Bid/Ask Spread

Bid/Ask Spread: The difference between the Bid and Ask prices.

Spread Betting

Spread Betting text

Spread Betting

Spread betting is a way of trading the financial markets that differs from standard Forex or CFD trading.

Spread betting is only available to residents of Ireland and the UK. It is particularly attractive to traders because the profits from spread betting are exempt from Capital Gains Tax or stamp duty which may apply to other investments in the financial markets.

Instead of buying or selling an amount or a lot size like a traditional Forex or CFD trader might, spread bettors choose a monetary amount to bet per pip or bet per point on a given instrument. So instead of opening a trade for 10,000 units of a currency pair (or 0.1 of a lot) for example, a spread bettor may decide to bet £1 or €1 per pip move in the currency.

Here is an example that will help you understand how Spread Betting works:

Let say we think the EURUSD exchange rate will rise in value.
So we places a BUY bet of €1 EUR per pip (0.0001).

Example: Make image of below displayed in the open box

 

FX Pair Sell Buy Spread
EURUSD 1.12340 1.12358 1.8 pips

This means for every pip the EURUSD rate rises we will profit €1 EUR.
Conversely, for every pip it falls we will lose €1 EUR.

How much does our trade cost?

Each financial instrument has its own spread, which is the cost of the trade.
In spread betting the total spread charged is the bet size multiplied by the spread for that instrument.

et size per pip  X  Spread = Spread charged.

In our case we bet €1 EUR per pip times the EURUSD spread which is 1.8 pips.
So the total spread charged for our position is €1 .80.

How will this trade end?

Let’s say we were correct and the EURUSD strengthened and rose 16 pips to 1.12500 and we closed the trade at this price we would makes a profit of €16.

On the other hand, if the EURUSD weakened and fell 14 pips to 1.12200 and we closed the trade at this price we would therefore make a loss of €14 on this trade.

Spread betting is a tax free trading method available for UK and Ireland residents only. Learn more about spread betting at AvaTrade.com