Spread Betting vs. MT4 broker

Filed under: Learn Forex Trading |

For today’s forex-related article, I would like to briefly look at the pros and cons of using a spread betting platform vs. an MT4 based broker. They are very different forms of trading, and here is a rundown in case you are not familiar.

 

Spread betting is classed as a form of gambling, where you ‘bet’ on whether a currency or stock is going to go up or down. You usually bet on a set amount per point. So if a currency moves by one hundred pips in the direction that you bet, and your bet was for 1 GBP per point, then you would be 100 GBP in profit. Nice and simple for the beginner, but there are a few problems. The spreads are wider, and the prices are not as reliable and tend to spike more. However, this is partially offset by the fact that you do not have to pay any tax on the profits that you make, as in the eyes of the government; it is a form of gambling.

 

Trading via an MT4 based broker is much different to spread betting, and more complicated. It is complicated because of the way that trades are made; by buying something called ‘lots’. You have to do some pretty serious maths in order to work out what your risk would be on a trade, and if you want to limit your risk to a set amount, then it is even more difficult to work out and by the time you have, the trade opportunity could be gone. You also have to pay capital gains tax on any profits at the end of the year (if they are over the tax allowance), as it is regarded as investing if you trade in this way. So what are the benefits and why don’t you just use a spread betting platform? Well, the prices that the brokers give are much more reliable so your system or methodology has a much better chance of success!

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