FX Spread Betting: Forex Markets
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The FX market is not the easiest market for traders to comprehend. The reason is the FX markets are affected by so many things. Currency pairs move differently than traditional trading markets.
Spread betting the FX markets is similar to other instruments. Trading examples helps a trader understand how to trade FX markets. They provide a visual for traders to see how things are calculated.
Spread betting FX starts by looking for quotes from a betting firm. These quotes are presented based on a company and currency. Some quotes are whole number spreads whilst others are decimal places.
The reason is a pip movement in a currency pair is 0.0001 a unit. Whereas other spread bets demonstrate whole point movements. These two examples provide a visual to help understand a true FX bet.
Financial Spreads is offers a quote on GBP/USD of 2.0704 -2.0712. One buys the sterling as the prediction is the price will increase. The stake size on this particular bet is £6 per pip or every movement.
At the time of expiry, the sterling closes above at 2.0782. The market price did increase and therefore the trader profits. Now the profits must be calculated using the market data and stake.
The profit is calculated by using the closing market price. This is subtracted by the buy or opening price (2.0782-2.0712). The result is 0.007 and is divided by the pip movement per unit.
It looks like this (0.0001). 0.007/0.0001 with a result is 70. The point movement is multiplied by the trader’s stake of £6. The trader has received a total profit of £420 on the trade.
Other spread betting firms represent spreads in whole numbers. IG Index is offering a spread on the EUR/USD at 13253 - 13255. The bet works the same even when using whole numbers in a spread.
A trader sells the euro at 13253 as one predicts it will weaken. The trader makes a stake size of £3 against the dollar in this quote. In this case, the euro strengthens and climbs to 13263 and is a loss.
The trader decides to close the FX spread bet and cut one's losses. The point difference is the closing price minus the sell price. This 10 point difference is multiplied by £3 for a total loss of £30.
Similar types of betting examples can be found on the Internet. The best thing one can do prior to betting on FX markets is to study. One should study examples so one knows how bets work in FX markets.
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