Spread Betting Currencies: The Cheaper Trading Alternative?

LONDON, February 28, 2012 /PRNewswire/ --

Spread betting the global currency markets can allow traders to benefit from tighter spreads on a range of currency pairs, which may suggest that spread betting currencies is more cost efficient than traditional trading, whilst there is also the added benefit that currently in the UK, all gains are free from Capital Gains Tax.

However, tax laws are subject to change and depend on individual circumstances. Please seek independent advice if necessary.

Currency spread betting allows traders to control a much larger position than their deposit would normally allow in the underlying market.

Below, City Index provides a basic guide to spread betting currencies.

Spread Betting: Overview

Spread betting is a popular product for traders both new and experienced because it offers an easy entry level into the financial markets due to its low margin feature and high leverage.

As mentioned above, it also tax efficient; currently, under UK tax laws, all profits made are free from UK Capital Gains tax and Stamp Duty, though this remains subject to change.

Allowing traders to go both long and short - spread bettors can profit from a market which falls as well as rises.

The aforementioned high leverage allows traders to deposit just a small percentage of the total value that they wish to trade; increasing exposure which could potentially magnify profits.

However, should the market move against their position, a leveraged product such as spread betting can also result in losses greater than the initial deposit making risk management imperative to a trading strategy (more information below).

Spread Betting: Forex

As the largest and most liquid market in the world, the forex market is also the most accessible and widely traded.

Trading 24-hours a day from Sunday evening until Friday night, you can potentially trade the opportunity as you see it.

Whether you're after short-term volatility or long-term price trend, you can trade forex based on financial news or economic fundamentals.

GBP/USD, EUR/USD and USD/JPY are the most popular currency pairs, and spread betting clients can trade these forex pairs with competitive daily rolling spreads, with EUR/USD starting at a fixed 1 point and GBP/USD at 2.

Spread Betting: Strategy

The Forex market is known to be volatile. As all trades are leveraged, trading currencies requires careful risk management and a considered trading strategy.

Your positions can be managed efficiently using stop losses and limit orders to help minimise losses and lock in profits at predetermined levels set by you.

Your trading strategy should clearly outline your profit targets and exactly how much you are prepared to lose prior to placing the spread bet.

By creating a solid strategy, your key decisions are already made, leaving you free to follow the market movements and react to them as they happen.

Summary

Spread betting currencies can be risky. The currency markets can be volatile and as a leveraged product, you can incur losses greater than your initial deposit. Ensure you fully understand the risks.

About City Index:

Today more and more individual traders are discovering the benefits of derivatives, and many of them are discovering them through a City Index trading platform.

As a group, we transact in excess of 1.5 million trades every month in over 50 countries. We provide access to a wide range of instruments including margined foreign exchange, CFDs and, in the UK, financial spread betting.

We constantly look to improve the performance of our platforms and expand our range of services. The result is our customers benefit from innovative trading tools with transparent pricing, competitive spreads, and a high standard of customer support. Visit http://www.cityindex.co.uk/ for details.