Forex Spread Betting

Forex markets deal with currency trading and the rate of exchange. The rate of exchange is how much one currency is worth another. Currency examples are the sterling, GBP, the yen, and the USD.

The majority of currencies from countries are quoted in thousands. Some currencies are quoted in units of a hundred on the exchange. If the Euro is quoted at 1.1710, it is effectively trading at 11,710.

Spread betting companies offer spreads on the forex markets. They will quote a currency as a pair, such as GBP/USD or Euro/USD. The first number in the spread correlates to the first currency.

The Spread in Forex Markets

One the stock exchange, GBP/USD is quoted as 1.5842 - 1.5867. The first number is the base quote and the second is the quote. Taking this spread bet means taking the sterling against the dollar.

In this example, a trader will buy or sell the sterling currency. This depends on if a trader thinks the GBP will strengthen or weaken.

Betting  profits are made by multiplying the wager and difference. The difference is the number of points the market price moved. Losses in betting are calculated the same way in forex markets.

There is something to note in the price point movement of currencies. A one point movement in currency is a movement in the thousands. A point gain would be if the currency moved from 1.3542 to 1.3543.

The spreads for forex work just as the spreads for other markets. The spread for forex looks like this, USD/JPY at 88.35-88.37. The number 88.35 is the dollar sell price and 88.37 is the buy price.

A trader believes the dollar will surpass the yen in the near future. This means a trader buys the yen at 88.35 with a bet of £5 per point.

Wagers Used in Forex Markets

The difference in betting forex and other markets is in the wager. Traders still determine the stake amount, but account minimums exist. Many betting firms have a minimum account deposit for trading forex.

A stake is multiplied by a number the firm gives to set the minimum. Most firms ask traders to have 40 times the wager in their account. For the above trade, a trader deposits at least £200 in the account.

Several days later, the quoted price of the dollar reaches 88.40. On this bet there is a difference of 5 points in the trader's favour. The 5 points multiplied by the wager of £5 equals a profit of £25.

Spread betting forex works similarly to betting other markets. However, it requires more diligence because of the volatility. For this a trader needs to be dedicated in trading forex markets.

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