Hello, traders. This is Lucas from Wandering Traders LAB.
Today, I want to talk about spread betting which is popular among UK traders.
Spread betting has been around since the early 1970s,
but it is the last 10 years that has seen it really evolved and become famous because of the internet.
Spread Betting allows you to take a position on whether you think a market will go up or down in price,
without having to buy the underlying asset.
And the best thing about this financial product is that there is no need to pay tax for it.
It is a totally tax-free financial product.
The idea of Forex spread trading pretty easy to understand.
If you think a certain currency will rise in price,
you would buy (go long)
if you think a currency will fall in price,
you would sell (go short).
if guessed right, you win, if not, you lose, that`s it.
but, you are not actually buying or selling any currencies here.
Example of how it works
Let’s assume that USDJPY, a selling price of 135.05 and a buy price of 135.20.
You anticipate that USDJPY is going to rise in the next few days due to some fundamental reasons.
You decide to go long on (buy) USDJPY for £10 per point of movement at 135.20.
After three days, USDJPY has indeed moved in your favor and increased to 135.50/135.65.
You decide it’s a good time to close your trade. This means you’ll be coming out with a profit of (13550 – 13520) x 10 = £300.
On the other hand,
if you originally decided to sell USDJPY for £10 per point at 135.05 and then closed at 135.65,
you would have ended up with a loss of (13565 – 13505) x £10 = £600.
This is how does spread bet work.
This is actually similar to forex I think.
If you have an interest, maybe you can try it.