Forex Betting Explained
Forex betting is a form of financial betting that involves buying or selling currencies with the main goal of making a profit. The main objective is to exchange one currency for another one hoping that the price will change where you want the currency you buy to increase in value compared to the value of the one you sold.
Here is a basic example using Euros (EUR) and US Dollars (USD):
You decide to purchase 10,000 Euros with a EUR/USD exchange rate of 1.1700. At the exchange rate, you are spending $11,700 to buy those 10,000 Euros.
A week later, the exchange rate is 1.2500, so with the increase in the exchange rate, you decide to sell. You sell the 10,000 Euros to get back $12,500 USD.
Your profit for this Forex bet is $800, as you paid $11,700 for the 10,000 Euros and sold them back a week later, getting $12,500.
Reading a Forex Betting Quote
Forex betting sites will have forex quotes, which you have to know how to read. As stated before, in forex trading, the currencies are quoted in pairs such as EUR/USD or USD/GBP. They are paired up because every forex bet you are purchasing one currency and selling another one at the same time.
The exchange rate is a simple ratio used for one currency and its value for another currency.
Here is an example of an exchange rate between the Euro and US Dollar.
- EUR/USD 1.20
The EUR is referred to as the base currency, and the USD is referred to as the quote currency. The rate shows how much it will cost you to buy one unit of the base currency in the quote currency.
So, in this example, it will cost you $1.20 US Dollar to buy one Euro. Conversely, when you are selling, the rate shows how many units of the quote currency (USD) that you will receive when selling one unit of the base currency (EUR). So, in using this example, you will receive $1.20 for selling one Euro.
If you are buying in terms of a EUR/USD exchange rate, you are buying the base currency, and then at the same time, you are selling the quote currency. In basic terms, you are buying Euros and selling Dollars.
You buy the pair in the quote for the forex bet if you think the base currency will increase in value against the quote currency and sell if you think the base currency will decrease in value against the quote currency.
How to Bet on Forex – The Terminology
You have to know the terminology when it comes to this type of betting. Some have already been covered in base and quote and exchange rate, but there is some other terminology to know.
- Long: This refers to the long position when you are buying.
- Short: This refers to the short position when you are selling.
- Bid: The bid is the price forex betting sites will buy the base currency from you with the exchange rate for the quote currency.
- Ask: The ask is the price forex betting sites will sell you the base currency with the exchange rate for the quote currency.
- Spread: The difference between the bid price and the ask price.
- Pip: The pip is a unit of measurement in forex betting and shows the value change in the two currencies. So, if the EUR/USD went from 1.1030 to 1.041, the .0001 rise in the USD is called a pip.
What is Spread Betting?
Spread betting is wagering on the price movement of currency pairs. Spread forex betting brokers will quote the bid price and ask price, and then you are betting on the price of the currency pair in if it will be lower than the price of the bid or higher than the price of the ask.
Spread betting allows you to leverage when you make a bet. Typically, you will borrow money from a brokerage firm to bet on the currency pairs.
In spread betting, you have to only satisfy the margin requirements, and that is the capital needed to fund the bet rather than the total amount of it.
In a forex trading spread betting example, a spread betting forex broker will have an ask price for EUR/USD of 1.0015 and a bid price of 1.0010. If you think the Euro will go up compared to the Dollar, you could be 50 Euro cents for each point, which is pip, the Euro increases above 1.0015.
If the pair went up to $1.0025, you would get 5 Euros (50 Euro cents x 10 pips). On the other side of the coin, if the price went down to 1.0005, you would then lose 5 Euros.
Like typical financial spread betting, you do not have to own the currency in forex spread betting. However, if you take part in it, you will have to have capital in an account in the currency where you will make a profit or a loss.
Typically, the currency is where the forex betting sites are based, so using a forex spread betting UK service, the currency would be GBP.
In terms of spread betting vs. trading (betting), you have to have the capital, as you are using your money to bet on currencies. Spread betting is seen as a form of gambling in the UK, while forex betting is seen as a financial investment, and because of this, there will be a spread betting forex UK tax.
History of Forex Betting
The forex market is a relatively newer one even though people have been making money buying and selling currencies for many centuries. The modern forex market came about in the early 1970s after the Bretton Woods accord in 1971.
At that time, the value of currencies could float against each other, and the values of those currencies created a need for a foreign exchange market.
In the beginning, it was mainly banks, both commercial and investment, that took part in forex betting for their clients. However, when the internet came about, and forex betting sites began popping up, it allowed individuals to take part in forex betting more easily. Now there are many forex betting sites for forex betting as well as forex trading spread betting.
How to Choose a Good Broker
There are many forex betting sites on the internet these days, and you need to look for a few things when picking the right one for you. Here are the things you need to look for when picking the best forex spread betting broker.
Security
The main thing you want from a betting site is 100% security. Any broker you use to bet with must have top-notch security, and you need to check if the broker has a license from a regulatory agency.
For example, the best forex spread betting broker UK will carry a license from the Financial Conduct Authority (FCA) or the Prudential Regulation Authority (PRA). When you pick a forex broker that you want to use, make sure they are legitimate, as it is your hard-earned money you will be betting with.
The Transaction Costs
You will always have to pay transaction costs when you take part in forex betting. Look for forex betting sites that have the lowest transaction costs and find out if those costs are per trade or for a commission.
Banking Issue
You want to make sure that with any forex betting broker you are using, the banking methods of depositing and withdrawals are very easy and smooth. You want to deposit money to make bets ASAP and get your money, hassle-free, with fast withdrawals.
The Platform
When you check out forex betting sites, you will see they use a trading platform. Take some time to get familiar with it, as that is the forex spread betting platform you will be using to make bets. Check to see if the platform used has all the info you need when making a forex bet. Keep in mind that for Forex betting, for example from Pennsylvania, you wont be able to use the standard PA betting sites you'll need to check the specific platforms available in your state.
Customer Service
Make sure that the forex betting site you use has solid customer service. You want to ensure that when you have an issue, you get it resolved as soon as possible.
Do some homework with forex site reviews to see which ones have a solid customer service department.