Spread Betting



Spread betting been around since the early 1970's, but it is the last 10 years or so that has seen it really evolved and become, the best way for the vast majority of retail clients trade finance markets. The world has changed a bit, and the power of the Internet means, everybody now has access to real time data direct to desktop.

The idea of Forex spread trading pretty straight forward. If you think a particular currency will rise in price, you would buy (go long) if you think a currency will fall in price, you would sell (go short). Buying and selling like this is so known as "taking a position". When you take a position with a forex spread betting company you are predicting whether price will go up or down. You don't physically buy or sell any real currency, just as the name suggests you are betting it will go up or down. If you are right, you win, if you are wrong you lose.

The other thing about trading this way is that unlike normal trades, you don't pay a commission to your broker for taking a position. Brokers make their money by giving you a bid/offer spread. The bid/offer quote may be something like this; 1.5600/1.5605. If you are buying, then you pay the higher price and if you are selling your trade is done at the lower price. The spread represents the profit for the spread betting companies.

The amount you bet is usually determined by £s per pip. A pip being a point, tick, is the last decimal placed number in the price of a currency. For example if the price moves from £2.0005 to £2.0010 it would have moved five pips. If you had opened a position betting £1.00 per pip, and you were right you would have made £5.00 minus the spread. If you had opened a position betting £1.00 per pip, and you were wrong would have lost £5.00 plus the spread. We should point out that some charting software does not show the decimal place. For example 2.0010 would be represented as 20,010.

Spread trading/betting is a very efficient way trading a wide range financial market including the forex.




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