Modern Day Forex Trading
In a recent statement, Simon Denham of London-based Capital Spreads said
, Sterling remains popular for the moment and it is difficult to be too negative on a technical viewpoint as the downside is definitely an unproductive area for the moment.
The Euro continues to hold, in the main, to its gains over the last few months but the upside is beginning to look more difficult. Longer term investors, who have been piling into the Euro as, it almost seems, a quasi replacement for the Chinese Yuan, are pausing for breathe at the moment. It might be interesting to see what will happen if European growth starts to look less optimistic.
The currency is overvalued by most measures and, while this state of affairs often continues for long periods where currencies are concerned, the swing backs can be very exciting indeed.
That is all well and good but if you want to trade the currency markets what is the best way to do it? Many private investors are looking for fast and simple access to global markets and many are turning to spread betting.
Before we proceed though, it should be pointed out that, as with all forms of investment, there is a downside and you can lose more than your initial stake.
Having said that, spread betting solves a lot of problems when it comes to tax, simplicity, speed and range of options.
An interesting aspect for me is the number of markets that you can trade. Spread betting companies tend to offer thousands of markets. These include the forex markets like US Dollar / Euro, Pound / Euro, Swiss Franc / Yen etc. However, from the same account, you can generally spread trade US and UK shares as well as oil and gold.
There is no capital gains tax and no income tax on spread bets*. You are simply speculating on the future value of a market.
I like the flexibility and ease of opening and closing spread bets. If a particular forex market moves against my position then I can close a trade in order to limit my losses.
Likewise, I like the fact that, if I am ahead of a particular market, I am also able to close a spread bet early in order to lock in the profit.
And then there is 24 hour trading.
Spread betting companies like Financial Spreads will open their trading desk late on Sunday evening and let you trade, online or over the phone, all the way through to Friday night.
Whilst spread betting offers a wide range of benefits, it is also important to remember the potential drawbacks.
Spread bets do carry a high level of risk to your capital. You should only speculate with funds you can afford to lose. Before trading, ensure that spread betting matches your investment objectives and familiarise yourself with the risks involved. If necessary, seek independent advice.
* Based on current UK Tax law, this may change or differ depending on your personal circumstances.
by: Thomas Bainbridge
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