The spread betting medium provides a very simple way to trade forex currencies and this method of speculating is soaring in popularity as traders switch to trading currencies in the absence of volatility in other markets. In fact at some brokers, forex trading can account for up to a third of a provider’s total trading volume.
Forex is a very liquid market which means that traders can easily enter and exit positions and its volatile nature makes it an ideal market to trade for spread traders. Additionally, the fact that bets are leveraged means that one only need to deposit a small amount to open a position which most spread bettors find attractive. For instance a relatively tranquil day on the FTSE 100 index might see the index trade on just a 30 to 40pt range but a slow day on the currency markets can mean that this range is closer to 75pts.
Tips for Trading Currencies via Spread Betting:
Go Long or Short: You can either go long (buy) or short (sell) a currency pair so you can make money either from a rise or fall in the pair.
Leveraged Trading: Margin trading means that you only need to deposit a relatively small amount in relation to the exposure taken. While this can result in big gains it can equally result in substantial losses so a prudent money management policy should be taken.
Risk Management: Never risk more than 5% of your account on any one spreadbet. This means taking into consideration the stake size and the level of the stop loss.
Forex Trading Example: When spread betting it is the first currency in a pair (referred to as the base currency) that matters. Thus if you believed that the sterling would against the dollar you would be looking at buying the GBP/USD (and sell it short if you thought it was going to weaken).
Example: Let’s say the EUR/GBP is being quoted at GBP0.8625 – GBP0.8628. This means that the Euro is worth 86p and a minimum bet of a GBP 1 a point would translate into an exposure of GBP8,628. If you thought that the EUR was going to gain against the pound in the coming days or weeks you could buy at the offer of GBP0.8628. If the EUR was to rally in the next two days and the EUR/GBP quote moves to GBP0.8755 – GBP0.8758, you could close the position at GBP0.8755 for a gain of GBP127.
Use Technical Analysis or Fundamentals to Trade: You can use technical analysis or fundamentals to trade currencies. For short-term positions, technical analysis is far more important but you should still keep an eye for key economic releases such as unemployment and inflation numbers.