Forex spread<\/a> betting entails taking a bet on the price movement of currency pairs. <\/p>\n\n\n\nIt is common practice for the company offering currency spread betting to quote two prices, the bid price and the ask price. The bid and the ask are referred to as the spread. <\/p>\n\n\n\n
With forex spread betting, investors will bet on whether the price of a currency pair will be lower than the bid price or higher than the ask price. <\/p>\n\n\n\n
Narrower spreads are attractive because the transaction cost is lower. <\/p>\n\n\n\n
Forex spread betting allows investors to wager on the movements of currencies without having to transact in the foreign exchange market. <\/p>\n\n\n\n
Leverage and Margin in Spread Betting<\/h2>\n\n\n\n
Spread betting works by relying on leverages and margins. Spread betting allows investors to trade on leverage to gain a larger market exposure that might not have been possible otherwise. <\/p>\n\n\n\n
Trading with leverage has the potential to increase your profits but also increases your risk of loss. This is why we would advise you to make sure you understand the risks involved with spread betting. <\/p>\n\n\n\n
A margin is the number of money traders is required to have in your account to open a position on an underlying asset. Due to the risks associated with leverage trading, traders are required to have funds in their account which can be used to protect them against market movements. <\/p>\n\n\n\n
Markets To Spread Bet On<\/h2>\n\n\n\n
Due to the nature of spread betting, traders are given the freedom to access a vast range of markets such as commodities, bonds, foreign stocks, and currency pairs. Here is a brief list of all the markets open to spread betting:<\/p>\n\n\n\n
Stocks<\/h3>\n\n\n\n
Stock trading is one of the most popular forms of investing. Purchasing stock shares give investors ownership interest in a company. This gives you the ability to share in the company\u2019s profits. <\/p>\n\n\n\n
Spread betting on stocks involves betting on the rise and fall of stock prices. Since traders don\u2019t own any of the stock they bet on, they do not share in the profits or dividends of the company. <\/p>\n\n\n\n
Commodities<\/h3>\n\n\n\n
Commodities are natural resources like metal, energy, and livestock and meat. Much like stocks, commodities can be traded on market exchanges. <\/p>\n\n\n\n
The prices of commodities are affected by things like weather, livestock illnesses, and natural disasters. Traders wishing to spread bet on commodities should be aware of how commodities are priced. <\/p>\n\n\n\n
Bonds and Interest Rates<\/h3>\n\n\n\n
Spread betting is also available on bonds and interest rates. <\/p>\n\n\n\n
Much like with stocks, traders will bet on whether the price of a particular bond will increase or decrease and earn a profit or loss based on the accuracy of their prediction <\/p>\n\n\n\n
They are numerous bonds issued in different countries that you can bet on. <\/p>\n\n\n\n
Forex<\/h3>\n\n\n\n
Foreign exchange (Forex) trading is a popular trading market. Forex trades the relative values of one currency against another. <\/p>\n\n\n\n
Traders can spread bet on numerous currency pairs. As with any other spread bet, traders bet on whether the price of the currency pair will rise or fall. <\/p>\n\n\n\n
Market Indices<\/h3>\n\n\n\n
Instead of betting on the price fluctuations of individual stocks, investors could choose to spread bet on market indices. <\/p>\n\n\n\n
An advantage of spread betting is that investors can place bets on foreign market indices as well as local stock indices. <\/p>\n\n\n\n
Sports<\/h3>\n\n\n\n
Spread betting on sports works differently than general spread betting. Investors spread bet on the outcome of a sporting event. <\/p>\n\n\n\n
Sports betting offers the same variety of financial spread betting due to the amount of sports events that exist. <\/p>\n\n\n\n
ETFs<\/h3>\n\n\n\n
Exchange-traded funds (ETFs) are portfolios of related investment assets. Unlike mutual funds, ETFs can be traded freely on market exchanges. <\/p>\n\n\n\n
ETFs lets traders invest in a range of assets which makes them popular among investors. <\/p>\n\n\n\n
How Do Spread Betting Brokers Make Money?<\/h2>\n\n\n\n
Since spread betting brokerage firms don\u2019t earn a commission on spread betting, how do they make money? Here is a brief explanation of how spread betting brokers make money.<\/p>\n\n\n\n
One of the ways spread betting brokers make money<\/strong> is by categorizing their clients into two categories called Book A and Book B. The clients in Book A are successful and the clients in Book B typically lose their deposits because of bad bets. <\/p>\n\n\n\nWhat the spread betting broker might do is bet against the clients in Book B to take the winning side of the trade and make money. <\/p>\n\n\n\n
Another method that spread betting trading brokers might employ is making money by matching positions among clients and generating a profit from the spread. <\/p>\n\n\n\n
Spread betting brokers can also charge a holding fee when carrying a position overnight. <\/p>\n\n\n\n
How to Choose the Best Broker for Spread Betting<\/h2>\n\n\n\n
Here are a few things you should consider when choosing the best spread betting broker:<\/p>\n\n\n\n
Regulation<\/h3>\n\n\n\n
Spread betting is a risky business and it is important to choose a broker that is regulated by a financial firm or institution. Regulation aids in protecting your money and assets against fraud. <\/p>\n\n\n\n
What can you Spread bet on?<\/h3>\n\n\n\n
Before choosing a spread betting broker, it is important to check out the variety of markets that are available for spread betting. It is good to have a broker that offers a variety of markets if you\u2019re an active trader. <\/p>\n\n\n\n
Costs and Fees<\/h3>\n\n\n\n
Spread trading can be costly and so you should check the fee structures offered by brokers. We would recommend that you choose a brokerage with transparent fees to avoid hidden costs. <\/p>\n\n\n\n
Platform<\/h3>\n\n\n\n
Generally, the best spread betting brokers offer platforms that are available online, via desktop and a mobile app. We recommend you choose a spread betting broker who offers all three since it offers convenience, especially if you have a busy lifestyle.<\/p>\n\n\n\n
You should also check out the trading and research tools offered on these platforms as this can impact your trading strategy. <\/p>\n\n\n\n
Customer Support<\/h3>\n\n\n\n
Spread betting brokers should offer customer support that is quick to respond and effective in aiding clients. <\/p>\n\n\n\n
It is common for spread betting brokers to offer live chat, email, and phone call customer support. <\/p>\n\n\n\n
Benefits and Drawbacks of Spread betting<\/h2>\n\n\n\n
Here are a few of the benefits and drawbacks of spread betting:<\/p>\n\n\n\n
Benefits<\/h3>\n\n\n\n\n- Commissions are not charged on spread betting since spread betting firms earn money through the spread. <\/li>\n\n\n\n
- Spread betting is tax-free and does not need stamp duty fees.<\/li>\n\n\n\n
- With spread betting, margin costs can be as low as 10% of the total value of the underlying asset. The rest of the funds are borrowed using leverage. <\/li>\n<\/ul>\n\n\n\n
Drawbacks<\/h3>\n\n\n\n\n- Spread betting can be risky due to the leveraging. <\/li>\n\n\n\n
- It can be costly if traders decide to spread bet via day trading. Day trading can incur additional costs.<\/li>\n\n\n\n
- The price quotes of contracts can be higher than the underlying asset since the spread betting broker sets them. <\/li>\n<\/ul>\n\n\n\n
Having Multiple Spread Betting Broker accounts<\/h2>\n\n\n\n
There is no law preventing traders and investors from having multiple broker accounts. Having multiple spread betting broker accounts can be tempting. Choosing a spread betting broker can be difficult, so why choose at all? As tempting as it could be, here are some pros and cons you should consider before deciding:<\/p>\n\n\n\n
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