How to Get Started with Forex and Spread Betting

1Unreliable and sometimes unsafe get rich quick schemes can be found all over the internet, promising huge amounts of cash for next to no work at all. They are almost all of course a waste of time – there’s simply no such thing as being able to get rich quickly aside from being lucky enough to win a competition or something like that. Having said that, the financial markets, and more specifically forex, do offer the potential for money to be made quite quickly if you’ve got the skills and something to invest. It used to be the preserve of only those with a large amount to invest, and contacts in the industry, but developments over the last couple of decades make it now open to just about anyone that wants to give things a go. The trade-off is of course risk, as with any other investment that you might choose, but if you think you can manage that, then read on.

The Basics of Forex

Forex (a condensed version of foreign exchange) trading is simply about buying or selling a currency pair (such as GBP/USD) in order to make money, because the value of one against the other is in constant flux. This happens because of supply and demand – some currencies are in more demand at different times than others. If you buy a currency before it goes up in value against the other one in the equation, then you’re in profit, and the same is true if you sell when the price is about to fall. If you think about travel money as an example, the bureau makes money by selling to you at a higher price than they buy.

It’s important to note however that there are many different ways of actually speculating on these price changes, as in not every scenario will you actually own any of the currency. Derivatives are financial products where price changes are derived from the genuine price of the currencies, but you’re not actually holding large quantities of the currency at any given time.

Spread betting is one such method of financial speculation, and unlike some others like options and futures, it’s very simple to understand. Essentially, you wager an amount of money of your choosing for every pip (the fourth number after the decimal point) that the price changes in the direction of your choosing. There are a few additional details that you’ll need to learn, such as what the spread is, but it’s all quite simple, and is the reason that spread betting is so popular amongst beginners. It’s actually very similar to sports spread betting, where you bet on the amount by which one team might beat another.

Due to this similarity, it’s worth pointing out that spread betting is not a legal financial product everywhere, most notably in the United States. It is however very commonly traded through London, which is currently the world’s largest centre for forex. This shouldn’t confuse you into thinking that spread betting is gambling however. While it does bear several similarities, the fundamental difference is that decisions are based on sound strategy and planning, not simple gambling.

Getting Started

Following on from this, the first thing you should do if you want to get involved is to do plenty of research. Make sure you know everything you can, and in particular, you need to come to terms with, and know how to manage, risk. As we’ve already mentioned – this is not your typical way of making money – you can lose as well as earn a profit. This is especially true when it comes to what’s known as leverage, or ‘trading on margin’. This is where you only need to deposit a portion of the funds that you theoretically control. The idea is that this means you don’t have to have all of your capital tied up at once in order to make good money. The issue is that this also amplifies losses as well as gains, so you really need to be on your toes. You don’t have to use it, but it does make it far easier to make significant amounts of money in a shorter period of time.

Most of your learning will of course be taken up in understanding how to predict the directions in which prices will move, as this is naturally the key to turning a profit. Roughly, there are two schools of thought that you’ll learn about, and they are technical and fundamental analysis. Fundamental analysis is all about understanding what drives the markets, using both data and analysing current events to predict the next move of a currency. Technical analysis however focuses almost entirely on the patterns created on a price chart, looking for signals that indicate what is about to happen.

Once you know what you doing, you can find yourself a broker like ETX Capital, which is the company that handles your transactions. Modern forex trading is entirely computerised, so once you’ve set up an account and have your trading platform, whether on your laptop or smartphone, you’re theoretically ready to go.

Now, there are many to choose from, offering different prices, account types and platforms, so you’ll have to do some comparisons. You should always start out slowly as you get a feel for things, and if possible try out a demo account first – lots of brokers offer them and it’s a good way of finding out if you’ve actually got what it takes.

Getting involved in spread betting then, is not too difficult. There are clear and easy steps to follow, and as long as you understand full the risks, there’s no reason you can’t try your hand. Don’t be disheartened if you find things tricky to begin with either – there’s definitely a steep learning curve here, and even the best traders in the world weren’t naturals from the very beginning. Who knows – whether you choose to trade full or part time, this could be your calling.

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