Forex Vs Spread Betting
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  1. #1
    kevikraze is offline Newbie
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    Default Forex Vs Spread Betting

    Hello,

    I am trying to understand the difference between Forex and Spread betting.

    From what I can tell they both allow you to trade the same currencies and they both offer leverage. I know Spread betting is illegal in the USA and that in the UK spread betting is Tax free but Forex is not.

    Can anyone explain to me if there are others differences and what these are and what are the pros and cons of each?

    Thanks

    Kev

  2. #2
    Shroomhead's Avatar
    Shroomhead is offline Junior Member
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    To put it very basically spread betting is gambling, you don't actually exchange lots with anyone you just bet on a position against the broker (which isn't too different to some regular forex brokers lol). Where as with regular forex trading someone has offer a counter transaction to yours for an actual trade to happen.

    Pros and Cons, ok.
    Spreadbetting Pros:
    No slippage or requotes as you don't have to actually have the offer met by another party (good for scalping).
    Tax Free, as it is "gambling".
    Lower and/or fixed spreads (again as there is no actual trading taking place)

    Spreadbetting Cons:
    Quite open to broker manipulation (stop hunting, etc) as they are in control of the prices you bet against. I'm not sure how much of this goes on, but it's best to play it safe with a more reputable broker.
    Very high leverage, most places offer you a very high leverage which is not as good as it sounds. Also it's hard to find a broker who offers less than £1 a pip so without a large account you will be risking very large percentages of your account or have to resort to scalping on small time frames (so as you only risk a few pips) which is where they can more easily manipulate the price and steal your money.

    Regular Forex Pros:
    Lower leverage available, 10:1 or 50:1 is a good place to start.
    More reputable brokers.

    Regular Forex Cons:

    Capital Gains tax
    Again still open to price manipulation, although it's less likley to happen on an individual level with a decent broker.
    Most brokers offer variable spreads, but this isn't really a big con, it depends on your trading style.
    Slippage and requotes, again this might be a problem if you are scalping.

    There are probably a few more to add to that list.

    Basically this is what I think of spread betting. Companies offer very high leverage under the appeal that you can make loads of money really easily (trade with big boys sized positions with only £100, wuhpee right?). This however is a double edged sword as big wins also mean big losses. Spreadbetting companies want to margin call you so that they can wipe your position out in an instant, so really to spreadbet sucessfully you need lots of cash to accomodate the large leverage and margins.

    Secondly as most people can't afford to have a stop loss of 50pips on a £1 a pip spreadbetting account it forces more people into "scalping". Scalping is a very good way for a newbie to loose money as they bet on a small time scale but if they take a loss they are likley to hold want to hold it until they get there money back, in reality though your magin is called and they have your money. Basically spreadbetting firms work by hoping there are enough stupid people attracted by high leverage and risky scalping strategies to cover the losses they make on the decent traders, whilst netting themselves a juicy profit.

    My advice is to stay away until you really know what you are doing, or can find a broker who offers very small betting sized. GKFX is who I'm trying out currently, I'll let you know what I think of them after a few weeks.
    Last edited by Shroomhead; 11-04-2011 at 10:27 AM.

  3. #3
    daydreamer65's Avatar
    daydreamer65 is offline FX-Men Honorary Member
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    Quote Originally Posted by kevikraze View Post
    Hello,

    I am trying to understand the difference between Forex and Spread betting.

    From what I can tell they both allow you to trade the same currencies and they both offer leverage. I know Spread betting is illegal in the USA and that in the UK spread betting is Tax free but Forex is not.

    Can anyone explain to me if there are others differences and what these are and what are the pros and cons of each?

    Thanks

    Kev
    The major difference between broker forex & spread betting is that
    with spread betting you do not need to deposit more money than you
    are prepared to lose. eg. stop loss 100 pips, pip value 50pence/pip,
    deposit 100 x 50 = £50.

    If pip value is £1 deposit £100, etc.

    When trading forex with a broker you would need to deposit a much
    larger sum to cover margin.

    I have not found a spread better though which trades below 50p/pip
    (approx. 80cents/pip) even though IG index allows a 6 week "training"
    period where the pip value increases incrementally upto 50p/pip.

    So for training purposes it would be best to open a demo account with
    a forex broker, Oanda, FXPro, et al, learn to trade a profitable system,
    then open a spread betting account & trade that.
    "There is always somebody who thinks they can ice skate up hill" Wesley Snipes in Blade

    :wishes: daydreamerforex

  4. #4
    Shroomhead's Avatar
    Shroomhead is offline Junior Member
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    Quote Originally Posted by daydreamer65 View Post
    I have not found a spread better though which trades below 50p/pip
    (approx. 80cents/pip)
    GKFX, 10p a pip and MT4 spreadbetting

    edit:
    Quote Originally Posted by daydreamer65 View Post
    The major difference between broker forex & spread betting is that
    with spread betting you do not need to deposit more money than you
    are prepared to lose. eg. stop loss 100 pips, pip value 50pence/pip,
    deposit 100 x 50 = £50.
    That is not true, you still have to watch the margin with spread betting as they offer leverage on their products too!!!

    Take this example:


    I would only be risking £92 of my account if I lost but the margin is £171! If I opened that position with only £92 in my account I would get a margin call and they would instantly close the position and take my £92. You need to cover the margin too, at least on all the spreadbetting brokers I have experience with!
    Last edited by Shroomhead; 11-04-2011 at 10:35 AM.

  5. #5
    daydreamer65's Avatar
    daydreamer65 is offline FX-Men Honorary Member
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    That is not true, you still have to watch the margin with spread betting as they offer leverage on their products too!!!
    Maybe I was more discerning on my choice of spread better.

    In my post I was also trying to give the O/P a flavor of the
    differences, I would not trade a spread better with just the
    bare amount of margin.

    Quite open to broker manipulation (stop hunting, etc)
    Stop hunting??? I run at least three platforms, so if the average price
    varies +/- 1 pip on all platforms I want to know why from the
    broker who has the variant price.

    Also it's hard to find a broker who offers less than £1 a pip
    IG Index 50p/pip
    Obviously not that hard then.

    GKFX, 10p a pip
    This is a broker not a spread better.

    Oanda (1 cent/pip.) which is a broker, not a spread better.
    "There is always somebody who thinks they can ice skate up hill" Wesley Snipes in Blade

    :wishes: daydreamerforex

  6. #6
    Shroomhead's Avatar
    Shroomhead is offline Junior Member
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    Quote Originally Posted by daydreamer65 View Post
    Maybe I was more discerning on my choice of spread better.
    Daydreamer, there's no need for the defensive tone or snide comments in your response, I was only pointing out a clear example from my experience which was cautionary to your bad advice. To say that you don't need to worry about margins when spread betting is clearly wrong, it depends on the broker, so just suck it up.

    Quote Originally Posted by daydreamer65 View Post
    Obviously not that hard then.
    There are more brokers who offer £1 a pip min bet than those who offer less. Of course there are some who offer smaller bets, I even named one, so I don't really see what your point is.

  7. #7
    daydreamer65's Avatar
    daydreamer65 is offline FX-Men Honorary Member
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    The major difference between broker forex & spread betting is that
    with spread betting you do not need to deposit more money than you
    are prepared to lose. eg. stop loss 100 pips, pip value 50pence/pip,
    deposit 100 x 50 = £50.

    If pip value is £1 deposit £100, etc.

    When trading forex with a broker you would need to deposit a much
    larger sum to cover margin.

    I have not found a spread better though which trades below 50p/pip
    (approx. 80cents/pip) even though IG index allows a 6 week "training"
    period where the pip value increases incrementally upto 50p/pip.

    So for training purposes it would be best to open a demo account with
    a forex broker, Oanda, FXPro, et al, learn to trade a profitable system,
    then open a spread betting account & trade that.

    Read more: http://forums.babypips.com/newreply....#ixzz1clEQeSot
    To say that you don't need to worry about margins when spread betting is clearly wrong, it depends on the broker, so just suck it up.
    Cannot see in my post where I said there was no need to worry about margin.

    Go back to school & learn the difference

    Lots, Leverage, and Profit and Loss | How Do You Trade Forex? | Learn Forex Trading

    Impress Your Date with Forex Lingo | How Do You Trade Forex? | Learn Forex Trading
    Last edited by daydreamer65; 11-04-2011 at 02:19 PM.
    "There is always somebody who thinks they can ice skate up hill" Wesley Snipes in Blade

    :wishes: daydreamerforex

  8. #8
    Jake William is offline Newbie
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    Daydreamer, he disagreed with you and provided evidence on a point that matters to a newbie like myself after you said "The major difference between broker forex & spread betting is that with spread betting you do not need to deposit more money than you are prepared to lose"

    Instead of providing some evidence that backs up what you are saying, you tell shroomhead how much more discerning you are than him at choosing brokers, that he should go back to school and that you think he is a blues fan... ??? are you going to take a guess at how much he weighs next??

    So I'm posting because I'd like more facts on this as well. From what I am picking up, spread betting sounds like run of the mill gambling. Considering they take control of the odds through expanding the pip spread, margin calls and I imagine an array of other tools... it sounds like the tax benefit is probably not worth it?

  9. #9
    quiz is offline Newbie
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    Hello,
    I've been using forex.com and OandA as regular forex for a month to test FX trading.

    Then I came accross GFT and FXCM which are both FX brokers offering as well spread betting.
    Here is my post: My 100 trades, please tell me how to improve

    The real advantage of spread betting is that you pay no tax, HOWEVER, you have to be careful as you may be asked to pay taxes if some nice guys from tax office are after you because you are unemployed but with significant revenues. If they realise that you actually live from that, you may be asked to pay taxes. In any case, before going live with spread betting, I recommend you to talk to the tax guys.

    As a beginner, I've done 100 trades this week on GFT spread betting platform which gives you access to exactly the same system than the usual FX platform. I've tested FXCM, and you have the same powefrul platform.

    So if you can, I'd say use a known broker offering spread betting together with traditional FX trading.
    Usually, you can deal with the same pairs, commodities...than if you were trading with an MT4 on a dedicated FX broker.
    Last edited by quiz; 11-04-2011 at 02:58 PM.

  10. #10
    quiz is offline Newbie
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    Quote Originally Posted by Jake William View Post
    Daydreamer, he disagreed with you and provided evidence on a point that matters to a newbie like myself after you said "The major difference between broker forex & spread betting is that with spread betting you do not need to deposit more money than you are prepared to lose"
    You do have a margin call on a spread betting platform.

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