While they involve speculating on two very different areas, Forex and Spread Betting are often mentioned in the same breath by the analysts. There are similarities to an extent as both are very volatile and while they could involve a much higher outlay with bigger losses, there are higher profits available at the same time.
If you’ve yet to get involved with either, or maybe you’ve tried one without ever taking a punt in the remaining discipline, you may be wondering whether or not to take the plunge. Naturally there are advantages and disadvantages to both Spread betting and Forex trading so what are the facts you need to consider before deciding on a personal allegiance?
The Basics
If you’re starting completely from scratch then you have to understand the basics so forgive us if this all sounds very elementary. Forex Trading is the practise of selling one currency and getting a different currency in exchange with a view to making a profit.
The trader would then hold that currency in the hope and belief that its rate will rise, therefore leading to that ultimate aim.
Spread betting has traditionally been linked to sporting markets but it can also be carried across into the financial world. If you’ve already seen it in action for sporting events then you’ll know how it all works. Taking a sport such as Formula 1 as an example, bettors may speculate on the total points that a driver may accumulate over the course of the season. A line is set by the bookmaker and the customer bets over or below that line – known as the Spread – and payments or losses multiply depending on how far the driver exceeds or misses that spread.
In Financial markets, it’s exactly the same principle except that the bettor is speculating on the exchange rate and on how much a currency will rise or fall against another.
Pros and Cons
The differences between the two methods of approach are very subtle and players will develop their preferences over time. For many, the main issue is with tax and if they spread bet through a bookmaker, the profits are essentially tax free although there may be small commissions taken on any returns.
With Forex Trading, the trader has to pay tax and that impinges on any profit that is made but the practise is arguably easier to understand for newbies and by using a currency trader, the need to think constantly about your next move is taken out of your hands to an extent.
The choice is ultimately yours but it pays to have as much information as possible to hand before you make a decision. The good news is that with some traders, both in spread betting and Forex, you can trial out your options for free without risking any of your own funds. Naturally you don’t stand to win any cash via this method but you won’t lose either so this gives you an opportunity to hone your skills.
We would recommend that in addition to taking all of the above information on board, you also take a trial period to give both Spread Betting and Forex a try. Both approaches will then provide valuable information when it comes to making your final decision.
