Spread betting is a type of speculation that involves betting on the price movement of a currency pair without actually purchasing or selling lots. A spread betting company quotes two prices that make up the spread, the bid and the offer price. The trader then bets on whether the price of the underlying pair will go lower than the bid price or higher than the offer price. The trader doesn’t buy or sell the actual pair, but is simply placing a bet on which way it will go with each pip being worth money.
Spread betting in forex is usually done at a price per pip. This means you profit a set amount per pip that moves in your direction. If you are losing money with every pip, however, you can only stay in the bet as long as your capital holds up. Essentially you are betting against the spread betting company on which way a currency’s price action will go. As such, forex spread betting is considered gambling, which means the taxation and legality of spread betting varies nation to nation.
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