How to Spread Bet on Forex

If you believe the instrument or currency pair that you want to bet on, for example the British pound, will rise in value against its currency pairing, for example the US dollar (USD/GBP), you then buy pounds which is known as going/buy long; and if you believe the pound in this example will fall against the dollar you sell pounds or go/sell short. If you go long, believing the value of the pound will rise, and the pound increases in vale against the dollar, you then would make a profit.

Spread betting examples

For example if you bought at 5100 points (also known as pips) for a £1 per point stake and the price of the pound increased against the US dollar by 100 points to 5200, then you would profit by £100, which is your stake of £1 x the price movement of 100 points, £1 stake x100 pips =£100 profit. However if the pound dropped in value, you would not make a profit and could lose money. In reality you would profit slightly less than £100 in this example due to the cost of the spread.

Financial spread in betting – what is this?

When you place a spread bet, two prices will be offered, a buy and sell price. Typically these are between 5-10 pips apart, depending on which spread betting company you use. When you open and close a position, you will be offered a slightly higher or lower price than the actual price. The difference in this is called the spread, which includes what is in effect the admin fee for your spread bet company to place bets on your behalf.

The spread is therefore the difference between the buy and sell price of your chosen currency at any one time. For example the pound may be offered by your broker at 5110 points to buy the pound, and 5100 to sell. There are no commission charges or hidden fees when you place your spread bet, the brokers make their money from the difference in the spread. In order to close a position, you place the opposite order, for example if you go/buy long against the dollar and the price rises by 100 points, when you close the trade you would sell short. You will be offered a sell price which is lower than the current buy price. Typically depending on which broker you are using the spread can be between 1 and 10 points. Therefore for each trade you make your profit will be slightly reduced due by the spread, hence the term spread betting.

Spread bet forex in both rising and falling markets

With spread betting you can place a bet when the market moves in both directions, up and down. With spread betting you can also sell short if you believe the price of the pound would fall against the dollar. If the pound then fell by 100 points and you sold short, you would profit by approximately £100 with a £1 stake. However if the market rose by 100 points you would lose.

As described in the two examples above, you can bet on either the price rising or falling in order to make a profit, depending on what you believe is the most likely outcome. This enables you to take advantage of movements in price both up and down when spread betting the forex. You can also spread bet commodities, indices, futures, shares, etc.

When you begin spread betting, you will need to choose a spread betting company, who will be able to provide you with a trading platform, access to charts and detailed training on how to place a spread bet. Many spread betting companies also offer reduced stakes for beginners. It is also helpful to familiarise yourself with currency movements in the main currency pairs over the last few months. You should also develop a trading strategy, and learn how to use a selection of trading tools, for example flag patterns and candlestick patterns and meanings.