Both of these products allow you to speculate on the movements of currency markets without making a physical trade, but they operate in slightly different ways. With spread betting you stake a certain amount in your account currency per pip movement in the price of the forex pair. Forex traders have been using spread betting to capitalise on short-term movements for many years now.
Find out more about spread betting. With CFDs you buy or sell contracts representing a given size of trade. Your profit or loss is calculated in the second currency, in this case US dollars, and then converted if necessary into your account currency. Find out more about CFDs.
Instead you put down a margin deposit, which is a fraction of the full value. Your profit or loss is realised when you close your position by selling or buying.
Spread betting and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. You should consider whether you understand how these products work and whether you can afford to take the high risk of losing your money.
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Details about the extent of our regulation by the Financial Conduct Authority are available from us on request. Forex explained The aim of forex trading is simple. Forex trading spread Like any other trading price, the spread for a forex pair consists of a bid price at which you can sell the lower end of the spread and an offer price at which you can buy the higher end of the spread. Calculating your profit Take another example.
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An exchange rate is simply the ratio of one currency valued against another currency. The reason they are quoted in pairs is because, in every foreign exchange transaction, you are simultaneously buying one currency and selling another.
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When buying, the exchange rate tells you how much you have to pay in units of the quote currency to buy ONE unit of the base currency. In the example above, you have to pay 1.
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When selling, the exchange rate tells you how many units of the quote currency you get for selling ONE unit of the base currency. First, you should determine whether you want to buy or sell. If you want to buy which actually means buy the base currency and sell the quote currency , you want the base currency to rise in value and then you would sell it back at a higher price. If you want to sell which actually means sell the base currency and buy the quote currency , you want the base currency to fall in value and then you would buy it back at a lower price.
The bid is the price at which your broker is willing to buy the base currency in exchange for the quote currency.
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This means the bid is the best available price at which you the trader will sell to the market.