How has Spread Betting Changed Forex Trading?
If you-'ve followed the evolution of the financial markets throughout the ages, you-'ll note that the rate of change has increased exponentially over...
If you've followed the evolution of the financial markets throughout the ages, you'll note that the rate of change has increased exponentially over the course of the last decade or more. At the heart of this is the rise of technology, which has transformed the role of brokers and removed many of the barriers to entry that once surrounded the financial marketplace.
Innovation has also created new and flexible ways for traders to access the markets, particularly lucrative and historically volatile entities such as the foreign exchange.
Take spread betting, for example, which has revolutionised forex trading while helping to create an entire generation of part-time investors. Here's how:
What is Spread Betting?
In simple terms, spread betting (which may also be referred to as contracts for difference) is a complex financial instrument that makes lucrative markets with significant leverage more accessible to traders.
It enables people to trade on specified price movements in the financial markets, without being forced to assume ownership of an underlying instrument. For instance, you can bet that the price of a particular asset will rise or fall within a predetermined period of time, and these actions are referred to as "going long" or "going short" respectively. Due to the nature of spread betting, the returns or losses that you generate are marginal, meaning they'll be larger than your initial investment.
As a result, it has become an exceptionally popular trading vehicle for individuals who invest in stocks and currencies, although it can be applied to a growing range of assets and marketplaces in the modern age.
What Impact has Spread Betting had on the Forex Market?
If we focus solely on the forex market, we can begin to see the precise impact that spread betting has had on the lives and experiences of individual traders.
On a fundamental level, spread betting has offered flexibility to traders and made it possible for them to profit even in a depreciating market. This is particularly true for day traders, who can already leverage the high level of liquidity in the forex market and execute a large volume or orders within a short space of time without impacting negatively on price points.
By also utilising spread betting, they can capitalise on short-term, macroeconomic trends and market conditions regardless of whether they are positive or negative in their nature.
As spread betting is defined as a leveraged product, it also enables traders to gain considerable exposure to currency and the forex market. This can be achieved without requiring them to invest a huge amount of capital, as investors can instead lay down a fraction of the amount actually required by the underlying assets directly.
This has dramatically improved the level of accessibility to the marketplace, particularly among novice and part-time currency traders. As a result, the rise of spread betting has also triggered an increase in the number of traders active in the forex market, while daily trading volume continue to peak at an estimated $5.3 trillion per day across the globe.
The Last Word
With these points in mind, there's no doubt that spread betting has transformed volatile entities like the forex market into increasingly accessible and viable options for investors.
These markets still carry an inherent risk, of course, while spread betting itself can cause investors to lose more than their initial commitment if things go awry.
Still, these risks are outweighed by the benefits of spread betting, particularly in terms of the flexibility and opportunities that it offers to traders.