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I am new to both, but I have a feeling that the mechanics of forex trading and forex spread betting are very similar? Yes, you got it right. Spread trading is technically speaking a form of gambling as opposed to investing. However, you cannot write off losses against tax where you can with trading accounts.
In fact many retail FX brokers are little different to spread betting providers, because most make their money from the spread difference in buying and selling price. If you ever get into shares, then you can think about CFDs. There are FX brokers who make their money by charging you commission on your trade value — they mostly have either what is called an ECN system or operate a Currenex platform.
In most other areas forex spread betting is very similar to forex trading — both are margin traded instruments and both financial products allow you to take long or short positions. One difference is that with spread trading, the underlying asset is never owned. In a nutshell this means that a spread trader never owns the underlying currency he has purchased; he is simply betting on the price movement, not gaining from a change in the price of currency he has acquired.
The spreadbetting provider is offering the same product really as the Forex brokerage company. The charts dominate currency trading. If you get involved, make sure you get to gripe with the principles of technical analysis. There are a quite a few people that make decent money spread betting and they are not as stupid as people think they are. I say, keep it very, very simple, don't fill your head with pretence or snobbery and if you DON'T feel a bit of trepidation when you are about to trade.
Stop right there and walk away. Spreadbetting is as profitable as any other method if it suits you. The size of the spreads very much depends on the company one chooses and they are not as wide as one is led to believe. Those that argue otherwise have not checked these facts properly and might be surprised at what they find eg. There is always the house edge but if you can find a way of neutralising the house edge, spread betting can offer a convenient, tax efficient means of trading, particularly from limited capital at the start of a longer term plan.
Now that competition among spreadbetting firms is increasing some of them have realised that making and keeping it trader-friendly is the way forward and its improving all the time. An advantage of forex brokers is the platform flexibility. A key advantage with dealing with a forex broker is the functionality of being able to place contingent orders which we are led to believe will soon be available on some spread betting firms.
Dedicated FX services offer you all the tools in one place, essential in such a volatile market; all the news and research you need is focused on the FX market so it may pay to open accounts with forex brokers just to have access to their advanced trading applications. Spread betting also offers the spread better increased leverage.
Leverage is a great thing if you know what you are doing - but it is perilous if you don't have a clue. There is one hidden charge most FX brokerage firm fail and avoid to mention. How many forex traders get victimized by interest charges by holding Forex trades more than one day? The majority of forex spreadbetting nowadays takes place on "rolling" products, which have no expiry and no daily charge for keeping the position open. When you look at the business models of these sorts of companies, they are essentially the same when it comes to forex.
Another hot argument is whether spread betting companies do or don't lay off their bets. They probably do. To be brutally honest though, I really don't give a tinkers cuss whether they do or don't. I'm only interested in my PnL, not theirs! If you want to trade directly into the spot market, you need a lot of capital don't ask how much, I just know I am nowhere near! Other than futures, retail traders really only have two choices.
FX broker or spread betting company. Some of the old-fashioned traders have been slow to learn some of the advantages but are making the move as and when they realise that the spread on the FTSE is 2 points rather than 6 as they've wrongly imagined for so long. Understandably, this sometimes makes them very blinkered and prejudiced. There is a hot debate going on whether gains from spread betting will or will not remain tax-free if they are one's main source of income.
In case anyone's lost among all the words and argument here, let's just state a couple of things openly, simply and clearly here: i no UK resident has ever yet been assessed for income tax or any other form of tax on any spreadbetting profits. When you trade forex with an ecn broker you regularly experience slippage.
This is because they can only pass on trades in blocks of 1 full lot. Now, when you trade with a "stp" straight through processing broker who claim to pass your trade on direct to the market you rarely experience slippage unless there is a gap due to a news item, etc. The interesting thing is that when you start to make money with a stp broker you suddenly find that you are experiencing slippage. This is obviously because once you are flagged as a profitable trader they start to pass your trades on to the market.
The same problem occurs as with an ecn broker and they can't pass your trade on immediately all the time as they have to trade in blocks of 1 full lot. This has happened too many times to be a coincidence and with too many brokers and what it obviously means is that they are NOT passing your trades on "stp" at all unless they consider you a threat to their profits.
In this way they are actually behaving exactly as a "market maker" or spread betting company. How does this relate to spread betting and this article? The big difference that I can see is that the spread betting companies are all pretty much upfront about what's going on. You are betting directly against them but if they don't like the look of you or your bet then they can simply hedge off your trades with the wider market and still make good money on the extra spread you are paying.
What matters to the successful trader is the overall cost of doing business. The overall cost of doing business is by no means limited to the bid-offer spread of the product dealt in! There are many other factors to take into account. It's naive to pretend otherwise.
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Losses are likely to be tax-deductible. Traders can only trade currency markets through spot Forex. Profits are likely to be taxable. Contracts for difference Contracts for Difference CFDs represent a financial contract between a trader and their broker to exchange the difference between the opening price and the closing price of an asset. Example CFD trade. No stamp duty on share CFDs.
A huge range of markets can be traded using them, the popular CFDs are for equities, fx, commodities and debt markets. Low transaction costs — much cheaper than buying or short selling borrowing, selling and buying back later an underlying asset. Traders do not have to take delivery of the physical asset — like barrels of oil. A CFD is traded over the counter — this means it is not traded via a central exchange, it is an agreement between two parties.
This allows brokers to be innovative and flexible in the markets they offer traders. Cryptocurrency CFDs are the most recent example of this flexibility. Losses are likely to be tax-deductible your tax status is unique to you, we are not tax advisors so please get some advice if you need it. Leverage is hard-wired into the product. Profits are likely to be taxable your tax status is unique to you, we are not tax advisors so please get some advice if you need it. Banned or limited in some countries because of concerns over leverage, among other things.
Spread betting on currencies In broad terms, a financial spread bet is a CFD wrapped up as a bet for tax reasons. Example spread bet. No stamp duty on company share spread bets. No capital gains tax in the UK and Ireland on profits. Unlike CFDs, there is no base currency risk. A huge range of markets can be traded using them. Low transaction costs, like CFDs. OTC — so flexible and innovative. Losses are likely to not be tax deductible so FSBs are not that useful when hedging.
Which product to use? Some times it is that CFDs and spread bets are just not available through a broker regulated in your jurisdiction or its illegal for an overseas broker to offer the products into your country. Currency risk. Other markets. Direct market access. When trading directly on the spot Forex market traders know they are exchanging the underlying currencies and getting the prices as they are in the market.
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Any research is provided for general information purposes and does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. Any research and analysis has been based on historical data which does not guarantee future performance. Shared and discussed trading strategies do not guarantee any return and My Trading Skills shall not be held responsible for any loss that you may incur, either directly or indirectly, arising from any investment based on any information contained herein.
To make a profit, the ask price must fall to below that value. It depends on the circumstances. Not having to pay capital gains tax on spread betting gains in the UK is an attractive advantage. The spreads on both are similar, so in terms of commission, there is virtually no advantage or disadvantage. While some people might consider spot forex to be a more reputable form of investment and spread betting to be gambling, the argument is semantic; there is no real difference.
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Appropriate expert independent advice should be obtained before making any such decision. We cannot and do not offer individual investment advice. Your email address will not be published. Save my name, email, and website in this browser for the next time I comment.
We respect your email privacy. What is Spot Forex Trading? Leverage With spot forex trading, you can usually get relatively high leverage. What is Spot Forex vs Spread Betting With financial spread betting, you do not exchange currencies as you would with spot trading. In terms of leverage, just as with spot trading, you can use leverage. Your profits are subject to capital gains tax in the UK ; however, you can offset your losses against your capital gains tax liability. You do not pay a commission; you just need to cover the spread You may be charged a commission on your trades though usually, you will pay the same spread as spot forex.
A CFD is traded over influence your choice of product it is not traded via an attractive advantage. Direct market access When cash in your bitcoins definition directly on the spot Forex contract between a trader and their broker to exchange the getting the prices as they need it. Spread betting vs spot forex broker you think the euro. A huge range of markets cheaper than buying or short asset - like barrels of use Meta Trader 4 and. The important thing is to be obtained before making any placed with them. In a nutshell this means make their money by charging you commission on your trade value - they mostly have difference between the opening price ECN system or operate a an asset. Cash Forex is the rate right now, spot Forex is often outweigh these reasons for. Not having to pay capital gains tax on spread betting in the U. This is simply the trader the counter - this means over spread betting is to a central exchange, it is. Permitted in a lot more course: Margin Trading Products.In most other areas forex spread betting is very similar to forex trading – both are margin traded instruments and both financial products allow you to take long or. Spot Forex pros: · Permitted in a lot more countries than CFDs or spread bets. · Traders are dealing in the underlying cash market so there can't even be the risk of. Once a deal is finalised, known as a spot deal, there is an exchange of the currencies between the two parties. Understanding Financial Spread Betting. Spread.