Some are of the opinion that spread betting and forex trading are similar. That’s a gross oversimplification. Most important factor setting them apart is the fact of spread betting recognised as a form of gambling under UK law. Forex trading, as is universally known, is speculative investment. It is the tax benefits accruing to the practitioner of spread betting that puts the wedge between forex trading and spread betting. Let’s descend into that survey of Forex vs spread betting.
Tax free profits for the spread betting trader
The investor are obligated to pay tax on profits when engaged in financial speculation, of which forex trading is an example. Despite these sums seeming small on each transaction, they do add up and are a considerable sum, come year’s end. Spread betting’s different, the trader never really buying any sort of futures contract . Instead, he places a wager as to which way he thinks the price movement is heading. Since there is no physical sale/purchase , and since spread betting is gambling as per UK law, there’s neither stamp duty nor capital gains tax for paying on profits. Resultantly, the trader is allowed keeping all of the money they earned. this is a great attractant obviously. This considerably advantages traders who go for this type of transaction. the tax exemption applies only if spread betting is not the person’s main income source.
Commission
As far as spread betting goes, there’s no commission to pay on any transaction, since the spread betting provider derive their profit from the difference between the bid and ask prices. The same holds good for spot forex, since brokers only charge commissions on their ECN/Electronic Communication Network accounts. Not dissimilar to spread betting, spot forex transactions are monetised by the spread markup.
Broad markets
While forex trading is particularly pointed at currency pair trading to make profits, spread betting by mist liberal definition permits instant access to 12000 plus financial markets. Spread betting also offers investors the opportunity of accessing hard to come by markets , like house prices, sporting events, political events. spread betting can also gain its objectives via currency pair trading.
Is spread betting legit for the trader?
The geographical coverage that spread betting enjoys is naturally modest. For our purposes, spread betting rules the roost in UK, Ireland, and parts of Canada. Though someone in the States fathered spread betting, today the practice is banned throughout the entire union. Another prominent country that banned spread betting is Japan. The asian giant permits online betting only with regard to lottery, soccer toto, and public sport. Australia has only recently permitted spread betting, sans however tax exemptions. as a rule, spread betting will be illegal in countries that do not allow online betting and gambling.
Do spread betting and forex trading have a lot in common?
Here we sneak a peek at reasons why spread betting and forex trading feel similar to so many people.
Leverage
Both being leveraged products, the investor is required just to place a fraction of the entire value of their position. A spread betting provider might actually have higher leverages as compared to forex brokers.
Platforms
The types of platforms and interfaces used by practitioners of both kinds of activities are the same. Wherever spread betting is legit, the trader can avail of both spread betting and forex trading on the same website.
Profiting from depreciation
Regardless of appreciation/depreciation, in all weathers the trader can turn a profit with forex trading and spread betting. The trader’s forecast combined with his finally buying or selling on that basis, ensures that there’s profit even from falling markets.
Does spread betting have any advantage over forex trading?
Whereas forex trading is a serious form of activity, spread betting has no such reputation. Those mulling serious investment might not fancy spread betting. That being said, the crowd that spread betting pulls in is of a different sort. These traders are not too keen to fritter their profits away in tax. Also, systematic investment a la forex trading does not appeal to them. Their notion of a trading plan is at variance from that obtained with the standard forex trader.
Spot forex or spread betting – what is best for the trader?
Spread betting is free of capital gains tax and income tax for most retail traders . The implication is also that it is not possible to offset trading losses against any gains made to minimise CGT in other domains.
Truth to tell, many forex brokers are not so much different from your typical spread betting provider. They are market makers, and have to sometimes trade against you. In case you are trading forex only and are UK based, it is best to go with forex spread betting. The interest of some forex brokers is for you to trade heavily.
Generally forex spread betting is similar to forex trading. With a spread bet you do not own the underlying asset. spread bets mean betting on the price movement. He is not profiting from a change in the price of the currency in the currency markets.
At the spread betting provider’s
He could offer you a minimum bet of $1 per pip. In case you have a $500 account you could be looking at swing trade setups with take profits and stop losses of (give or take ) $20 per pip. You are then set to win/lose $20 for each trade, subtracting 1 pip trade at no leverage.
How does the forex broker understand spread betting?
Here you will be buying a 1 micro lot with a pip value of $1, with the same stop loss and take profit levels as before. Both the forex broker and the spread betting provider are presenting you the chance to trade mini lots. Margin and leverage in both cases would be different. Spread betting is not a non leveraged trade. When you are trading a mini lot you can trade $10000, putting up just the margin.
Spot forex is the better option for a UK resident . Forex spread betting is also better since all profits/losses are in GBP. The currency pair base currency has no role here. A small difference is that overnight position rollover is charged separately on a spread bet.
If you are good at currency trading, you will succeed at spread betting.
Do retail investor accounts lose money due to spread betting?
spread betting is a type of wager entered into between a bookmaker and a client. in an ordinary bet, the gambler risks a stake in exchange for a return based on fixed odds agreed upon at time of placing. when specific conditions are met, the client has his stake returned, along with profit. obversely, spread bets are placed upon a prediction of if a price would move up or down. Instances would include an asset’s value or price , say an index or a share. the gambler’s loss/gain will depend on the extent to which the price has moved.
spread betting is promoted as a viable alternative to ordinary investments. spread betting allows access to a broad range of markets and asset class categories ; the profits are tax free ; trading platforms and live market data give ease of trading.
You do not pay capital gains tax even with forex spread betting.
How retail investor accounts lose money trading forex?
It is well known that a good majority of forex traders fail. Some estimates go so far as to maintain anywhere between 70-90% forex traders lose money. Though that sounds far fetched, it remains true that many traders have a hard time keeping the proverbial head above water. We would like you to be in that select percentage of forex traders who do succeed.
Trading forex, is there a high risk of losing?
A trend defined, the market becomes easier to understand. Just like sailors understand the sea, so must traders understand the market. The sturdier your ship, the harder it is for turbulence to upturn it. The sounder your foundation, the more volatility resistant your trading plan is. Be prepared for challenges from the market at any time. There is no call for a ‘beat the market’ attitude. That clouds the reason.
Many forex traders start angling for easy pickings. These people may try to persuade you to trade large lot sizes and trade with high leverage. Given that these forex traders are dilettantish themselves, they put your capital at risk.
It is true that you need money to make more money. Nevertheless, with unsound advice at your ears, you will only expose yourself to emotional tumult. Each upswing, each entry and exit point will leave you weaker.
How not to lose money when trading forex
Just like you need a modicum of decent money to cover health costs, so to be a good forex trader you need a decent amount of investment capital. Shoestring budgets won’t help at all. For even micro lots , you will be requiring at least $1000 in your account.
Bid price, ask price in forex trading
Bid price and ask price are just the best prices the trader is willing to buy/sell for. The bid price is the highest price a buyer is ready to pay for an asset. The ask price denotes the lowest price a seller will accept for the asset. The bid ask spread is the difference between the bid price and the ask price.
Bid and ask prices are displayed in real time, even as there is constant updating. The fluctuating difference between the prices is a vital indicator of market liquidity and transaction cost size.
The tighter the bid -ask spread, the more liquid the market is.
How to prevent losing money rapidly due to spread betting?
In spread betting, you chose if the price of a product has the chance of going up or down. Then you decide how much you can bet. The amount you would like to bet per point of each price movement is your stake.
For instance, when you are spread betting forex and the price of the currency pair moves your way, you arrive at your profit by multiplying your initial stake size by the number of points the instrument has progressed. In case it goes against you, your loss will be likewise reckoned. Losses do sometimes exceed deposits.
How CFDs work ?
While trading contracts for difference CFDs, you buy or sell a number of units or particular number of CFDs in an instrument. This is not unlike the way you would when trading physical instruments. With CFD trading you have no ownership of the underlying asset. You do have the ability to trade on margin. This permits you to take a position , accompanied by a notional value of much more than the amount of money you are asked to deposit.
Conclusion
Whether you are temperamentally suited to the forex market is all settled with a demo account with good forex brokers. Open a trading account with focussed trading strategies playing out on the best trading platform. It is possible to dabble both in foreign exchange CFD trading, study currency pairs with USD for profit, as well as give attention to spread bets. Forex pairs like EUR/USD reward information analysis, while UK tax law allow for spread bets to remain profitable. The risk management attending trading the foreign exchange market is at your finger tops when with InvestBy.
