Forex attracts more and more people tempted by potential profits. However, before you decide to enter this world, you must learn the basic definitions to understand the mechanism of financial markets. One of such concepts that every investor starting his adventure with trading should know is spread. What is spread betting Forex?
What are bookmakers’ bets?
Spreadbet is a tax-free financial derivative that allows you to speculate on a wide range of financial markets such as forex, indexes, commodities, stocks and bonds. * And because you don’t take ownership of the underlying assets, they can take advantage of markets that are falling and rising.
Explanation of bookmakers’ bets
Spread Betting is a form of speculation that simply involves placing a bet on the price direction of the financial instrument. Your profit or loss depends on whether the market is heading in your chosen direction.
Unlike other forms of trading, the bookmaker trader never owns the base product – he only speculates whether the price will rise or fall. Because bookmakers are a leveraged product, bookmakers can trade with a margin. This means that you only need a small deposit with the total value of the transaction to open a position.
Let’s look at the mechanics of bookmaker trading and how it works.
How does spread bet work?
There are three main elements that make up betting transactions:
- Trade direction
- The spread of the instrument
- The size of the plant in trade
Each transaction ticket for bookmakers gives the option of long (buy) or short (sale) on a financial instrument. If you think the market will gain value, you would open a long position. If you think the market will lose value, you would open a short position.
The ticket for buying bookmakers’ bets will give you a price at which you can buy and a price at which you can sell. The difference in these values is known as “spread”. Basically it is a transaction cost or commission.
Each coupon for spread bets requires a bet size or a “stake” size. The size of the bet is important because the value is multiplied by every point where the price moves in your favor – or not – to determine your profit or loss.
Differences between spread bets and Forex trading
While some believe that Forex betting and trading are very similar, there are in fact many important differences that need to be understood. Perhaps the most important difference between the two types of transactions is that bookmaking is considered a form of gambling under UK law, while Forex trading is officially recognized as a form of speculative investment.
Which better? Trading on the Forex market or spread bets?
It is difficult to say which of the two types of trading is better, and there are different circumstances in which everyone would be the best choice. An important point to consider is that not every leading Forex broker offers its clients primarily spread bet. Advantage of Forex trading over spread bet relies on compliance with Islamic law, which is an obvious benefit for Muslim investors, as well as being considered a reputable and serious form of investment, however, spread bet has a financial advantage due to tax implications.