In other words, you can profit or lose from the change in the relative value of the US dollar against the euro, without actually buying or selling any dollars. In both instances, the direction of the price movement impacts your outcome, depending on whether you are long or short buying or selling. The second similarity is that both are margin-based products. Those products are catered to trades with small capital.

Whether you bet on the movement of the price of the US dollar against the euro through a spread bet, or whether you buy a USDEUR CFD contract, you will eventually pay less than if you had bought or sold physical dollars against euros.

Financial leverage enables you to trade with a larger capital than you have , and it is available in both. This also means that there are overnight charges in both types. The third similarity is that there is no predetermined amount of money to earn or lose. If you have bought a CFD contract on USDEUR, and the price appreciated, you can close the contract on a profit and that profit or loss, if the price depreciated varies depending on how much the price has changed.

The same applies to spread betting, wherein your profit or loss is determined by how much the price has moved and in which direction.

The first difference between these two options is the ownership. Even though in CFD trading you do not actually own the asset, you still own the CFD contract which is usually between you and the broker.

In spread betting, you do not own an actual instrument or contract, you are just betting on price movements, and your profit or loss is determined by the outcome of that bet.

The second difference is that with CFDs you do not have a time limit on the contracts, whereas in spread betting there is a defined period of time for the bet to expire. You can choose to close those bets or keep them open within that time limit.

CFD forex trading and spread betting have similarities and differences, but spread betting might be less advantageous for you, mainly because of time limitations.

This can make it more challenging if you prefer to keep trades open for longer periods of time. Save my name, email, and website in this browser for the next time I comment.

In spread betting, traders have to track the value of the asset to hold a position in the market without having ownership of the security. Spread betting has some concepts on which it works, short and long trading, leverage and margin. The long and short term trading in the market is taken as per the market analysis. Traders of spread betting can go long if they see opportunities for high profits or an increase in the market.

Similarly, they can go short with small duration profits. Traders gamble on the rising and falling prices of the market. Mostly, investors go long when they buy or bet on the security and sell the security in the short run. Leverage is the ratio provided by the brokers to have higher market positions.

With the use of leverage, investors can invest in small amounts and hold a higher position. However, leverage increases the market position and the risks of the market as well. This is because the risks are calculated on the basis of the market position of the trader and not the initial deposit.

To manage the situation, traders can use risk management strategies to minimise the effect of the risks. Margin is the percentage of the spread bet that traders invest as an initial deposit to start the trade. The margin helps traders to open a position in the market. We can say it relates to leverage; therefore, leverage is also termed as margin trading. The two types of margin, deposit and maintenance that are considered for spread betting. A deposit margin is an initial amount that is required to begin the trade.

Usually, shown as the percentage of the total trade. Maintenance margin is the additional fund that the traders need to open a position. It happens when the open position begins to incur a loss. Brokers notify the traders in such situations, which is called a margin call. Traders have to then deposit funds or risk by closing the open position.

The two trading types are completely different from each other, but for beginners of the trade, it becomes quite a problem to understand. Here, we have compared the two and what makes them different at the core level for better understanding.

The five key differences between the two are discussed below:. Forex trading involves buying and selling of the forex assets or currencies, whereas spread betting is simply speculating on the market currencies or the securities. In this aspect of the trade, spread betting is a suitable investment for novice traders as it does not involve ownership and offers high leverage to the traders. Thus, the trade positions are high with optimised returns. Leverage is the ratio that provides a high opening position with initial deposit; therefore, for spread betting, it is a margin-based return.

However, traders must first understand the use of leverage in a trade before using it. Spread betting is tax-free for UK based residents, whereas Forex has no such benefit. When traders invest in the market, the buying and selling of securities incur tax, that is, the capital gains tax CGT. Trading in Forex or even speculating in the forex assets follows certain tax payments. Investors have to pay tax on the profits generated from the trade. Whereas spread betting in the UK is tax-free and is considered a gamble.

Therefore, it does not charge any income tax on the profits derived from such trading. When we compare the two forms of trading, forex trade provides access to the forex market, that is, the foreign exchange market and margin-based trading.

The exchange of currencies makes it highly liquid and profitable for traders. But, the forex market still has a narrow and restrictive range of products and derivatives to trade. On the other hand, spread betting is far more widespread. It offers traders access to several trading markets. Investors can bet on indices, commodities, stocks, Forex and many more opportunities to diversify the portfolio of the traders.

In addition, enhancing the profits of the traders in the financial markets. The most valuable part of spread betting is its direct betting on the price of the securities.

There is no direct trading, and traders can bet on the currency pairs. Thus, the risk of holding and selling the security of the investors becomes nil. The scalping strategies work the best with such trading. Traders can execute multiple trades at a time with long and short positions.

Therefore, they need to buy and sell securities to trade in the forex market. Spread refers to the distinction between the bid and ask price of the currency pairs in the forex market. The bid price is the cost at which the market maker is ready to purchase the securities.

Whereas the ask price is the minimum price that the seller takes for security. All the brokers of the financial market provide services of tight and various spreads.

Therefore, spreads are a highly influential factor of the trade for earning profits. In a forex trade, the spreads are generally high, which could be harsh for short term traders. On the other hand, Spreads betting has lower spreads, which makes it comfortable to trade in both short and long durations.

Thus, it increases the convertibility of the security into cash. Forex trading is present globally and could be traded from anywhere around the world. In comparison, spread betting is allowed mostly in the UK and Ireland, with some transactions in Canada.

Spread trading is banned in some countries like the USA due to tax-free trading. Other countries, for example, are Japan, where forex trading is allowed but spread betting is banned. Spread betting is a commission-free trade because the trade is based on the difference between the bid and the asking price of the assets.

Moreover, traders do not require to purchase the security for spread betting. However, forex traders may have to pay commission charges for the profits earned or the use of services of the brokers. Islamic law does not allow gambling; therefore, spread betting is not used by Muslim traders. Whereas forex trading is carried out by the Muslim traders under the Islamic account provided by most brokers online. The Islamic account is set up as per the preferences of the Muslim traders.

We have discussed the differences between the two ways of trading; here, we will know about the similarities between forex trade and spread betting. Forex trade and spread betting both furnish the facility of leverage to its investors. The investors deposit only initial funds for trading and use the leverage ratio to trade on higher positions in the financial markets.

However, the risk of the trader also increases with the leverage ratio. Spread betting has a higher leverage ratio for its traders than forex trading. The trading platforms used to carry out spread betting and forex trading are the same. So, the two use the same technical and fundamental tools for analysing the market. The user interface of the two is easy to understand and access. Trading platforms are designed keeping in mind the needs of the traders of all the markets. Traders of forex and spread betting can earn profits from long term and short term traders.

In spread betting, traders predict the rise and fall of the value of security without considering the factor of change. Similarly, in forex trading, investors buy and sell the currency pairs and earn profits without relying on the increase and decrease in the market value.

A lso commonly known as the foreign exchange market, forex and FX, currencies are another widely-traded spread betting market that has particularly increased in popularity over the last two years. While the movement between currencies was once the preserve of traders who worked for large investment banks, today there are hundreds of forex brokers that make available online platforms which allow anyone with a bank account to speculate on the movements within the forex markets.

However, buying and selling currencies via foreign exchange brokers can be quite expensive as there are normally quite sizeable margins between buying and selling prices. Spread betting has the advantage of not only gains being free from tax, but also of very tight spreads and this is making this trading instrument increasingly popular. Most brokers will use many different liquidity houses to permit them to offer very competitive bid-offer spreads on the main currency pairs.

The main currency pairs are usually offer at two or three pips a pip being the smallest move that a quote can fluctuate. Recently, spread betting providers have witnessed a massive increase in currency trading. A significant amount of that is down to the sovereign debt crisis and the sheer liquidity in the market as traders shift to take a punt on the broader picture.

This also means that any kind of price manipulation by market participants is extremely difficult due to the vast size of the market. In fact there are millions of participants in the forex sphere all with different timeframes and objectives. All of these deals create a volatile market which spread traders can capitalise on. Meanwhile, online trading platforms have exploded — the Internet has made forex trading particularly tempting, since it is so much easier for private investors to track foreign currencies and global monetary policy.

Plus, the credit crunch and recent stock market turbulence has private investors giving currencies a fresh look. For instance in November the non-farm payroll data was somewhat below expectations and as a consequence currency traders exited risky currencies back into the dollar just after the release of the figures.

But what makes the forex markets? The foreign exchange market has no central exchange that opens or closes, so as a spread trader you are using the prices that banks and other FX traders are using to buy and sell currencies around the clock from early Monday morning to late Friday night.

The forex market is also the most competitively priced and is highly leveraged which means that its crucial that you keep abreast of market happenings. The main participants in the forex markets are central banks, corporations, hedge funds speculators and private traders like us. As such there are always profitable currency trades to be had be it whether your trading horizon is measured in minutes or weeks!

Also, since the forex markets is a true hour market with big volume and tight spreads which means that it is not susceptible to the same shocks as individual equities with price gapping much less common.

Spread betting on currencies can also be a little different from most other forms of spread betting. Currency spread bets can be divided into two types, spot currency bets, and forward currency bets. Spot bets are mainly used for short-term trading, such as intraday, and forward bets usually trade on a standard quarterly contract and are suitable for long-term dealing. A currency of a certain country is traded against a currency of another and sometimes that value tends to increase, while at other times it decreases.

For instance a very low Yuan in relation to the dollar means that USA residents or anyone with dollars for that matter will find it inexpensive to acquire products from China. On the other hand Chinese people will find that buying things from America are too expensive for them. This can move investments from one nation to another while altering consumption patters around the world. Most people tend to trade and exchange currencies only when changing money on holiday.

However, currency trading also represents a good alternative market to trading stocks and shares. In fact, the fast-moving currency markets provide intraday spread betters with a perfect mechanism to trade the news headlines of the day.

This includes any new data on debt issuance, national debt and inflation expectations. For example, Shares Magazine quotes a good example on 2 March in the EURUSD pairing. This closed almost points higher on speculation the European Central Bank ECB might raise interest rates at its meeting the following day to head off the threat of higher inflation.

In , it was the euro that was in spotlight — what with massive country deficits in member countries like Greece and Ireland putting a question mark of what could happen to the euro if one of the countries were to default. However, this year it seems like its China and the Middle East that are making the headlines. e by using a currency spread bet, you are backing one currency against the other. Nobody talks about the forex exchange market being up or down, because whenever a currency is losing, another is winning.

So you have to be careful which way you are trading, that is which currency you think is strong and whose value will grow against the other.

So the way to profit from foreign exchange rate movements is to short the market and bet that one particular currency will keep falling, or rising against another currency. When trading euro-dollar for instance, your first currency is referred to as your base currency. For example in the euro-dollar cross, when we mention that the pair is trading at 1. Currency trades are denoted as pairs of three-letter codes with each currency traded in the market being represented by a three letter code.

For instance sterling is quoted as GBP, while the Euro appears as EUR. The price next to the GBP represents the number of USA dollars that could be bought with one pound. If you sold it, you would be backing the dollar to strengthen against the pound the number would go down as less dollars would be needed to buy a pound.

Spread betting produces profits from the changes in currency pairs by making use of margin without actually owning the currency contract.

When you spread bet, you bet a certain amount per point and the fact that you are dealing in foreign currencies does make any difference. For the currencies above, you could buy at £10 per point. The typical minimum bet is 50p a point with the initial margin in the region of 40 times the stake. A point is the last quoted digit, usually the fourth decimal place, of the exchange rate. If this changed to 1. There is a number of forex pairs to trade although most of the volume is concentrated to dollar crosses , including the Australian dollar, Canadian dollar, yen, Swiss franc, pound sterling and euro.

The risk is high because of the high volatility which is why it is so important to control the exposure through stops and diversification. Also, keep in mind that for every winner in forex, there is a corresponding counter-party loser.

What is important is that you make sure that your winning trades are 3 or 4 times the amount of your losses on the top side. Say you had £10 and you put a stop loss in at £9, but if your trade comes right you should be looking at £13 to £ A reader of this column asked me: What is the best time of day to enter trading on the forex market, I am lead to believe 9.

Sounds about right. Busier when the London and NY sessions coincide. UK morning and afternoon tend to have a different pattern, probably because of NY coming on board. You might want to be watching earlier than Forex trading is offered by virtually all spread betting providers these days.

Private investors typically trade on margin accounts, meaning that they put up a small amount of cash and get leveraged exposure to a currency market movements.

The natural advantage of this is that it provides for investors to make sizable bets on the market for a fraction of the real market exposure they are taking on. The foreign exchange market is probably the most important of all the financial markets. Being the biggest, the amount of business carried out each day is incredible. Also known as the Forex, or FX market, it provides a vital service for people and businesses that need or want to swap currencies.

The most common users are exporters who need to convert foreign earnings into pounds sterling, tourists when travelling abroad and on a greater scale, investment managers who buy and sell currencies as they move assets around the world. Although millions of pounds, dollars etc. Minor currency pairs to be highly volatile due to their low liquidity which creates both opportunities and extra risk.

Most exotic currency crosses are traded against the USA dollar although sometimes a few are paired against the Euro particularly for those countries that are looking into joining the euro like the Polish zloty or the Hungarian forint.

But what drives the currency markets? The main drivers include interest rates, economic expectations, trade balances and geopolitical risks. Currencies are particularly sensitive to interest rates, so the markets are prone to move sharply following the release of release of interest rate opinions or decisions.

Over the long term, economic forces control currency rates. But over the short term, speculative activity can have a major say in things. One notable occasion was back in when sterling crashed out of the ERM. The Bank of England threw billions of pounds at the market in a desperate attempt to fight off speculators. The end result was a devalued pound and millions of public money transferring to mostly foreign speculators such as George Soros. So how can the smaller investor make money from the currency markets?

Well, the smaller investor has the freedom to take a much longer-term view of the markets — and in these situations it pays to wait for a major key level to be reached before getting involved.

City traders on the other hand are constantly under pressure to make profits. Most traders however tend to take a short-term view. Charts play a particularly important role in currency trading. You can obtain charts from many of the spread betting firms, or you can view them on many internet sites. One very good site is www. Another is www. com, and also www. Similar to other markets made available by spread betting providers, forex pairs have spreads and different margin rates with the narrower spreads being a quality of the more liquid currencies, i.

those that are traded in big volumes globally referred to as the currency majors. This means the USA economic releases tend to have the most striking impact on the foreign exchange market. For the more popular traded currency pairings, such as Euro-Dollar or Pound-Dollar crosses, the price range tends to be relatively small. The high trading volumes however help to keep both spreads and fluctuations minimal in much the same way as with a blue chip stock.

However, spread betting firms quote fractional changes to the forex rate with more to the right of the decimal point which accentuates the movements. Other popular traded currencies are the Canadian dollar and the Australian dollar, which dependent to a large scale by the prices of the vast natural resources riches largely present in both countries.

When the prices of commodities and minerals are going up, their currencies tend to perform strongly against the currencies of other countries. Similarly, their currencies tend to underperform when commodities prices decline. The Norwegian krona is another currency that sees a lot of activity; this currency is affected to a large extent by the oil price, as Norway is one of the bigger oil and gas exporters.

This is because Switzerland as a country is traditionally considered as politically stable and fiscally prudent.

This means that the euro was worth p with the minimum stake of a £1 a point translating into an effective exposure of £11, Forex trading is an exchange of currencies taking place on an online platform. Leverage Both Forex trading and spread betting are leveraged products, meaning that the investor is only required to place a small amount of the entire value of their position. On the other hand Chinese people will find that buying things from America are too expensive for them. 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. This is not the case with CFDs, which are traded in their native currency. Join a forex spread betting broker 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.

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