Broker to Trading

Spread betting is a type of provider in the UK. Spread betting has similarities with CFD trading, and in both cases the trader does not own any assets. Spread betting allows the trader to go long and short on markets and to use leverage (increasing leverage increase risk). Spread betting is available with Forex and providers which are seen as 'Forex brokers' may offer spread betting.

Spread betting is trading on price movement, rather than buying and selling assets and losing or gaining on the difference when the trade is closed. So the trader does not own any underlying asset when spread betting. Forex trading is trading Forex pairs, which are pairs of currencies. The trader can analyse Forex pairs with a wide range of techniques, including technical and fundamental analysis. The aim of this analysis is to find indications of the way and direction a pair will move in the future, based on past movement.

Tools to provide this indication include technical indicators, which typically use a formula to gauge market direction and factors such as volatility. This formula is based on repeated patterns which have ocurred in the past. Forex traders may use indicators such as RSI, which can indicate overbought or oversold market conditions and Bollinger Bands, which can indicate changes in voaltility. For example, a move may emerge from reduced volatility and fade from increased volatility.

These patterns in Forex trading are one reason why it is a complex and difficult market to trade, as what seems like an ongoing directional move may be a precursor to a change. However when trading on indicator signals, rules can be generated for the trader about how to enter, manage and exit a trade. These can and do produce incorrect forecasts. This can be taken a step further with automated trading, where a computer program applies rules based for example on an indicator, and can do so without tiring.

Technical analysis, fundamental analysis and automated trading are key parts of Forex trading (though traders may focus on one or more of these approahces). There is a wide range of CFD providers who offer platforms supporting these styles, however spread betting brokers may not offer automated trading platforms. This said, some do (and are included in the table above).

In all events it is possible to trade Forex without automated trading, and indeed automated trading can be seen as an advanced strategy as it delegates trading decisions to a computer program (i.e. the trader may want to understand how an automated strategy works, before using it). With technical and fundamental analysis, the trader is making the decision to trade, but based on the rules they are following. However this type of trading allows the trader to follow the rules for the signals, to a greater or lesser extent (i.e. to trade at their own discretion). With a computer program, the rules are followed exactly.

In some cases CFD markets are charged commissions. However spread betting does not charge commissions as the cost of the trade is contained within the bid/ask spread. This means that spreads while they can be tight, will tend not to be as low as those on some CFD trading accounts (which may go as low as 0 for the most liquid markets, plus commission).