section.
It is worth creating a trading plan in order to strategize how you will enter and exit the forex market. This helps with consistency and organisation, as well as removing any emotion from your trading decisions, which can often end in rash decisions.
Part of your trading plan should include risk-management precautions. In particular, it is a good idea to set a limit of the maximum capital you are willing to lose and sticking with it. Stop-loss orders are risk management tools that specify an exact price for closing your position when the markets move against your spread bets. The forex market is known for occasional volatility and rapid price movements, therefore, this tool will help to minimise your losses.
Spread betting is the most popular product on our platform in the UK, closely followed by CFD trading.
With CFDs, you can trade on the forex market in a similar way to spread betting, by speculating on currency pair price movements. You also do not have ownership of the underlying asset. Contracts for difference are derivative products that require a trader to exchange the difference in value of a currency pair between the time that the position opens and closes. Likewise, if the market moves in your favour, you may experience profits, but if the market moves in an opposing direction, you may experience losses. Read our CFD definition article for more information.
Both products use leverage to gain better exposure to the FX market. CFDs are most commonly used for share dealing, and they also provide access to exchange-traded funds, another type of stock investment, whereas spread betting forex is thought to be the most popular method of currency trading.
The main difference between spread betting and CFDs is the way that they are treated for taxation: spread betting is exempt from stamp duty, capital gains tax and commission charges*, whereas CFD traders are required to pay both capital gains tax and commission on their profits.
Read our article on spread betting vs CFDs for a full list of differences between the products. Spread betting is only available in the UK and Ireland, so if you are planning on opening trades within another region, you may want to consider forex CFDs.
As mentioned in this article, spread betting the forex markets involves the use of leverage, also called trading on margin. When opening a position, forex spread betters are only required to place a fraction of the full trade value as their deposit. This provides them with better exposure to the markets.
However, forex leverage comes with many risks that all traders should prepare for beforehand. Spread betting forex on leveraged positions will calculate losses at full trade value, meaning that while profits can be magnified if the markets move in your favour, there is the chance of losing all your capital if the markets move in the opposite direction.
You may also have to pay spread betting holding costs, depending on the assets and how long your positions last. In some cases, these costs can even succeed the profits made on your account; therefore, it is important that you deposit a sufficient amount of funds in your account to cover any holding costs.
Read more about the risks of spread betting forex here, including leverage, holding costs and account close-outs.
At CMC Markets, our forex traders often choose to practise with virtual funds on a demo account before depositing live funds, in order to familiarise themselves with the market. Opening a forex demo account is a simple process and will give you the opportunity to practise your forex spread betting strategies with £10, worth of virtual currency.
Get started by registering below.
It is important to find a forex spread betting platform that is suitable for your trading plan. Our online trading platform, Next Generation, is an award-winning system that caters for traders of all experience levels.
If you are a remote trader, our platform is available when trading from home, thanks to our advanced mobile technology. Our forex spread betting platform is also suitable for traders on-the-go, whether you prefer to trade on a mobile or tablet device. Learn more about mobile trading apps.
Forex spread betting forums can be useful for sharing trading strategies and market news and analysis with other traders. This is a form of social trading and can be especially useful for beginner traders in order to learn about financial trends and patterns from our key market analysts. Our platform comes with a built-in spread betting trading forum for both desktop and mobile devices.
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FAQs
In forex trading, the spread is the difference between the bid and ask prices of a currency pair. The bid price reflects the price you would use to buy the base currency, whereas the ask price reflects the price you would use to sell the base currency. Read more about the spread in forex.
Our spread betting platform has won awards for the best forex trading platform and most currency pair offerings in the market*. We offer over currency pairs to trade on, including major, minor and exotic pairs. Learn more about forex trading with us.
Our margin rates for forex spread betting start at % for major forex pairs and 5% for some minor and exotic pairs. Read an overview of our spread betting margins.
With our forex indices, you can spread bet on multiple currency pairs with a single position. We offer 12 baskets of forex pairs to spread bet on, including our USD Index, JPY Index and GBP Index, which gives you exposure to multiple currencies at once and helps to diversify your portfolio. Discover forex indices.
You can spread bet forex forward contracts, including EUR/USD, GBP/USD and EUR/GBP, as well as our US Dollar Index. Learn how to trade forwards using our spread bet and CFD products. See our dedicated page for Fx forwards rates.
*Tax treatment depends on individual circumstances and can change or may differ in a jurisdiction other than the UK.
CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.
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