I’m not exactly a newbie, but definitely not an expert either haha (obviously ^^).
I’ve been demoing for about 8 month, and I’m going to open an account with 1k - which is what I started demoing with.
What I’m wondering now is, what the hell is a spread betting account?
I mean, I’ve heard of it before, but I though that it was something a little different than just ‘normal’ forex trading.
So my question is, If I open a spread betting account, am I opening a normal account ?
I’m just worried that it will be something like binary options or something.
First you need to understand about different instruments in trading,
Spot Forex ( Where all retail trader hang around)
Example :-
Currency pair - Eur/Usd
Price Bid/Ask - 1.000 - 1.004 ( spread 4 )
If you are buying at the above price, then you are buying at asking price which is 1.004, you need 4 pip rise to break even, and 10 pips rise from your entry will give $6 profit. ( Trading $1 for 1 pip) . So, once you see $6 profit or $6 loss you can close your trade when ever you want. Which is SPOT EXCHANGE.
Futures
Trading futures, is trading contracts. You can buy or sell a futures contract.
Example : Eur/Usd
Current Price :- 1.000
Contracts :- 1month, 3months, 6 months, year etc
If you are buying Eur/Usd 1 month contract, and price is above your entry at the end of expiry, you will make profit.
options
Similar like futures, but you are given Call/Put as options.
If you think Eur/Usd rises for this whole day or week or month, you will buy Call option. Other wise you will buy Put Option.
Betting
Spread Betting
Here you are betting and trading on the spread not the price. Of course, spread of a currency depends on the price rise or drop.
Example :- Buying Eur/Usd 1.1000 today thinking it will rise ( Spread is 10-13)
You are buying the spread 13.
As Eur/Usd rises, the spread changes to 20:23.
Profit you earned here is the spread 7. You bought at 13 and closed at 20.
Binary Options
You will be provided with options like, Eur/Usd will rise in 1 min, 3 min, 15 min, 1 hour, 4 hours, 1 day.
Or stay above 1.000 or below 1.000
Here you are actually betting, and 100% profits is what most brokers offer.
Note :-
The above explanation is just for your understanding different instruments in trading.
There are many different options offered by different brokers especially coming to spread betting & binary betting.
Spread betting accounts are used by traders in the UK and Ireland because they enjoy special tax-free status in the UK and Ireland. That’s why you’ll often see spread betting as only available to residents of the UK and Ireland.
Speaking for FXCM, spread betting accounts and regular CFD & forex trading accounts have similar trading execution, platform functionality, support, etc. The difference is the spread bet ‘wrapper’ is placed around the account for spread bet clients in the UK and Ireland to give them the preferential tax treatment.
Yep, spread bets are common UK and Ireland, just another way of ‘packaging’ trading.
The word ‘spread’ is what can cause confusion, most brokers offer spread betting to UK and Irish customers and in practice is little different than for a US trader trading lots or fractions of lots, except, for example, we set the price per pip in FX trading at say one tenth of a pound or half a pound per pip or whatever the broker designates.
Spreads quoted are usually very similar to non spread bet account - if you are UK or Ireland then check out FXCM site where they give you more info, I see they offer a free spread bet demo account (since Jason took the time to reply :))
If you open a brokerage account, the broker acts on your instructions to trade on your behalf in an underlying market (in the case of forex, that’s the interbank market) to which you don’t have access yourself.
If you open a spreadbetting account, you’re not buying/selling anything at all: you’re simply having a bet with a “bookie” on which way the price of the “something” will move, and by how much.
With a forex broker, if you buy “one lot” of EUR/USD (on whatever leverage you trade with), you’ll win or lose $10 per pip that the price of EUR/USD moves while your trade is open. If you do it by spreadbetting, the size of the “trade” (it’s actually a “bet”, not a “trade” at all) will be defined as “$10 per pip” (or £6 per pip, or whatever, spreadbetting being a UK phenomenon) rather than as a number of “lots”. So it’s possible to achieve much the same [U]monetary outcomes[/U] from each, but the category of transactions, legal classification (and in the UK the tax situation regarding profits), regulations and so on are very different, between the two.
It [B]won’t[/B] be like that in the sense that you’ll still have a “value per pip” attached to the trade and can open/close it whenever you want, maybe subject to any “house rules”, opening hours and so on, but it [B]will[/B] be like that in that you’re betting against a bookie who holds your money, makes up their own prices as a market-maker, and is differently regulated.
I live in England and routinely and regularly do both (trading forex through a broker and spreadbetting on forex prices). They have different advantages and disadvantages. The big attraction of spreadbetting is that the profits are free from income tax and capital gains tax (for UK residents).
There is an excellent thread on Donna-Forex, which I often quote, because on one page in particular it has
an accountant giving his view on this particular topic: