Often I am asked whether it is better to trade Forex using a Spread Betting Account or a traditional Forex Broker Account and my answer is always - that depends upon several factors and they are:
- If you are not yet a consistently profitable Forex trader then stick to a Forex Broker micro-account/mini-account. This allows you to trade smaller lot sizes and stay trading for longer and costs less to re-seed your account should you have to, whilst you are learning to trade Forex profitably.
- If you are a consistently profitable and you are making sufficient money in the Tax year to have to declare your profits to the UK Tax Man (HMRC) - i.e. are you liable for Capital Gains Tax, then you may like to consider trading in a Spread Betting Account, the profits of which are currently tax free. Everyone has a Capital Gains Tax Allowance of £10,100. So currently you would need to be making more than £10,100 and then the additional figure would be taxable at 18%, for 2009/10 tax year. (These figure may change after Weds 24 March 10 - Budget Day)
- The next issue to consider is whether you have sufficient funds to place in a Spread Betting Account. Most people open a Spread Betting Account with insufficient funds and then proceed to lose it all. To stay in the game you must be able to withstand a run of losing trades and also apply Fractional Money Management to your trades, so that you are not risking more than 1% of your account on any one trade.
- Spread Betting Accounts often have restrictions on the smallest position size you can take, so you need to make sure you are able to operate your fractional money management and not risk more than your allotted account percentage on any one trade by having sufficient money in your account.
- However, if you are sufficiently capitalised, consistently profitable, making more than the current UK Capital Gains Threshold and also a UK taxpayer then it may be advantageous to trade Forex using a Spread Betting Account.
- One useful aspect of Spread Betting is that you can then trade Forex Quarterly contracts (like a Futures Contract), this is useful for longer term position trading and cuts out the daily swap or spread at daily rollover. You can also set up your accounts to automatically rollover these types of contract at each quarter end, if you so wish.
- IG Index - minimum spread bet size is £0.50 a point
- Capital Spreads - minimum spread bet size is £1 a point
IG Index also offers their Trade Sense beginners course and introductory period with minimum spread size of £0.10 for weeks 1 - 2, then £0.20 for weeks 3 -4 and then £0.50 for weeks 5 - 6, once you opened an account with them.
Capital Spreads also offers free seminars to help the novice Spread Better, through to Trading Strategies and Advanced Trading.
You will still need to plan and keep tabs of your trades in your chosen charting platform such as MT4 which tend to have better analysis tools than Spread Betting Account providers, but it is fairly simple to have both applications open at the same time to set up your trades.
A Top Forex Trading Tip is to make sure you have the selected Spread Betting Account Dealing Desk Telephone Number written down somewhere accessible and also programmed into your phone so that you can mange your trades should you have a laptop or PC crash on you.
I hope that helps to answer those questions.
Great trading
Martin
www.forex-crazy.com
