HOW YOU CAN MAKE MONEY IN SPREAD BETTING IN FOREXBefore you understand what a spread is you should first of all understand that in the foreign exchange market prices are represented as currency pairs or exchange rate quotation where the relative value of one currency unit is denominated in the units of another currency. An exchange rate, applied to a customer willing to purchase a quote currency is called BID. It is the highest price that a currency pair will be bought. And a price of quote currency selling is called ASK. It’s the lowest price that a currency pair will be offered for sale. BID is always lower than ASK. The difference between ASK and BID is called spread. It represents brokerage service costs and replaces transactions fees. Spread is traditionally denoted in pips – a percentage in point, meaning fourth decimal place in currency quotation.
Forex spread betting is a category of spread betting that involves taking a bet on the price movement of currency pairs. A company offering currency spread betting usually quotes two prices, the bid and the ask price - this is called the spread. Traders bet whether the price of the currency pair will be lower than the bid price or higher than the ask price.The narrower the spread, the more attractive the currency pair is because entering and exiting a trade costs less in spread.Like spread betting, traders do not need to actually own any currency when forex spread betting. However, they will require capital in their account in the currency in which the underlying profit or gain is paid or charged in. This currency is generally the currency of where the spread betting service is located. For example, a spread betting site in the U.K. would require British pounds as capital.You can bet on loads of different things such as the share price of individual companies, movements on commodities like oil and gold, currencies, bonds and global stock indices like the FTSE, German Dax, Japanese Nikkei and US Dow Jones Industrial Average. In addition, unlike some forms of financial speculation, you can profit from the price of an asset going down as well as up.
HOW YOU CAN MAKE MONEY IN SPREAD BETTING IN FOREXTo begin with, it is worth focusing on just a couple of markets rather than a large number. This is so you can build up your knowledge about how particular markets work and how they react to news flow, economic data releases and technical trading levels. You also need to create a trading plan. For professional traders a trading plan which includes strict money and risk management is the key to maintaining a long and profitable career. This is just as true for spread betting as any other trading vehicle.It’s important to remember that even the very best traders don’t win every time. So they make sure that when they do suffer a loss (or even a string of losses) they still have sufficient risk capital to carry on trading. They achieve this through disciplined money management. In its simplest form this means dividing up your trading capital into smaller parcels. Then you only risk a proportion of your funds on any one trade. How you divide up your risk capital is up to you. But it will depend to a large extent on the size of your spread betting fund. Some professionals say you should risk no more than 1% on any one trade. Others say it can be up to 5 or even 10%. Obviously, the lower the percentage, the more trades you’ll be able to place. However, if you only have a small amount of risk capital then there are likely to be many trades that you shouldn’t do once you factor in the minimum bet size and your stop loss.This brings us on to risk management. Good risk management involves using stops and limits to help you plan and manage your trades. This provides structure and brings discipline to the whole process and takes some of the emotion out of trading. This is where charts come in. These are vital when it comes to establishing if a market is trending or ranging. Charts also help you identify areas of support and resistance which should be used as a basis for choosing stops and limits.
SUMMARY- Practise on a demo account- Focus on 1 or 2 markets- Pick liquid markets with tight spreads to keep your trading costs low- Devise a trading plan- Be disciplined: don’t be tempted to move your stops further away from their original levels- Never add to a losing position- Never spread bet with money you can’t afford to lose
