The financial centres of the world engage in a variety of different trading activities, accounting for many billions and even trillions in assets on an ongoing basis. By far the largest portion of their trading business is in the currency markets, buying and selling foreign currencies to profit on their value. The natural fluctuation of exchange rates and their directly variable nature to economic activity and government policy make currency a good market for traders to be involved in, and as a particularly volatile sector of financial trading, makes for significant profits.
Aside from trading in the forex markets directly, traders can also take positions on a variety of different currency pairings through spread betting on the forex markets. While it might seem like an alternative of very little consequence, trading forex markets through a spread betting platform can actually be a significant financial and practical advantage for traders, using the same market basis for investing but without many of the disadvantages of straightforward forex trading.
First up, there's the leverage advantage. While forex is of course an extremely leveraged trading product, it often cannot compare to the benefits that arise from trading the same product through a spread betting platform. While forex trading involves leverage that is borrowed from the broker, spread trading is notionally a gambling product - the leverage manifests in payouts of many multiple times the original stake placed. This paves the way for spread betting positions to be more profitable in many cases than their direct counterparts in the forex market, depending on the degree of leverage you are permitted and can fund.
Perhaps a more interesting distinction between the two forms of investing is the tax treatment. Forex trading profits are taxable as capital gains or income, depending on the form they take, whereas spread trading income is not. This can save some 20%, or even 40%+ on trading profits - a significant financial incentive to choose a spread betting angle for your forex trading. In practice, the distinction between the two forms of trading can seem artificial, but with the tangible cost benefit at such significant levels as far as tax liability is concerned, it may make financial sense to opt for the spread betting option.
Aside from taxation benefits, trading forex through spread betting platforms also has another key advantage, in the form of a lack of financing costs. One of the major downsides of holding a forex position for any length of time is that considerable leverage attracts considerable financing costs, which come straight off your bottom line (or directly out of your pocket if your trade goes wrong or hasn't moved enough to cover the financing costs). With spread betting, there are no financing costs to be borne - only a small spread cost, which is factored into the transaction anyway and represents (usually) the full extent of costs and fees payable to the broker.
Trading forex straight and through spread betting each offer their own advantages depending on the exact nature of the transaction and the situation you find yourself in. However, if you're a straight forex trader who has avoided spread betting until this point for whatever reason, it might be worth considering making the switch for your next transaction.
