If you want to trade in foreign currency there are lots of ways to enter the market. You can use a forex broker, forex ‘contracts for difference’ or, alternatively, you can open a forex spread betting account.
Opening such an account allows you to start spread betting the forex markets. This allows you to make a profit by correctly predicting movements in the exchange rates of the major currencies.
Before you start, however, it’s useful to know how a forex spread betting account works and what to look for when comparing foreign exchange trading accounts.
What is currency spread betting?
When you decide to begin spread betting currency trading you decide how much you want to ‘bet. Your forex broker will then offer a ‘spread’ on the two currencies you want to bet on.
For example, if you want to trade the pound (GBP) against the euro (EUR) the spread might be 1.1902 – 1.1905. If you think the value of the pound will fall against the euro then you would ‘go short’ and sell at 1.1902 at your chosen stake.
If you’re correct, you’ll profit by your stake multiplied by the amount the exchange rate has moved in your direction during the trade.
If the market moves against you then you will lose the difference between your opening position (1.1902) and the closing position multiplied by your stake. You need to be aware of this risk, and able to afford the potential losses before you spread bet forex.
What to look for when you compare forex spread betting brokers
With dozens of forex spread betting brokers in the market it pays to do some research before you open a forex spread betting account.
Firstly, it is a good idea to find the broker that offers the best spread betting forex platform.
If you want to maximise your profits it is useful to be able to open and close a position wherever you are. So, finding a broker that offers both mobile and online currency spread betting is likely to be preferable.
You should also compare the ‘ spreads’ between the main forex spread betting brokers. This is the difference between the ‘buy’ and ‘sell’ price of a currency market. Generally speaking, narrower spreads are better as they'll cost you less (this is where the brokers add their commission).
If you plan to start spread betting currency trading it is also a good idea to find a broker who offers ‘virtual trading’. This helps you hone your strategy without using any of your own capital.
Finally, many of the best forex spread betting brokers offer a ‘guaranteed stop loss’ facility. This means that you can set a price level on a particular spread bet that, if reached automatically, closes your position at this price. It can help you restrict your losses if the markets move against you.
Compare the spread betting forex platforms offered by each of the different brokers and choose the option that costs you the least for trading on the movement of the currencies you're most interested in and gives you the tools you need to maximise your profits and limit your losses.
