Forex or Spread Betting?

Forex is foreign currency exchange trading. In order to trade foreign currency exchange you need to have an account with one of the Forex companies and be alert to the currency exchange rates that are constantly being updated.

The foreign exchange markets are one of the most dynamic and liquid markets in the world and offers savvy traders profit opportunities around the clock. Spread betting is a wager placed on financial markets, much like a yes or no question, the bettor needs to decide whether the value will go up (long) or down (short) and how much he is willing to risk for that – as simple as that.

What Moves the Online Currency Trading Market?

The hardest thing to understand about the online currency trading market is what actually affects it. Every individual currency is affected by events in the currency’s country and even those of other countries. While you can rely on technical analysis, which uses trends to forecast trades, another method relies on the news that actually affects how currencies fluctuate. This method is called fundamental analysis.

The Fundamental Considerations

There are four major fundamental considerations. These include political conditions, monetary flows, major economic news and market psychology. Each of these factors has a significant effect on the value of currencies. A single change can change the value of a currency in less than an hour.

All types of political events including internal, regional and international events change the values of currencies. Often before major votes, elections and times of political instability, currency values become highly volatile. This affects not only the single country, those around it and those who trade with the country.

The trade flow of a country changes the amount of money going in and out of the country. When companies merge, shut down or demand of products change, the value of a currency can rise or fall. This often creates temporary changes, which are hard to catch in technical analysis.

Any major economic changes affect currencies. From changes in policies to unemployment, the state of a country’s economy is the biggest factor in affecting online currency trading. Economic events happen on a daily and sometimes hourly basis.

Even rumours can greatly affect the value of currencies when trading forex. The possibility of a major political or economic event is often enough to cause traders to avoid a currency, weakening it. Traders look for safer or less risky trades, until currencies stabilise.

Trading the Forex Markets

Unlike forex in Spread Betting you don’t need to risk much to make money. In forex the value of your bet is what you risk and your potential earnings depend on that, however in spread betting you determine the amount you wish to risk and it can be even 1/100 of the potential earning amount.

In a nutshell it is the first currency in the currency pair which you need to consider when trading. When spread betting currencies, buy the quoted currency if you believe that currency strengthening. Sell the quoted currency if you think it will decline.

In spread betting the bettor can also limit his losses by placing a stop loss if the bet goes against him.

Finally the best thing about spread betting is the fact that it’s tax free which means you don’t have to pay taxes for your earnings. In forex – you do. The answer is clear – Spread betting is a good alternative to trading forex directly but you still need to find a provider that gives you good fills. Avoiding slippage and re-quotes is important and if you put a stop you should expect it to be honoured as long as there are no extraordinary market gaps.

Forex Trading

Online forex spread betting is increasing in its popularity very rapidly. This can be attributed to the financial muscle of the foreign exchange that has a turnover being estimated to be approximately $3 trillion each and every day. This particular market is so huge that it has dwarfed the value of other financial instruments such as commodities, government bonds, and shares that are also traded in different markets. Major Forex pairs such as the dollar/euro are very liquid and also consists of a very narrow spread that makes them lucrative for forex trade.

Even though forex is the largest financial market on earth, currency pairs are not traded like shares through central exchanges but instead traded through private electronic networks that comprises of different governments, companies, financial brokers, and established banks. Trading is also conducted round the clock compared to the stock market where trading is only restricted to some few hours. These advantages have made forex trading more popular due to its liquidity that exists in the market.

Forex and Gambling

Forex trading has often been compared with gambling in that a dealer is betting on whether a currency is going to make them a profit, which can be an unpredictable outcome.

One of the major benefits for the forex trader over investing on the stock market is that the trader does not need to have a huge amount of investment capital to be able to speculate on the market. Most stockbrokers ask for a minimum deposit of several thousands and the gains are likely to be long term. The speed at which profits and losses can be made from currency speculation is one of this particular market’s main attractions.

Online speculation has led to a boom in this type of trading; in April 2010 daily turnover reached almost the $4 trillion mark. As with any form of gambling, it is important to learn forex basics so that decisions to buy or sell can be made quickly. Some experts claim that forex trading does not come into the realms of gambling as the risks taken in currency speculation are usually based on knowledgeable analysis and mathematical assessment.

Forex Spread Betting

Most forex trading brokers will offer 17 different major currency pairs or 37 currencies in total that can be traded. These currencies are then grouped according to their dominance of trade. For instance, there are major currencies such as the Euro/Dollar and minor currency pair such as the sterling/Swiss. There are also exotic currency pairs which may include USD/Mexican Peso.

What generally influences the currencies directions are the economic forces. For instance, when a country experiences rapid growth with increasing interest rates, it means that the country’s official currency will rise compared to currencies from other countries. It is due to such background that it is advisable to constantly watch for any market moving news item that may contain sensitive economic figures such as the; interest rates, inflation figures, trade data, and unemployment rates.

Even if an individual is not interested with forex spread betting, it is advisable that they should become aware of the effects of forex movements and how it is likely to influence other markets. For instance, when the US dollar falls, this is a healthy sign for the commodity prices.

Manual Forex System or Forex Robot?

n forex currency trading you have two options, the first being manual trading. Traders, who use a manual forex system to make their trades, take all the decisions themselves, personally. The second option is auto trading. This is achieved by way of a forex robot, which makes trades automatically, based on criteria set by the trader. While both have their benefits, deciding which is best boils down to personal preference.

Manual Trading

Manual trading is the tried and tested method. The biggest downside to manual trading is emotional involvement. When traders are winning, they tend to become over confident and do not cash out until they actually start losing. The same can be true for losing positions. In order to regain losses, traders make hasty decisions, resulting in bigger losses. However, with careful trading and disciplined strategies, this is not a problem. The benefit of manually trading is the fact that you always have full control over when to enter and exit a position.

Using a Forex Robot

If you prefer to automate at least part of your trading, you can choose to use a forex robot. You set your parameters, including limits and number of trades based on technical analysis from currency trends and the robot makes trades for you throughout the day. The key benefit is that you are able to trade whether you are at a computer or not. The downside is that robots do not have the same decision making skills as a human. The most effective strategy is to use a combination of both and then decide which works best for your trading needs.

Can You Really Trade Forex Automatically?

You have probably seen advertisements for automatic forex systems. They claim that you can simply “set and forget” your forex trading; in other words, you simply press a button, so to speak, sit back and let the system make money for you.

It is not quite that simple though. While you might have a forex trading platform and software system that will allow you to trade in forex ‘automatically,’ it does not mean you do not have any input. Instead, what such systems allow you to do is set the parameters of for your trades, so that you can get out of or into a particular trade once a predetermined level of losses or gains have been reached.

The forex trading software you use lets you set trades automatically, which is to say you do not have to actually monitor progress and enter or exit them manually. However, you are the brains behind what that software does; you tell it what to do and it does it. It is not a turnkey system that does everything for you. Forex requires your interaction and participation for success and no ‘automatic’ system is a substitute for that. The software and systems you choose do serve to support you in this fast-paced market and you could not operate without them. These tools are available through your broker and should cost you nothing, beyond the commissions you already pay to trade.