Spread forex foreign exchange investment is moving mainstream: The advantage of spread forex investing over buying stocks is that it offers one of the easiest ways to bet on the market’s downside, as it has in recent months. In addition, bets are exempt from stamp duty and any gains are not subject to capital gains tax (CGT).
Most regular readers will be fully aware that the best way to strengthen your trading account is to trade with leverage. In the old days, the only way to take advantage of a stock position in the UK market was to buy or sell individual stock futures, or use options to take a call or put position. Today, the undisputed heavyweights of the trading world seem to be excellent derivatives, such as Spread Forex and CFDs. This is great for day traders and spread traders alike. Forex investing is certainly a tool. Most of us can use the speculative portion of our portfolio with great success, but everyone should have a multifaceted one. Wealth creation methods and beyond mere trading.
Spread Forex investing is a useful tool for occasional bets, although I have to admit that I do not advocate short selling. I find it destructive these days that some “short sellers” attack totally unworthy stocks with a very high-profile shout out, and its effects are sometimes very long-lasting, long after the short sellers profit and leave. People are afraid that if a stock has just been hit, they won’t buy it for fear that it will happen again. In the medium term, a company can be so disrupted that it can only raise money at low prices and suffer even more as investors lose faith in it.
In some cases, however, a stock has outperformed itself so much that it is foolish. It can be useful to place a bet if you are convinced that a stock is about to be downgraded by a re-rating. I’ve tried it countless times and it works for the most part. Also, one can use spread betting as a way to add to existing long-term assets at a lower cost than buying more stocks, rather than forex investing against short-term stock market movements, let alone going ex-dividend
These products are very popular and are estimated to account for more than a third of the total trading volume on the London Stock Exchange. CFDs and Spread Betting are transactions between a client and his broker, so they do not go through an exchange per se, but hedging that a dealer implements to cover his position does result in an exchange transaction.
This shift from equities trading to derivatives trading worries some observers because it could lead to a loss of liquidity in the spot market, especially for smaller stocks. Gavin Oldham, chief executive of retail stockbrokers Share Centre, said they said this was supported by the stock market [hedging] business, but trading volumes had been offset.
At the retail level, foreign exchange investments are growing faster than CFDs. Anyone who spreads their bets thinks they will win, so they don’t want to pay tax, and in the UK there is no capital gains tax on spreads on foreign exchange investments. Because you don’t own the contract (share), but betting on the outcome makes it a gamble. Otherwise, the procedure is very close to trading through a futures broker. All companies are regulated in the UK (unlike Forex). People who fail in spread forex investing will most likely not be able to trade through traditional futures brokers. If you live in the UK and are not keen on scalping, spread forex investing may be more advantageous due to favorable tax laws, this does change tomorrow, next year, 10 years from now, etc.
Retail investors have started to diversify their forex investments from CFDs, but few have taken the opposite approach. In institutions, no one uses spread betting because the company pays taxes.