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With that basic overview, we can now explore what is spread betting in forex and how it works. What is Spread Betting in Forex? What is Spread Betting? Generally, spread betting is a strategy that allows traders to take bets or to speculate on the price movement of security such as stock, currency pair, and commodities.
Unlike other trading strategies that require the investor to own particular security, spread betting does not. This makes it is a derivative strategy. It is no surprise then that spread betting involves the difference between two prices, but with a speculative twist. This is especially so because traders fancy currency pairs with low spreads. Notably, low spreads indicate low currency volatility and high liquidity, with the latter determining the ease with which a trader can enter or exit a trade.
Moreover, a low spread is associated with low transaction costs. Ordinarily, major currency pairs have low spreads, while emerging market currency pairs have high spreads. As a result, forex traders prefer dealing in major currency pairs. Spread Betting vs. Spread Trading It is also worth noting that spread betting does not equate to spread trading.
Spread trading is when a trader purchases one security and sells another related security simultaneously as a unit. Traders and investors undertake spread trading to yield an overall net position — arrived at by finding the difference between the buying and selling price — whose value spread is positive.
The most common securities exchanged in spread trading are options and futures, although others can occasionally be used. CFD is a common trading approach in the financial world of forex and commodities, especially in countries where it is allowed. Like spread betting, CFD is a derivative that enables the trader to speculate on financial markets.
It involves a broker and investor. On the other hand, a trader who has bet on a price drop sells an opening position. If the prices increase, the buyer offers to sell their holdings. Spot forex vs 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. 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. There is also no commission to pay when spread betting forex. How to spread bet forex Learn how to spread bet. Consult our spread betting tips and strategies for advice about our product.
Learn about forex trading. Read about costs and examples to help you along the way, including our article on top forex trading strategies. Create an account. Choose between a live account to deposit funds and start trading now or a demo account to practise beforehand with virtual funds. Download our mobile app. You can set price alerts and trading notifications to pop up on your mobile.
Find a trading opportunity. Define your entry and exit points and place a trade. Currency spread betting strategies 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.
Spread bet on more than forex pairs Practise with a demo Forex spread betting tips 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.
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