If you follow foreign currency trading to any extent, you will know that it has become extremely popular in recent years, but is also quite restrictive, with set amounts of currencies to be bought and sold. It also requires an account with a specialist broker who deals in foreign exchange, or Forex as it is known. There is an easier alternative in the form of currency trade spread betting.

To be clear, Forex spread betting does not involve actually buying or selling any currency at all, which means that you do not have to figure in all those exchange commissions. But trade spread betting like all spread betting takes the form of placing a wager on the movement of a price, in this case the exchange rate between two currencies.

When you open an account at a financial spread betting provider, you will find that you are able to spread bet on many different things, and most spread betting companies include foreign currencies in their list of bettable items. All you need to do is place a correct bet on which way a currency’s value will change so that you can profit using spread betting.

Foreign currency is always traded in currency pairs, as it is the relationship between the money of the two countries that matters. So you have to decide which one is the stronger, and make a bet on that. You have complete freedom to bet on either currency, and what is more your bet does not even have to be made in one of the currencies, but just in your local money, again saving on commissions. For instance you can bet on the change in value of the US dollar against the Japanese yen, or in Forex speak the USD/JPY, and stake £1 per point.

When you ask for a quote, or go online to find one, your spread betting company will give you two numbers. One is what you can “buy” at; the other is to “sell” at. When you place the bet you choose to buy or sell, which equates to whether you think the price will go up or down, and to close your bet (and hopefully take your profit) you do the opposite. The difference between the buying and selling prices is called the spread, which is where spread betting gets its name, and the spread is the set amount that the provider gets for taking your bet.

When you place your bet, you will notice that there is a set time and date for the bet to end. This is because the betting rules require it; but nothing stops you closing your bet at any time, even right away (though you would lose the amount of the spread if you did so).

If you are interested in foreign currencies, and can follow the many factors that change their relative values, such as government actions, relative strengths of the economies, and border controls, then you will find that trade spread betting offers an easy way to profit from your expertise.

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The world of currency exchanging is often simply described as “forex” or foreign exchange. It is a somewhat complex way to make profits, and often demands relationships with various brokers and financial institution. If, however, you want to make money on your personal knowledge or predictions about the forex markets you can do so without ever exchanging money. This is known as trading spread betting, and it makes its money by placing wagers on anticipated falls or increases in the value of specific currencies.

How is this different from standard forex trading? It does not actually trade currency, but instead earns income from accurately predicting and wagering on the behavior of that currency in a specific market. Usually this means that a trader is capable of hedging the value of their portfolio, even if they must perform a short sell or retain a losing asset.

How is this variety of trading spread betting done? It requires the trader to find a reliable spread service, and then to create a funded account with it. They must then request a quote for their bid. When they receive it they will see that it offers up two options – these are described as:

•    The choice to go long (buy) or;
•    The choice to go short (sell).

The difference between the two numbers attached to the options is referred to as the spread. The spreads are usually the creation of the actual spread betting agency, and can vary widely.

Where forex is concerned, the trader would be offered a set value on a currency with some sort of expiration date attached to this quote. For this example, let’s say that the trader was going to make a wager on the United States Dollar against the Japanese Yen. The spread betting group would provide them with their predicted range of values and the trader would have to consider if they wanted to wager on the dollar increasing or decreasing in value, how many points they thought the quote was off, and then the per point stake on their estimate.

Clearly, no exchange of currency will occur, and the trader is making their wager strictly on anticipated performance.