Forex Spread Betting

Forex is the largest market in the world, with over $.4.8 trillion in average daily volume transacted. This easily beats the stock market trade volumes. All the world’s stock markets combined average only about $102 billion per day.

Forex trading goes on all around the world, therefore, you can trade major currencies any time, 24 hours per day. Since there are no set exchange hours, it means that there is always a trade to be had and more importantly spread betting allows access to this 24 hour market.

As mentioned in the spread betting guide you can sell short as well as buy when spread betting. This is a massive advantage and in terms of forex it is effortlessly easy to switch between the two as you do not physically have to change currency. If you think a particular currency will go up, you can buy; if you think it will fall, sell. It is that simple.

A ‘pip’, is the unit you trade in and can calculate your profit or loss in. Most FX pairs, except the Yen, are quoted to four decimal places. Note,some MT4 brokers quote to a 5th decimal but allow much smaller trade amount per unit. This is just another way of increasing leverage.

As an example, if the EUR/USD rises from 1.5124 to 1.5129, the EUR/USD has climbed 5 pips. Indices like the FTSE or Dow typically use points, futures use ticks and forex has pips. But do not be surprised if a trader uses one term for all markets he trades. You get in to a habit of using one over another and it usually sticks for all instruments traded.

When spread betting forex you are always comparing one currency to another and this is why forex prices are quoted in pairs. The first currency in a currency pair is called the base currency, while the second currency is the counter currency. When you buy or sell a currency pair, you are performing that action on the base currency.

So if you are bearish on GBP, you could sell GBP/USD. Now, when selling GBP/USD, you are not only selling sterling, but are buying US dollars. If you are more bullish on the Yen than you are on the US dollar, you could sell the GBP/JPY instead. Obviously, if you are more bearish you could buy the the GBP against the Yen.

Forex spread betting can seem a bit confusing but it will only take a couple of trades to get used to how the pairs work and the relationship to each other.

Spread betting is a great way to trade forex and much easier than buying actual currency and people who live abroad or have a lot of money tied up in a particular currency can utilise spread betting and with little deposit can hedge their entire single currency exposure.



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