Forex trading means speculating on the value of a currency with the belief that the currency will rise or fall against another. For many currency traders forex spread betting is a convenient and tax-free way to trade their chosen currency pairs. In a forex trade, you buy (go long) one currency while simultaneously selling (going short) of another. With forex spread betting trades, you speculate on a ‘value per point’ basis. Importantly, spread betting is a leveraged product. This means you only have to put down a small deposit for a much larger market exposure.
When you open a spread betting position on a market, you are given a 'buy' and 'sell' price either side of the underlying market price – this is known as the spread. If you think the market will rise, you open your spread bet at the ‘buy’ price. If you think it will fall, you open at the ‘sell’ price. The more the market moves in your favor, the greater your profit. The more the market moves against you, the greater your loss.
Forex spread betting is very similar to forex trading – both are margin traded instruments and both financial products allow you to take long or short positions. One difference is that with spread trading, the underlying asset is never owned. In a nutshell this means that a spread trader never owns the underlying currency he has purchased; he is simply betting on the price movement, not gaining from a change in the price of currency he has acquired. In most situations this doesn’t make any difference, however if you are planning on using the currency to make purchases elsewhere, spread betting may not be the most suitable route.
Forex trading being a long established industry is regulated to a higher extent, as compared to spread betting. Traditional forex trading is provided by more established brokerages or financial institutions such as banks that provide accounts in multiple currencies. Because of this it is always best practice when choosing a spread betting provider to always consider going with a regulated brokerage.It is important to note that because spread betting involves high leverage the potential of losses from spread betting can be enlarged.
Forex trading and spreads are quite similar these days and the technical analysis involved in predicting how the foreign exchange markets move apply equally to both instruments. In other words if you are able to trade currencies profitably you should also be successful with spreads. Spread betting lets you speculate on a whole range of markets that would otherwise be difficult to access. For example, as well as betting on currencies and shares, you can bet on how many seats a political party will win in a general election, or how many runs a cricket team will score in its innings.