Differences Between Spread Betting and Forex Trading

1. What Is The Difference Between Forex Trading And Gambling Sites
2. What Is The Difference Between Forex Trading And Gambling Industry
3. What Is The Difference Between Forex Trading And Gambling Losses
4. What Is The Difference Between Forex Trading And Gambling Losses
5. What Is The Difference Between Forex Trading And Gambling Money
6. What Is The Difference Between Forex Trading And Gambling Terms

What Is The Difference Between Forex Trading And Gambling Sites

Day trading can look similar to investing and gambling at first glance, but actually, it is totally different from one another. Day trading requires quick reaction. It also goes along with odds in your favor and not something that is against you. But these activities – investing, gambling, and trading – overlaps each other. These are the only similarities between forex trading and gambling. As there is more to gambling than just gambling so there is more to trading and with this mindset, we can educate ourselves and explore the ways to make a consistent profit. Why is Forex trading more than gambling? First things first, let’s talk about math.

While some people think that spread betting and Forex trading are very similar, in fact there are a number of important differences between the two that need to be understood. Perhaps the most important difference between the two types of transactions is that spread betting is recognised as a form of gambling under the law of the United Kingdom while Forex trading is officially recognised as a form of speculative investment. Although there are many similarities between the two thing, the official gambling status of spread betting means that there are tax implications that stand to benefit the investor.

Tax Free Profits

When dealing in any form of official financial speculation, such as Forex trading, the investor must pay tax on their profits. Although these sums may seem small on each transaction, they will eventually add up and for the serious trader can end up being a large amount at the end of the year. Spread betting is a little different as the trader never purchases any kind of futures contract but is instead placing a wager as to which way they believe the market is going to move. As there is no physical sale or purchase and because spread betting is officially gambling under UK law, this means that there is no Stamp Duty or Capital Gains Tax to pay on any profits and this results in the investor being permitted to keep 100% of the money that they have earned. This obviously is very attractive to the investor and substantially benefits traders who choose this type of transaction. The tax exemption only works if spread betting is not the main source of income for a person.

Commission

In spread betting, there is no commission to pay on any transaction as the spread betting provider makes their profit from the difference between the bid and the ask prices. This is also the case with spot Forex, as the brokers typically charge commissions only on their Electronic-Communication-Network (ECN) accounts. Similar to spread betting, spot Forex transactions are monetized by the spread markup.

Breadth of Markets

While Forex trading is specifically referring to the trading of currency pairs to make profit, spread betting in its widest form allows instant access to more than 12,000 worldwide financial markets from shares to commodities. It also even offers investors the opportunity of accessing unusual markets such as house prices, sporting events, or even political events. Of course, for those who prefer to trade in currency pairs, this can also be done through spread betting.

Islamic Law

One important difference between spread betting and Forex trading is that spread betting is considered to be a form of gambling, and therefore is not acceptable under Muslim laws. Forex trading, on the other hand, can be carried out under Islamic law and most brokers offer the opportunity for Muslim traders to open a special Islamic account to enable them to take advantage of this type of trading.

Legality

Spread betting has a smaller geographical coverage, this is for certain. It is, perhaps, most widespread in the UK and Ireland, but it also gets quite some traction in Canada. However, spread betting is banned nationwide in the country where it was invented - the United States. There are a few reasons for this, the main one is, of course, its biggest advantage – tax-free profits. Next to the USA, there are a few more countries where Forex trading is allowed but spread betting is banned. One of such examples is Japan, a country where online betting is only allowed for for lottery, soccer toto, and public sport. Other countries, like Australia, have recently allowed spread betting, but it does not come with tax exemptions. Typically, spread betting will always be illegal in the countries that prohibit online gambling and betting.

Similarities of Forex Trading and Spread Betting

While there are several differences between the two types of financial transaction, there are a number of similarities too between Forex trading and spread betting.

What Is The Difference Between Forex Trading And Gambling Industry

Leverage

Both Forex trading and spread betting are leveraged products, meaning that the investor is only required to place a small amount of the entire value of their position. Investors must remember, however, that their exposure will be much greater than the amount outlaid, and while leverage offers the potential to make bigger gains, it also means that there is a much greater potential for big losses if the markets do not move according to expectations. Spread betting providers may offer higher leverages than Forex brokers and, while this can be good news for the experienced investor, it can also lead to financial trouble for those who have a poor understanding of how leverage works and insufficient knowledge to know how to use it properly.

Platforms

Spread betting and Forex trading are carried out on the same trading platforms using the same interfaces. This means that both are equally easy to do as the interfaces are user-friendly and designed to accommodate the needs of traders both experienced and novice. Many brokers offer both Forex trading and spread betting on their websites meaning that it is easy for investors to try their hand at both types of investment without having to register with another site.

Profiting in a Falling Market

Both Forex trading and spread betting allow the trader to profit in any type of market, whether it is rising or falling. In the case of spread betting, a trader only predicts whether they think the market for their chosen asset will rise or fall, so it makes no difference what moves the market actually makes as long as their prediction turns out to be correct. Similarly, in Forex trading, it is possible to make a profit whether the market goes up or down depending on whether the investor chooses to buy or sell.

Should a Trader Choose Spread Betting Over Forex Trading?

While Forex trading is considered to be a serious form of financial transaction and is officially a type of speculative investment, spread betting does not enjoy the same reputation. Officially a type of gambling, those who are looking for a serious investment may not wish to consider spread betting. However, there are excellent financial reasons for doing so. Spread betting offers spreads which are similar to those offered by Forex brokers, however the key difference is the tax which is levied on it. Many traders prefer spread betting over traditional Forex trading as they believe that there is no benefit in using an FX broker if the spread offered is the same as that offered through a spread betting provider. This is because in the Forex transaction they would be obliged to pay tax on their earnings, whereas during spread betting, there is no tax obligation to be paid.

Which Is Better? Forex Trading or Spread Betting?

It is difficult to say which of the two trading types are better, and there are different circumstances in which each would be the best choice. An important point to consider is that not every top Forex broker will offer spread betting to its clients in the first place. The advantage of Forex trading over spread betting includes its compliance with Islamic law, which is an obvious benefit for Muslim investors, as well as its recognition as a reputable and serious form of investment, however spread betting has the edge financially, because of its tax implications. The attraction of having no Capital Gains or Stamp Duty taxes to pay on profits often draws in increasing numbers of UK investors.

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The two main ways to make money via the stock exchange are by Forex trading or spread betting. Both platforms increase in popularity year after year, but what are the differences between the two? Which one will suit you best?

What Is The Difference Between Forex Trading And Gambling Losses

They both have similar economic values and benefits, but don’t be fooled; they need to be handled very differently. Read on for more information on the differences between the two, along with what you should watch out for when it comes to both spread betting and Forex trading.

Differences

Both Forex trading and spread betting will mean you will need to keep your eye on the Forex market. Those who want to trade Forex will need an account with a broker that can handle such market. Spread betting is a more versatile field in terms of the broker you can choose, because many of them offer it as a supplementary service. Both utilise a platform that can be either software or web based, meaning that getting up and running in either field isn’t too difficult.

Tax Advantages

What Is The Difference Between Forex Trading And Gambling Losses

Tax makes up a big part of every trader’s expenses, so a big upside to choosing spread betting is the tax advantages involved. Those based in the UK can utilise spread betting to avoid taxes on any Forex trades, this is because gambling winnings are completely tax-free. Spread betting qualifies as gambling, instead of a traditional financial transaction. Standard Forex trading on the other hand can be tax heavy, you are in a sense doing a similar activity on a larger scale, yet paying more for the privilege of doing so.

Multiple Markets

The degree of market access offered is where spread betting succeeds and trading Forex fails. Spread betting allows you to branch out and invest your money across multiple markets at one time. If you are operating within a specialist Forex broker then odds are you will be strictly limited to just Forex trading. Those who spread bet can utilise not just the Forex market, but also stocks and commodities as well. Out of the two, spread betting will provide you with a greater level of flexibility.

What Is The Difference Between Forex Trading And Gambling Money

Interest

Forex trading often requires you to hold a position for longer than a day, should you do this you will either earn or pay interest. Every day you continue to trade and hold the same position, interest will be applied. Spread betting is different, as swap charges won’t be applied when you hold a position for longer than a day, allowing for a greater sense of simplicity and transparency.

Final thoughts

What Is The Difference Between Forex Trading And Gambling Terms

The differences between the two markets generally occur when it comes to costs, but outside of that the differences are negligible at best. Those based in the UK must decide whether they like the traditional and robust nature of Forex trading, or the gambling centric nature of spread betting. Remember, before you commit to either of them do your research, and don’t sign up to any platform that you’re not comfortable with.