These markets are far from child’s play…
The forex market is the largest and most liquid market in the world with average daily turnover estimated at $5.1 trillion, according to the Bank for International Settlements (BIS).
Also known as FX, foreign exchange, and currency trading, forex was once closed to individual speculators, reserved only for global banks or multi-national corporations.
Not any more… it’s now open to the masses and we can all lose at playing the currency markets…here’s our guide:
Live Forex Spread Betting Chart and Prices
Where Can I Spread Bet on ForexAll FCA regulated spread betting companies offer live charts and prices on the main forex markets.
See the table below for an FX comparison.
Forex Spread Betting Comparison
The Problem with Forex ComparisonsAs you can see, the issue with forex pricing is the number of firms that only offer ‘variable’ spreads.
Financial Spreads has fixed spreads so you always know what the spread will be when you trade via their app or website.
If a firm only has variable spreads they are rarely better than the fixed spreads.
Below, ETX Capital has been brave enough to tell us what their average fixed spread was for January 2017. Therefore we’re happy to print them.
If a firm offers “variable spreads from 0.8″ we find that the prices are rarely 0.8.
There is a bit of a price war in spread betting and so it’s not surprising to see a lot of spread betting companies offer variable spreads, it means the pricing is less clear and places like Spread Bet Magazine can’t easily compare the spreads.
A side note, if you:
Video Introduction to Forex Spread Betting
Forex AnalysisMany FX traders use technical indicators to gauge whether a given currency is likely to rise or fall against another currency. You can use Spreadex’s charting software to draw support and resistance lines on different pairings to work out your trading strategy. Among the different signals traders look out for are Continuation Patterns and Reversal Patterns.
- Continuation Patterns give indications of whether a trend has the capacity to continue its current direction. Typical examples of Continuation Patterns involve the formation of Pennants, Flags, Wedges and Triangles.
- Reversal Patterns give indications on the likelihood of a trend reversing. Typically this will involve the formation of Double Tops and Double Bottoms, Triple Tops and Triple Bottoms and Head and Shoulders Tops and Head and Shoulders Bottoms.
Benefits of Spread Betting on ForexThe forex markets are some of the most popular markets in financial spread betting particularly sterling/dollar, euro/sterling, euro/dollar and dollar/yen.
There are many reasons why investors might want to trade the foreign exchange markets:
- The wide range of forex pairs on offer. This can be a major lure to investors owing to the many different ways in which these pairs can move depending on market conditions in the respective countries / currency zones
- With firms like Financial Spreads, CMC, Speadex, IG etc., you can trade a wide range of forex markets 24 hours a day, Monday to Friday.
- The forex spread betting markets can be exciting to trade due to the fact that they can be highly volatile when compared with other shares or indices. Nevertheless, this same volatility can also work against even the most of experienced traders and can lead to quick losses should the market(s) not go in your favour.
- Spread bets are leveraged; therefore you can win more than your initial stake. Remember though, you can also lose more than your initial investment
- Spread betting on forex markets is Tax Free*.
- You can buy and sell the forex markets, ie spread bet on a currency pair to move up or down.
- Note that if you are forex trading then using Stop Loss orders and Guaranteed Stops can help restrict your downside.
Risks of Forex Spread BettingThis is very simple, a lot of people are very good at losing on forex markets.
Spread betting and CFD trading (and “margined forex” like you normally get with MT4 etc.) is high risk. You can lose more than you deposit.
Only trade if:
24 Hour Forex Spread BettingNote that most firms offer round-the-clock forex markets from around 11pm Sunday to 9pm on Friday.
Also see 24 hour spread betting.
How to Spread Bet on ForexFor example, let’s say you are considering speculating on the EUR/USD rate, so you go on a spread betting website, like FinancialSpreads.com, and see the current market price at:
|EUR/USD Rolling Daily: $1.38000 – $1.38010|
Here’s what you need to know:
|Spread Betting Market:||EUR/USD Rolling Daily|
|Spread:||$1.38000 – $1.38010|
|This Means:||You can trade on the EUR/USD Rolling Daily market to move:
arrow_upward Above $1.38010, or
arrow_downward Below $1.38000
This is a ‘Rolling Daily’ trade which means that there is no settlement date. If you don’t close your position, and the trading session ends, then your trade will automatically roll over into the next session.
If a trade is rolled over then you will normally either be charged or receive a small fee for overnight financing based upon whether you are speculating on the market to rise or fall.
For further details also see guide to rolling forex trades.
|Points Traded:|| Bets on the EUR/USD market are priced in £x per point.
Where a point is $0.00010 of the forex pair’s price movement.
E.g. if EUR/USD moves $0.00350 then you would lose or win 35 multiples of your stake.
|Stake:||You decide how much you would like to trade per point, e.g. £2 per point, £3 per point, £8 per point etc.|
|Quick Staking Exercise:||If, as an example, you have a stake of £4 per point and EUR/USD changes by $0.00240 (24 points), you would lose / win £4 per point x 24 points = £96.|
Financial Spread Betting Example | Buying EUR/USDSpread betting on the forex pair to rise – i.e. on the euro to get stronger
|You Decide Whether to Buy or Sell:||
EUR/USD to push:
arrow_upward Above $1.38010? or
arrow_downward Below $1.38000?
|Let’s Assume You Decide to Buy:||arrow_downward Above $1.38010|
|You Select Your Stake Size, Selecting:||£2 per point|
|What Happens Next?||
|When You Buy a Spread Bet Your Trading Profits or Losses =||(Final Price – Initial Price) x stake per point|
|Example 1||EUR/USD moves higher and the financial spread betting market is revised and changes to $1.38700 – $1.38710.|
|Time to Take a Profit?||You could opt to leave your position open or close it, i.e. close your position to lock in a profit. In this example you choose to settle your trade by selling at $1.38700.|
|Your Trading Profits or Losses =||(Final Price – Initial Price) x stake per point|
|($1.38700 – $1.38010) x £2 per point (£2 per $0.00010)|
|$0.00690 x £2 per point|
|69 points x £2 per point|
|Your Trading Profits or Losses =||£138.00 profit|
|Example 2||EUR/USD pushes lower and the spread trading market adjusts and moves to $1.37389 – $1.37399.|
|Close and Restrict the Loss?||At this point, you can decide to leave your trade open or close it in order to limit your losses. In this case you choose to close your trade and sell the market at $1.37389.|
|Your Trading Profits or Losses =||(Final Price – Initial Price) x stake per point|
|($1.37389 – $1.38010) x £2 per point (£2 per $0.00010)|
|-$0.00621 x £2 per point|
|-62.1 points x £2 per point|
|Your Trading Profits or Losses =||-£124.20 loss|
Fully Worked Spread Betting Example | Taking a Bearish View of EUR/USDSpread betting on the forex pair to fall – i.e. on the euro to get weaker
|You Work Out Whether to Buy or Sell:||
arrow_upward Above $1.38010? or
arrow_downward Below $1.38000?
|Let’s Say You Decide to Go Short:||arrow_downward Below $1.38000|
|You Decide Your Stake Size, Let’s Assume You Select:||£3 per point|
|So Now What Happens?||
|When Speculating on a Market to Fall Your Trading Profits or Losses =||(Initial Price – Final Price) x stake per point|
|Example 3||EUR/USD falls and the market is moved to $1.37611 – $1.37621.|
|Take a Profit?||At this point, you may choose to leave your position open or close it, i.e. close your spread bet to lock in a profit. For this example, you decide to close your trade by buying the market at $1.37621.|
|Your Trading Profits or Losses =||(Initial Price – Final Price) x stake per point|
|($1.38000 – $1.37621) x £3 per point (£3 per $0.00010)|
|$0.00379 x £3 per point|
|37.9 points x £3 per point|
|Your Trading Profits or Losses =||£113.70 profit|
|Example 4||EUR/USD increases and the spread betting market is adjusted to $1.38332 – $1.38342.|
|Close and Limit the Loss?||At this point, you could choose to leave your trade open or close it and restrict your losses. In this instance you choose to settle your trade and buy at $1.38342.|
|Your P&L =||(Initial Price – Final Price) x stake per point|
|($1.38000 – $1.38342) x £3 per point (£3 per $0.00010)|
|-$0.00342 x £3 per point|
|-34.2 points x £3 per point|
|Your P&L =||-£102.60 loss|
- Financial spread trading market as per FinancialSpreads.com, 2 November 2011
- Many spread betting companies also let you spread bet on EUR/USD in euros/point and dollars/point
- Financial spread trading also allows you to speculate on the movement of a broad range of other markets, for more information please see:
Individual Forex Spread Betting GuidesThe currency markets are split into 3 groups:
- The Majors: The most active and widely traded currency pairs.
- EUR / USD
- USD / JPY
- GBP / USD
- EUR / JPY
- USD / CHF
- EUR / CHF
- EUR / GBP
- GBP / JPY
- USD / CAD
- AUD / USD
- EUR / AUD
- EUR / CAD
- NZD / USD
- AUD / JPY
- CHF / JPY
- The Minors: The less active and less liquid currency pairs which are less popular than the Majors but more popular than Exotics.
- GBP / AUD
- GBP / CAD
- GBP / CHF
- GBP / NZD
- AUD / CAD
- AUD / NZD
- AUD / CHF
- USD / SGD
- AUD / SGD
- SGD / JPY
- CAD / CHF
- CAD / JPY
- NZD / JPY
- NZD / CHF
- NZD / CAD
- EUR / NZD
- EUR / SEK
- EUR / NOK
- USD / SEK
- USD / NOK
- USD / DKK
- USD / ZAR
- GBP / ZAR
- The Exotics: Foreign exchange pairs that are less broadly traded than any of the Major and Minor currencies.
- USD / PLN
- USD / MXN
- USD / CZK
- USD / HUF
Spread Betting of Forex – HedgingIn theory, forex can also be used as a hedging tool, for example, for a forthcoming holiday. Say, for example, you had booked a family holiday to the USA for later in the year and expected the pound to lose ground against the dollar.
Rather than changing money now and tying up capital, you could instead place a ‘sell’ spread bet on GBP/USD. Therefore any fall in value of the pound against the dollar in the intervening time period would be offset by the profit gained from your ‘sell’ spread bet.
The reality is that forex hedging for inexperienced people is very tricky. It’s east to lose on both the market you are trying to hedge and the hedge itself.
A Review of the Forex MarketAlthough in theory you can trade on any international currency pairing, the vast majority of FX trading is carried out on the following major pairings: AUD/USD, EUR/GBP, EUR/JPY, EUR/USD, GBP/JPY, GBP/USD, NZD/USD, USD/CAD, USD/CHF and USD/JPY.
Note that it’s not that easy to speculate on certain currencies. As of 2011, the Chinese Renminbi (aka Chinese Yuan and CNY) is not a free-floating currency. So even though China is the world’s second largest economy, it is far from easy to take positions on any Renminbi based FX pairs.
According to the 2010 BIS forex survey;
- Global forex turnover was 20% higher in April 2010 than in April 2007. The average daily turnover rose to $4.0 trillion compared to $3.3 trillion.
- The increase was driven by the 48% growth in turnover of spot transactions, which represent 37% of forex market turnover. Spot turnover rose to $1.5 trillion in April 2010 from $1.0 trillion in April 2007. In forex spread betting terms, read ‘spot’ as a daily market rather than a futures markets.
- With regards to the counter-parties, the higher global forex market turnover is associated with the increased trading activity of “other financial institutions” – a category that includes, but is not limited to, non-reporting banks, pension funds, hedge funds, insurance companies, mutual funds and central banks. Turnover by this category grew by 42%, increasing to $1.9 trillion in April 2010 from $1.3 trillion in April 2007. For the first time, activity of reporting dealers with other financial institutions surpassed inter-dealer transactions (ie transactions between reporting dealers).
- The survey shows how EUR/USD, which commands 28% of all forex turnover, eclipses trade in all other currency pairs. USD/JPY accounts for 14% of activity and GBP/USD 9%. No other forex market accounts for more than 6% of the market.
- The percentage share of the US dollar has continued the slow decline witnessed since the April 2001 survey, while the Japanese yen and euro gained relative to April 2007. Among the 10 most actively traded currencies, the Canadian and Australian dollars both increased market share, while the Swiss franc and pound sterling lost ground. The market share of emerging market currencies increased, with the biggest gains for the Korean won and Turkish lira.
- Forex trading activity became more global, with cross-border transactions representing 65% of trading activity in April 2010, while local transactions account for 35%.
- The relative ranking of forex trading centres has changed slightly from the previous survey. Banks located in the UK accounted for 36.7%, against 34.6% in 2007, of all forex market turnover, followed by the United States (18%), Japan (6%), Singapore (5%), Switzerland (5%), Hong Kong (5%) and Australia (4%).
Factors that can Influence the Forex MarketsThere are many different factors which can influence the value of one currency against another specific currency, some of the key factors to consider include:
- Inflation – as a general rule, countries with consistently lower levels of inflation will experience a rising currency value and those with higher inflation typically see their currency fall in value against other trading currencies.
- Interest Rates – high interest rates can attract foreign capital if an opportunity exists for a higher return relative to other countries. This can therefore drive up the value of a currency. However note that high inflation can counteract this rise.
- Public Debt – countries with a large public debt can be less attractive to foreign investors by encouraging inflation. They also run the risk of defaulting on their debt obligations and as such they incur a poor credit rating. In turn, this can devalue a currency.
- Terms of Trade – linked to current accounts and a country’s balance of payments, the terms of trade compare import prices to export prices. If the price of exports rises by more than that of imports, a country can see the value of its currency rise.
- Political Stability / Economic Performance – stable countries with a strong economic performance are more likely to attract foreign investment than less secure countries. Any political turmoil or instability will often result in a country’s currency losing value.
Remember: Spread betting, CFDs and forex trading carry a high level of risk. You can lose more than your initial investment. These products are not suitable for all investors. Only speculate with money that you can afford to lose. Make sure you fully understand the risks involved and seek independent financial advice where necessary.