I am relatively new to trading and one point which I�m still a little bit puzzled about is leverage.
Is leverage only applicable to traders who actually buy and sell currencies rather then what I�m doing, which is spread betting?
I keep reading statements such as �Spot Forex is traded in lots. The standard size for a lot is $100,000. There is also a mini lot size and that is $10,000�, and to only open an account with minimum of $1,000.
If I�m using the fundamental money management rule; only risk 2% of my bank in each trade. If I were spread betting and only had an account of $500, why couldn�t I trade 2% of this?
Also for the following example, would anyone be able to answer my question please�
So for example, I�ve opened a standard account with IG Index and have deposited �1000. I�ve decided to be cautious and only risk 2% per trade. My first trade materialises and the initial risk is 30 pips. 2% of my �1000 bank is �20, 30 pips divided by �20 = �0.67 per pip. I would open a trade at �0.67 per pip.
From what I can gather on the example above I�m not using any leverage, is that correct?
This is my first post on Babypips so I hope it goes ok
I’m one of the few (only?) people using a spreadbetting accounts round here because of the tax advantages in the UK.
Your example is spot on but you are effectively using leverage if you compare it to a similar trader trading lots. Either way, it’s not relevant to spreadbetting. Aside from the fact that rather than dealing in lots you deal with �/pip, it works [I]exactly [/I]the same. You can trade a stupid % of your account with most spreadbetters… so same caution applies as it does in other standard broker accounts.
Ironically, although you’re not actually buying and selling currency, nor are most retail traders either, but that’s another story.
Everything in this forum will be relevant to you; just substitute lot talk with a price per pip.
Also, watch out for slippage, dodgy pips and if you want to scalp, consider ECN brokers instead.
Thanks a lot daydreamer65 and triphop, I appreciate your speedy responses!
Triphop, I�m glad you have confirmed my initials thoughts. I live in the UK and therefore I spread bet due to the tax advantages and not having to use leverage to make a respectable profit. I read somewhere that you can only spread bet in the UK or spread betting companies can only operator for the UK, one or the other.
I�m also glad you confirmed that everything on this site and FOREX trading is still relevant. I assumed it would be as the price is derived for the actual market price, same charts, indicators etc�
I have heard the term ECN broker, I tried to do about of research but wasn�t that successful. Are you able to point me in the right direction please? Also there seems to be a big debate out there which brokers actually are ECN? One which I was to lead to believe was one is MB Trading but then I�ve read a few articles claiming they are a scam? It�s all a bit confusing�
I use Finspreads. You wouldn’t go wild for their spreads (3 on EURUSD roundtrip, 4 on most other majors), but for all their faults they haven’t slipped me yet (OK, 3 times by a considerable amount, but they’ve reversed every one, and it stood out like a sore thumb), and they’ve got a decent mobile platform too. I’ve heard good things about Hotspotfx, and also Interactive Brokers… but the tax break here is too good to miss.
Mainman, don’t know about MB Trading… seem big enough though, so I would doubt they’re a scam.
