The forex market, with its complex weave of currency pairs, volatile markets and economic trend forecasting, can be overwhelming for an ordinary investor with little knowledge of forex markets and the drivers of currency exchange rate trends. Those who want to explore and enjoy gains from buying and selling currencies may find spread betting an easier alternative.
In this article, we will discuss the basics of spread betting and the potential of speculating on the price movements of blue chip stocks, specifically the Dow Jones Industrial Average (DJIA).
Spread betting is a derivative trading instrument that is legal in the United Kingdom. Other countries like the United States consider it a form of gambling and therefore outlawed it. But in the UK, forex traders have it as a supplementary investment option as it is regulated as acceptable as betting at the Grand National.
Spread betting is all about speculation. Essentially, you will bet on whether the price of a currency will increase or decrease and by how much. If your bet turns out to be correct, you can earn profits for every pip increase or decrease in the currency rate, depending on the position you take. If the price moves opposite to what you predicted, you will lose by the same amount.
Here’s how it works:
Suppose you’ve already opened a spread betting account with your forex broker. When you give the signal that you want to do spread betting on a currency pair, your broker will give you the current prices at which you can buy and sell the currency:
You will be given a trade amount which will be the amount you trade per pip (the trade amount is determined through position sizing). You can also put a limit on how much you’ll want to bet on this spread.
Let’s say you’re limiting the risk on this bet at 2% of the £10,000 in your account, which is equivalent to £200.
Suppose you also expect the price of the euro to rise, so you take a long position and buy the currency at its current rate. Here now is your position:
Position (long): 5.00
The Price shows the original purchase price when you entered the trade. The Current price shows how much you can sell for if you close the trade at this instant — which in this case will give you a loss of £15.
You’ll want to wait for the Current price to at least rise by three pips and match up to the original purchase price so that you can break even (Profit/Loss will be at £0).
If your prediction turns out to be correct and the Eurodollar does rise, you’ll gain £5 for every pip increase in the Current price. So, if it increases by five pops from 1.2456 to 1.2461, you will offset the three-pip spread plus you gain by two pips. Your Profit/Loss will then become £10.
Once the Currency price increases by 43 pips to 1.2499, you’ll have gained £200. You can then close the trade if you’re satisfied with this gain, effectively buying the currency at £200 less than the new buy price.
Of course, if the price moved conversely and the Currency price fell, you will have lost £200 with a decrease of 40 pips.
Fair Forex is glad to introduce spread betting as a brand-new feature on our trading platform. Investors can now speculate on blue chip stocks through our Dow Jones Spread Betting Platform.
So why Dow Jones? The Dow Jones Industrial Average is the most popular and most-watched American index. It is the weighted average of the leading 30 stocks in Nasdaq and the New York Stock Exchange and is considered as the health barometer for the U.S. economy.
As volatile as the DJIA is, many are spread betting on it because the potential for earning is high. The index can move several hundred points in just one day. With the right timing, and if you’re confident that you can correctly anticipate the trend of the index, it’s truly possible to earn substantial gains from spread betting at the Dow.
Other benefits of spread betting include:
Whether it’s your first time to foray into spread betting or entering the speculation market the DJIA again, Fair Forex provides a secure platform plus access to advisers and various risk-management tools that you can use to determine your stop-loss order.
Trade and bet through one of the industry’s fairest and most trustworthy brokers. Join Fair Forex today.