Im going through the babypips pre school and kindergarten lessons/quizzes. All have been pretty easy to understand, until I arrived at the section on leverage and margins and to be honest im finding it hard to take it all in.
Just wondering is it simpler to just spreadbet on forex? I understand the spreads might be higher but does it avoid all the leverage and margin requirements etc.
Does anyone else in the UK here use a spreadbet account to trade currencies? I understand how taxation works but are there any other pros/cons?
Hi John, so would spreadbetting (currency) mean not having to worry about lots/margin/leverage?
And quite simply just trade at ÂŁ? Per pip, or is there something else im missing?
Actually that’s an interesting question. I was always used to trading in £ per point or per pip. I didn’t really understand the concept of leverage or lot sizes for a long time.
To me it was so easy to understand the concept of £ per pip. In fact it’s still how I think.
I’m pretty sure there is margin required, as for lots the way I always looked at it is £1 per point is one contract or lot, £2 per point is two contracts.
If your trading ÂŁ1 per pip I think that works out at 1 mini lot. That maybe a tad large for a beginner - I know you could go 0.50p or even a few pence a pip on some brokers
If you’re in the UK, SB is definitely the simplest way to tackle forex. Its low cost, low deposit, low stakes per pip (less than a £), with no tax to pay whatever your profit is.
Leverage is low in accordance with ESMA rules, about 30x on major forex, 20x on almost everything else. That’s an issue for some traders, though it certainly means you can’t take excessive risks.
Under UK FCA regulation your funds are segregated from the firm’s capital, your funds deposited are guaranteed in case the firm goes bust, the firm is prohibited from hunting your stops and you cannot be hit with negative equity.
From a technical standpoint, spread betting is a way of speculating on the price movement of currencies (or other assets). So you’re trading a derivative which is derived from the underlying. In this case, spot FX.
From a trading standpoint, as long as the spread bets mirror the prices of the spot FX market and you’re not getting killed by the spread itself, then there’s no really difference from your typical retail FX platform since they embed their transaction costs within the spread itself.
If you’re holding positions overnight or longer, be aware of your holding costs as well. Depending on what you’re trading, the financing charges can quickly add up and eat into your profits or widen your losses.
Make sure you’re using an FCA-regulated spread betting provider. Otherwise, you don’t know where they’re “deriving” their prices from. They could theoretically be pulling it out of their arse to tilt the prices in their favor.
