Spread Betting and Forex Markets

One key advantage of spread betting is that a wide variety of markets are available to trade on. In many cases this form of investment can allow investors to gain exposure to markets that are traditionally difficult to gain access to.

Below is a brief explanation of some of the more popular spread betting markets:

Indices

Indices represent the combined share value of a number of companies on a particular stock exchange or sector eg the FTSE 100 and Dow Jones are popular indices for investors who like to spread bet on the UK and US markets.

Foreign Exchange Rates

Foreign exchange rates, or forex rates as they are often known, are a measure of the relative worth of global currencies.

In particular, it is possible to spread bet on the comparative value of two different currencies in a ‘forex pair’ ie forex spread betting.

As an example, if the British Sterling / US Dollar forex pair was trading at $1, this would imply that the Pound was of equal value to the Dollar. However, if the pair was trading at $2 then this would imply that one Pound was worth two Dollars. At the moment that rate is closer to $1.60.

Foreign exchange markets are often extremely volatile as a result of the fact that they are heavily influenced by economic and political pressures, especially relating to specific information about the state of particular economies.

Whilst not traded as much as Indices, forex pairs remain a major part of many investment portfolios and are usually the second most traded spread betting market.

The most traded forex pairs are the Majors. These are currency pairs that represent particularly strong economies and are highly liquid markets. They include:

Euro / Dollar
Euro / Sterling
Euro / Yen
Sterling / Dollar
Sterling / Yen
Dollar / Yen

You can trade these with firms like Financial Spreads and Tradefair.

Stocks / Shares

Stock / share trading in companies is the archetypal form of financial investment. Traditionally a trader purchases stocks/shares, becoming a share holder in the company, and hopes that the value of the stock will improve.

With spread betting this ‘purchase’ of shares does not take place. Yet stock / share spread betting still makes up one of the most heavily traded markets. With financial spread betting you are only speculating on the future price of the share.

Commodity Prices

A commodity is a product whose value is determined on a basis of supply and demand, often without differentiation for source or even quality.

Two of the best known, and most traded, examples are crude oil and gold, however, the term commodities not only covers metals and fuels but also ‘softs’ such as sugar, soy and coffee.

As with all spread betting markets, you can speculate on the market to go or down. If you think the price of Gold will rise you spread bet on it to go up. If you think the price of a barrel of oil will go down you can bet on it to go down.

Note though that spread betting carries a high level of risk to your funds. You can lose more than you initially invest. It may not suit all investors. Only speculate with funds that you can afford to lose. Ensure you understand the risks and seek independent financial advice if and when necessary