Financial spread betting is the tax-free way for UK and Ireland residents to take advantage of rising and falling markets without having to buy an asset from the underlying market. Spread bets are also commission-free and can be traded with leverage.
When you spread bet with FXCM, you enjoy:
With spread betting, spreads include a mark-up, but there are no commissions to pay—all trading costs are built into the spread. CFD-trading accounts are charged commissions.
This, in addition to the tax advantage, is why many UK and Ireland residents choose to spread bet instead of trading CFDs.
Still undecided? Find out more about CFD trading.
Spread betting is a form of derivatives trade centered on speculation pertaining to the future pricing volatilities facing a specific asset class. Simply put, it is a financial tool that enables traders and investors to capitalise upon a forthcoming move in a security’s price without having to own the security.
The concept of a “spread” has a great deal of relevance to a spread bet’s function. Essentially, a spread is the difference between the bid and ask price of an asset, or the prices in which a trader may buy or sell a security on the open market.
Current supply and demand forces determine the magnitude of the bid/ask spread, influenced by liquidity providers, independent retail traders and institutional investors. As buyers and sellers interact within the marketplace, the process of price discovery ensues. This interaction influences the spread, evolving price action to a state of equilibrium.
When spreadbetting, the direction of ever-changing price action is the ultimate focus of the trade.
Assume that a new currency trader holds conviction that the EUR/USD is going to rise from a current level of 1.1200. In order to benefit from the perceived opportunity, the trader contacts a spread betting firm and is quoted a spread of 1.1200/1.1203. The transaction is then executed accordingly:
Of course, in the event that the EUR/USD fell 7 pips from entry, then a loss of £7 is sustained. In much the same fashion as many other modes of trade, successful spread betting is the product of sound strategy, proper money management and consistency within the marketplace.
For those interested in spread betting, FXCM provides market access via multiple platforms and mobile apps along with award-winning customer support. In addition, a robust suite of educational materials and a free £50,000 practice account are available to individuals looking to take their trading to the next level.