Author: Eduardo Montero
Last Updated on March 30, 2022
Inspired by Paris sporting methods, spread betting has become a true investment strategy for Forex traders. We therefore propose to look closely at this strategy that is easy to implement and has already proved its worth, notably in the United Kingdom where it has been used for several years.
Here therefore we will explain its operation in detail together with its advantages and disadvantages.
The operation of the spread betting strategy:
As indicated by its name, the spread betting strategy operates as a simple speculation on a financial asset such as a currency pair, or, why not, with CFDs, on shares or even commodities.
Spread betting has exactly the same function as classic Forex trading, the only difference being that here you speculate a precise amount per point won or lost. For example, if you believe that the EUR/USD currency pair will rise you may decide to speculate one Euro on each point on the rise. In the case whereby the EUR/USD pair falls, you will also lose one Euro per point lost.
As with classic trading, you may of course place ‘stop loss’ and ‘take profit’ orders to master the risks and objectives of your trades. There again, the broker will be paid from the spread with no hidden costs.
The advantages of the spread betting strategy:
There are numerous advantages to using the spread betting method for your investments on the Forex. Here are the major ones:
- You have a great range of assets available to you as spread betting can be used on all the assets generally offered by the brokers.
- This strategy is economically viable as, apart from the classic spreads, you should not have to pay any supplementary fees.
- You can benefit from a high or low leverage effect to increase your potential profits.
- You have the opportunity to speculate on the rise or on the fall of an asset and therefore make profits whatever the direction of the trend.
- Finally, you know in advance how much you can make or lose as you yourself decide the amount you wish to allocate to each point won or lost.
The disadvantages of the spread betting strategy:
Of course, spread betting does not offer only advantages. Among the disadvantages of this method are the following:
- Profits from spread betting can be substantial but this also incurs risks relating to losses, which is why it is important to use stop orders.
- In accordance with the current regulations of certain countries, the profits made using spread betting may be considered as profits from financial products which are therefore subject to taxation.