Spread betting forex
Spread betting is speculating on currency pair prices on the forex market. Spread betting is a common way to trade forex, along with the use of contracts for difference (CFDs).
Foreign exchange is among the largest and most liquid markets in the world, making it a popular choice for beginning and professional traders.
This article discusses currency spread betting as well as the differences between spread betting and CFDs. To successfully trade forex, it is important to find a trading method that is right for you.
What is spread betting in forex?
Trading the financial markets is tax-free when you use spread betting. Traders can open positions depending on whether they think a currency will depreciate or appreciate in value. If you think the price will go up, you open a long or ‘buy’ position, and if you think the price will go down, you open a short or ‘sell’ position. Spread betting accounts cannot be owned outright, so profits or losses will result depending on whether the market moves in your favor or not.
When trading forex, two quotes are usually given: the bid price and the ask price. The spread is the difference or amount of money between the bid price and the ask price. Generally, traders prefer currency pairs with tighter spreads because they can trade more quickly and get out of trades more quickly.
Spread Betting vs Spot Forex
Spread betting is a method for accessing the financial markets, whereas forex trading is simply the market involved. Some independent spot forex brokers charge tax on profits, since they may have some form of ownership of the currency pairs being traded. Spread bets in forex do not involve the actual acquisition of the underlying asset. Therefore, forex spread betting does not attract stamp duty or capital gains tax. The main difference between forex trading and spread betting is leverage. Spread betting forex does not require commissions.
Tips on Forex Spread Betting
● Before you begin trading, take the time to learn spread betting for beginners. You can read about how this trading method can be applied to all markets, including foreign exchange.
● For beginners we recommend reading about forex basics before attempting forex spread betting.
● It is worthwhile to make a trading plan to determine when you will enter the forex market and when you will exit it. This eliminates any emotion from your trading decisions, which often leads to rash decisions.
● Part of your trading plan should involve risk management precautions. Particularly, it is wise to set a maximum capital loss limit and stick to it. Stop-loss orders are risk management tools that close your positions precisely when the market moves against your spread bets. This tool will help to minimize your losses at times of volatility and rapid price movements in the forex market.
Forex Spread Betting Strategies
Trading strategies can be used on any financial market, including stocks, indices, commodities and currencies. However, there are some strategies that are especially effective in forex trading, especially in the short term.
One of the main strategies that is used when trading is forex hedging, which is a method of protecting against currency risk.
Spread betting vs CFDs in Forex Trading
Forex CFDs allow you to speculate on currency pair price movements in a similar manner to spread betting. The underlying asset does not belong to you as well. A contract for difference is a derivative product that requires a trader to exchange the difference in the value of a currency pair between the opening and closing times. In the same way, if you choose to trade in the market in your favor, you can make profits, but if you choose to trade in the other direction, you can make losses.
Both products offer better exposure to the FX market by using leverage. CFDs are mostly used for share trading, whereas spread betting forex is considered to be the most popular method of currency trading. In addition, spread betting forex offers access to exchange-traded funds, another market in stocks. Spread betting is exempt from stamp duty, capital gains tax and commission charges, while CFD traders have to pay capital gains tax and commissions on their profits.
Spread betting is only available in the Ireland and UK, so if you plan to trade in another region, you might need forex CFDs.
Risk Management for Spread Betting
Spread betting the forex markets, as discussed in this article, involves trading on margin, also called leverage. Forex spread bettors only need to deposit a fraction of the full trade value to open a position. This gives them better exposure to the markets. The downside of forex leverage is that it comes with many risks, and all traders should be prepared. Spread betting forex on leveraged positions calculates losses at full trade value, which means that while profits can be magnified if the market moves in your favor, you can lose all your capital if it moves the opposite direction, too.
Depending on the assets and how long your positions last, you may also have to pay spread betting holding costs. In some cases, the holding costs can be greater than your profit; therefore, it is important to deposit enough funds in your account to cover the holding costs.
Using Spread Betting Demo Account
Forex traders often practice with virtual funds on a demo account before depositing real money, in order to familiarize themselves with the market. The opening of a forex demo account is an easy process and will allow you to practice your Forex spread betting strategies.
Sometimes, taking risks is a rough gig. You can lose so easily, but winning is so satisfying. Forex is probably the best market to choose if you want to take risks since it presents the highest risks.