Hi Traders,
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.
The next question I am then asked is who would you
recommend for a Spread Betting Account? I have two Spread Betting
providers that I favour they are:
- IG Index - minimum spread bet size is £0.50 a point
- Capital Spreads - minimum spread bet size is £1 a point
Both have user friendly platforms and good customer support.
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 Broker or Spread
Betting Account Number and 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.
