Why Forex

Hi guys

This may be a stupid question but.....

Why would anyone in the UK trade forex when they can spread bet instead?

Doesn't make sense to me.

Good question. I don't know much about them, but I think spread betting is exempt from Capital Gains Tax, isn't it?.....

yes because it is considered a form of gambling however not being from the UK I cannot comment past what I have heard. I guess its a matter of whether there is a reputable broker that offers spread betting and the ins and outs. Perhaps someone from UK who has/is spread betting can shed some light on this.

Razor

Intel,
no experience with spread betting, but i think the reason is: (personal) preference.
or something to do with advantages/disadvantages.

The simple answer is Broker Leverage. For many new traders, who are starting with a small fund, there isn't the flexibility you can get with the normal FX Market Makers.

For example, if your method calls for 100-pip stop and the smallest position size available to you is .50p (standard with most SB firms) then you need a fund of at least £5000 to arrive at a 1% risk profile.

Another problem is that virtually all the main SB firms have a system whereby each trade is actually closed overnight and re-opened at a new price. The spread is applied with each new trade, so, on trades that need be to held for days through any sort of drawdown, it's theoretically possible to find your account's true balance being eroded by a series of daily losses.

The tax advantages are that SB trades are treated as gambling (under present tax laws) so, in theory, aren't liable for income tax. If you can prove that betting isn't your sole source of income you won't pay income tax. In addition, because you aren't actually buying/selling any underlying instrument there is no Capital Gains Tax either. This aspect doesn't apply to CFDs, as I understand it, so these are less attractive from a tax standpoint.

Ah I see,

So the main reason is probably the min bet value. As far as I can read, the 'closing' of trades over night doesn't apply to forex 'bets' but there maybe a higher spread to pay for this privilage.

I think I will try SB instead while using MT4 to chart.

Thanks folks for your help.