Forex Spread Betting UK – Beginner’s Guide

Most forex traders trade CFDs online, but if you do forex spread betting, all of your profits will be exempt from capital gains tax!

In this guide, we explore how Forex Spread Betting UK works, what benefits it offers, and the best commission-free platforms you should use.

How to Start Forex Spread Betting UK

The end-to-end process of forex spread betting UK is very simple. By following the guidelines below, you could be placing your first forex spread betting position in less than 10 minutes!

  • Step 1: Register an account with a top-rated spread betting broker. We like Capital.com as the platform offers commission-free spread betting markets and the minimum deposit is just £20.
  • Step 2: Once registered, make a deposit with your UK debit/credit card, e-wallet, or bank account transfer
  • Step 3: Head over to the forex trading section of the site and select the currency pair that you wish to trade (e.g. GBP/USD).
  • Step 4: Select from a long or short position, enter your stake, and if applicable – the amount of leverage you wish to deploy.
  • Step 5: Place your order to complete your commission-free forex spread betting trade at Capital.com

Once the position is live, you can close it manually to exit the trade. Alternatively, it’s also worth setting up a stop-loss and take-profit order so that your position is closed when your risk/reward price is triggered.

Forex Spread Betting Explained

If you are an experienced forex trader then you’ll be pleased to know that spread betting is very similar to CFD trading. However, there are a number of differences too – so it’s best to read through the sections below before you embark on your forex spread betting UK journey.

What is Forex Spread Betting?

Financial spread betting is a form of online trading where you are required to predict whether an asset will rise or fall. In the case of forex spread betting UK – this will be a currency pair like EUR/USD or GBP/TRY. Much like you would at a traditional forex trading site, the overarching objective is to determine whether the exchange rate of your chosen pair will increase or decrease in value.

Much like a conventional CFD broker, you get to choose from a long (buy) or short (sell) position. This means you can attempt to make a profit from both rising and falling markets. Additionally, most forex spread betting UK platforms allow you to apply leverage.

forex spread betting UK

We discuss this in a bit more detail later – but when spread betting major forex pairs you’ll be offered leverage of 1:30, and 1:20 on minors and exotics. Crucially, when using a forex spread betting UK site, any profits that you make will be exempt from capital gains tax.

This is in stark contrast to traditional forex trading – which is fully liable for exemption – much like any other investment arena in the UK. As such, opting for a forex spread betting platform is a no-brainer – as long as you understand the ins and outs of how the phenomenon works.

How Does Forex Spread Betting Work?

In this section of our guide – we are going to break down each aspect of how forex spread betting UK works so that you can assess whether this form of currency trading is right for you.

Forex Pairs and Ownership

When you use a forex spread betting UK broker – you will first need to find a currency pair to trade. Like any other trading platform in this space, you’ll likely have access to a selection of major, minor, and exotic pairs. Once again, the objective is to predict whether the exchange rate of the pair will rise or fall.

As spread betting instruments are financial derivatives – you do not own any of the currencies in the pair that you are trading. Instead, the spread betting market simply tracks the actual wholesale spot price on a second-by-second basis.

Long or Short

In order to tell your chosen spread betting broker whether you think the exchange rate of the pair will rise or fall – you need to place an order. If you think the pair will rise, you’ll place a long order. If you think the pair will drop in value, opt for a short order.

Point Movements 

At traditional forex trading sites, you are likely used to identifying price movements in ‘pips’ (percentage in point). For example, if GBP/CAD moves from 0.8683 to 0.8687 – that’s a price increase of 4 pips.

However, in the world of forex spread betting UK – price movements are calculated in ‘points’. This isn’t anything to worry about – as the process of identifying profits and losses is much the same as doing so in pips.

  • For example, if GBP/CAD moves from 0.8650 to 0.8645, that’s a decrease of 5 points.
  • Or, if EUR/USD goes from 1.1890 to 1.1899 – that’s an increase of 9 points.

The reason it is important for us to mention this is that you place an order – you won’t risk a fixed amount like £200 or £500. On the contrary – you’ll be risking a monetary amount per point – which we explain in more detail below.

Stake Per Point 

This is perhaps the first major difference between trading forex spread betting instruments and CFDs. In a nutshell, you need to determine how much you wish to stake per point when spread betting.

For example:

  • Let’s say that you are looking to trade AUD/USD
  • The price on this pair is 0.7606 – which you think will rise in the next few hours
  • You decide to go long at a stake of £2 per point
  • Your speculation was correct – as AUD/USD is now trading at 0.7640
  • This translates into an increase of 34 points
  • You staked £2 per point – so that’s a profit of £68

As you can see, your profit was simply the number of points that your speculation was correct by, multiplied by your stake per point. Naturally, if you speculated incorrectly – the same calculation would determine your losses.

SPREAD BETTING UK GUIDE

Because of this, inexperienced traders are advised to start off with a small stake size. There are a number of brokers in this space that allow you to trade from 10p per point – which is very conservative.

Leverage and Margin 

When it comes to leverage, there is no difference between forex spread betting and CFDs. As we briefly noted earlier, forex spread betting platforms will offer you leverage of 1:30 when trading major currency pairs. This means that a £500 account balance would effectively permit a maximum trade size of £15,000. Minor and exotic pairs will get you slightly less – at 1:20.

When comparison spread betting vs CFD trading – margin requirements are also the same. That is to say, to access leverage you will be required to put up a margin balance. For example, if you trade with leverage of 1:10 – the margin amounts to 10%. If your position falls by 10% – your trade will be closed automatically and the spread betting platform will keep your margin deposit.

Expiry Date 

On top of the ‘point’ system (as well as tax which we cover later) – the other major difference between forex spread betting and CFD trading is the duration of each market. For example, when you trade CFDs – they never expire, so you can keep your position open for as long as you wish.

This wouldn’t be advisable because you will pay overnight funding fees for each day the position is live. But, it’s possible nonetheless. However, spread betting forex markets always come with an expiry date – similar to options or futures. This will either be a ‘daily funded’ bet or a ‘quarterly funded bet’.

FOREX SPREAD BETTING

71.2% of retail investor accounts lose money when spread betting and/or trading CFDs with this provider.

As the name implies, the former expires within 24 hours and the latter will expire within three months. All this means is that your position will be automatically closed by the spread betting forex broker on expiry.

Spread Betting vs Forex Trading

If you read through the above sections – you should now know the difference between spread betting and forex trading. To clear the mist further, below you will find the most notable differences for your consideration.

  • Global Markets: Both spread betting and forex trading give you access to an abundance of currency pairs – covering majors, minors, and exotics.
  • Fees: You will usually find that both spread betting and forex trading sites are commission-free – so all fees are built into the spread.
  • Leverage: There is no difference between spread betting and forex trading when it comes to leverage. All brokers must abide by FCA regulations – meaning majors are capped at 1:30 and minors/exotics at 1:20.
  • Duration: The traditional forex markets never expire – even outside of standard trading hours. Spread betting forex markets will always have an expiry date – which is either on a daily or quarterly basis.
  • Price Movement: Forex trading markets are usually calculated in pips. Price movements in the spread betting forex scene are based on points.
  • Stakes: When you enter a stake at a traditional forex broker – you will enter the total amount you wish to risk (e.g. £50). When spread betting, you need to enter your stake per point movement (e.g. £1 per point).
  • Tax: You will be liable for capital gains tax on your forex trading endeavors when you end the financial year in profit. All profits are, however, exempt from tax when you trade via a forex spread betting UK broker.

As you can see from the above, there are many similarities between forex trading and spread betting. The key differences center on tax, price movements, stakes, and the trade duration.

Benefits of Forex Spread Betting

The benefits discussed below are some of the main reasons why more and more traders are making the transition to forex spread betting UK platforms.

Forex Spread Betting Tax

Make no mistake about it – if you are a successful forex trader that makes consistent gains – your profits will be liable for capital gains tax. This is no different from buying shares and selling them at a profit later down the line. However, profits from forex spread betting UK falls under the remit of gambling.

That is to say, much like gambling winnings, spread betting profits are 100% tax-free. This is a major game-changer for seasoned forex traders that year-on-year have historically had to hand over a percentage of their profits to HMRC.

Low Trading Fees and Tight Spreads

Forex spread betting UK sites are able to offer you financial markets at extremely competitive fees. This is because the underlying asset does not exist.

spread betting forex UK

Instead, spread betting instruments track the real-time price movements of the pair in question. In turn, this is why a lot of spread betting sites in the UK allow you to trade commission-free. Spreads – which refer to the gap between the bid and ask price of the currency pair, as also typically very tight when spread betting.

Small Stakes

Professional forex trading is usually done in ‘lots’. In most cases, 1 forex lot will refer to 100,000 units of the base currency. For example, if you’re trading GBP/USD – that’s a lot size of £100,000.

This is, of course, out of reach for the average Joe Blogs that wishes to speculate on the forex markets with a small amount of money.

But, when using a forex spread betting UK broker – you can trade with an inconsequential amount. As we mentioned earlier, this is often at a stake of just 10p per point movement. And of course – you’ll also have access to leverage, which will allow you to enter positions worth much more than you have available in your spread betting account.

Other Markets

Spread betting isn’t reserved just for the forex trading markets. On the contrary, the best spread betting brokers in this space cover heaps of other asset classes. For example, across thousands of markets – Capital.com allows you to access spread betting instruments on stocks, gold, oil, indices, agricultural products, and more.

No Stamp Duty

You won’t be required to pay any stamp duty tax when you use a forex spread betting UK site. Once again, this is because you are not buying or selling the actual asset that you are trading.

Risk Management

Although spread betting is fraught with risk – especially when applying high levels of leverage, there are many tools on offer that allow you to reduce your exposure to financial loss.

  • At the forefront of this is stop-loss orders.
  • Much like you would at a conventional stock trading site, this allows you to specify the most you are willing to risk on your trade before it is closed automatically.
  • For example, if you set your stop-loss at 3% and your position declines in value by 3% – the forex spread betting broker will exit the position on your behalf.

Although losing money is never ideal, this is just the nature of online trading. Ultimately, by installing stop-loss orders on all of your spread betting positions – you can keep these losses in check.

Forex Spread Betting Strategies

It’s best that you have a number of strategies at your disposal before you join a forex spread betting site. This will ensure that you enter a trade with your eyes wide open and have a clear exit plan in place.

Some of the best forex spread betting strategies to consider as a beginner are discussed below:

Break-Out Strategy

A good forex spread betting strategy to learn is that of the ‘break-out’.

This will happen when:

  • The price of a forex pair moves above a previously identified resistance line. For example, if GBP/USD has historically defended a further upside movement at 1.350 – but it’s now at 1.380 – there is every chance that the pair will continue to rise.
  • A break-out will also happen when a forex pair breaches a historical support line. For example, if the support line on EUR/USD is identified at 1.1800 but the pair is now at 1.1760 – a further decline is likely.

To deploy this strategy effectively, you first need to identify where the support and resistance lines are on your chosen forex pair. There will be many, but some will be much stronger than others.

Then, you need to place appropriate entry and exit around in and around these support/resistance levels. By adding take-profit and stop-loss orders too – this will allow you to deploy the break-out strategy in a risk-averse way.

Swing Trading Strategy via Fundamental Analysis

You might know that seasoned forex traders that have a long-standing track record of making consistent gains, do so because they are able to perform advanced charting analysis.

Swing Trading Strategy

This requires years of trial and error and lots of independent learning. On the other hand, fundamental analysis is something that most of us would be able to pick up fairly quickly. This refers to evaluating financial news and attempting to assess how this will impact the value of a currency and thus – the exchange rate of a pair.

For example:

  • Let’s suppose that GBP/EUR is priced at 1.1520
  • It is announced that the Bank of England is planning to print £100 billion through quantitative easing
  • As this will devalue the pound – it is likely to result in GBP/EUR going down in value
  • As such, you could profit from this projection by placing a sell order at your chosen spread betting broker

The best thing about taking a fundamental research strategy is that you can keep your trades open for longer. In what is known as ‘swing trading’, this will give you the flexibility to keep a spread betting position for days, weeks, or even months. You will, however, need to keep an eye on overnight financing fees.

Best Forex Spread Betting Platform

So now that we have covered everything there is to know about forex spread betting in the UK – you’ll need to start thinking about which broker you wish to use. Important considerations to make should center on regulation, supported spread betting markets, trading commissions, and user-friendliness.

To save you from having to research a broker yourself – below you will find a small selection of the best forex spread betting UK sites for 2021.

1. Capital.com – Best Spread Betting Broker UK for Beginners (£20 Minimum Deposit)

new capital.com logo

We found that Capital.com is the best forex spread betting UK platform for beginners. You will have access to a wide range of markets – covering forex majors, minors, and exotics. This forex spread betting site requires a minimum deposit of just £20 – so you can give this form of trading a go without needing to risk more than you can afford to lose.

In fact, Capital.com even offers a demo account – so you can spread bet with ‘paper funds’ on a risk-free basis. Like all of the forex spread betting brokers we came across, you can trade with leverage of up to 1:30 on majors and 1:20 on minors/exotics. You can also choose from a long to short position on all markets. This is also the case with other supported assets – such as stocks, ETFs, commodities, and indices, perfect for FTSE 100 spread betting UK.

spread betting at capital.com

When it comes to fees, Capital.com does not charge any commissions in the spread betting department. Instead, you only need to cover the spread – which will vary depending on the market you are trading. You can deposit funds at this top-rated forex spread betting site with a debit/credit card or e-wallet. Bank transfers are also an option,but this will take a couple of days to arrive. Most importantly, Capital.com is regulated by the FCA – so you know that you are using a trusted provider.

Pros:

  • Over 3,000 markets
  • No inactivity fee
  • Discovery panel helps spot high volatility stocks
  • Integrates with MetaTrader 4 and TradingView
  • Highly responsive 24/7 support
  • Spread betting facility
  • CFDs on cryptocurrencies (professional clients only)

Cons:

  • Web Trader doesn’t support price alerts

Your capital is at risk.

 

2. Pepperstone – Best Spread Betting Platform UK for Advanced Traders

peppERSTONE SPREAD BETTINGMuch like Capital.com – Pepperstone is a spread betting platform that covers heaps of currency markets. This platform is, however, potentially more suited to experienced traders. This is because it is compatible with three highly advanced trading platforms – MT4, MT5, and cTrade. Each of these platforms will get you access to technical indicators and analysis tools.

Pepperstone also offers a Razar Account – which gets you access to industry-leading spreads. This is because you will be trading directly with other market participants. To give you an idea, you won’t pay any spreads on major pairs like EUR/USD, AUD/USD, and GBP/USD. Instead, you will pay a flat commission rate – which averaged $3.50 (or base currency equivalent). On top of forex, Pepperstone also offers spread betting markets on indices, commodities and spread betting shares.

spread betting at Peppertstone

Much like Capital.com, you will have access to leverage at this forex spread betting broker. This is once again capped at 1:30 if you’re a retail client. If, however, you meet the criteria to open a professional trading account – you will get leverage of up to 1:50 on forex. Finally, when it comes to safety – Pepperstone has a great reputation in the online brokerage scene. It is regulated by the FCA and you are protected by the FSCS scheme.

Pros:

  • Spread betting – no capital gains tax
  • Compatible with numerous platforms
  • 0% commission accounts
  • Raw accounts for zero spreads
  • FCA licensed
  • Accepts PayPal

Cons:

  • No proprietary platform
  • Doesn’t offer ETFs

Your capital is at risk.

 

How to Start Forex Spread Betting

If you are looking to get started with a forex spreading betting site today but have little experience in this trading space – it’s best to opt for Capital.com As we noted just a moment ago, this spread betting site is best suited for beginners.

As such, follow the steps below to start your forex spread betting journey at FCA broker Capital.com in less than 10 minutes!

Step 1: Open a Spread Betting UK Account

Visit the Capital.com website and open an account. You’ll be asked to provide some personal information like your name, address, and date of birth.

spread betting capital.com

You will also need to upload a copy of your UK passport or driver’s license. This is to ensure Capital.com complies with FCA regulations of anti-money laundering.

Step 2: Use Demo Account

If this is your first time spread betting forex – it might be a good idea to start off with the Capital.com demo account. This will allow you to practice your spread betting trades without risking any money.

Step 3: Deposit Funds

If you are ready to start trading with real money – the minimum deposit is just £20. This is only the case if you deposit funds with a debit/credit card or e-wallet. If you decide to transfer funds from your UK bank account – the minimum increases up to £250.

Step 4: Search for Spread Betting Market

Now that your account is funded, you can search for the forex pair that you want to spread bet.

forex spread betting UK

As you can see from the image above, we are searching for GBP/USD.

Step 5: Place Spread Betting Order

Now you need to set up an order. Click on ‘buy’ if you think the price of your chosen forex pair will increase, or ‘sell’ if you think it will decrease. You also have the option of setting up a limit, stop-loss, and take-profit order.

You will need to enter your stake, too. Don’t forget, this is the stake ‘per point’ and not the total amount you wish to risk.

Finally, confirm your order to place your first Capital.com spread betting position – commission-free!

Capital.com – Best Spread Betting Broker in the UK

Spread betting a great alternative to traditional forex trading. You will still have access to buy/sell positions and the ability to apply leverage. However, by opting for a spread betting broker – you won’t pay any tax on your profits.

The most important thing is that you choose a broker that is regulated by the FCA and that allows you to trade in a cost-effective way. Capital.com is a great option – as the platform allows you to spread bet forex on a commission-free basis.

Getting started at this top-rated FCA licensed broker takes just minutes and the minimum deposit is a very newbie-friendly £20!

new capital.com logo

71.2% of retail investor accounts lose money when spread betting and/or trading CFDs with this provider.

 

FAQs

Is forex trading spread betting?

There are many trading markets supported by spread betting platforms in the United Kingdom. On top of the forex exchange, this also includes stocks, indices (e.g the FTSE 100), and commodities.

Is forex spread betting tax free?

Yes - unlike traditional forex trading, profits made at a spread betting broker are tax free. Much like CFD instruments, spread betting markets are also exempt from stamp duty tax laws..

Is forex trading, spread betting or CFD?

Forex trading can be facilitated via spread betting instruments or CFDs. There are pros and cons to both - albeit, spread betting stands out because all profits are tax-free in the UK.

How much money do you need to start spread betting?

Most forex spread betting sites in the UK require a minimum deposit of about £100. However, by using newbie-friendly broker Capital.com - you can start spread betting with a deposit of just £20.

Who regulates forex spread betting in the UK?

Although spread betting profits are viewed in the same light as gambling winnings (i.e. they are tax-free), it is not the Gambling Commission that regulates the industry. Instead, this role is reserved for the Financial Conduct Authority (FCA).

Is Spread betting gambling?

Although spread betting involves an element of risk, it is a form of financial trading as opposed to gambling.

Kane Pepi

About Kane Pepi PRO INVESTOR

Kane Pepi is a British researcher and writer that specializes in finance, financial crime, and blockchain technology. Now based in Malta, Kane writes for a number of platforms in the online domain. In particular, Kane is skilled at explaining complex financial subjects in a user-friendly manner. Academically, Kane holds a Bachelor’s Degree in Finance, a Master’s Degree in Financial Crime, and he is currently engaged in a Doctorate Degree researching the money laundering threats of the blockchain economy. Kane is also behind peer-reviewed publications - which includes an in-depth study into the relationship between money laundering and UK bookmakers. You will also find Kane’s material at websites such as MoneyCheck, the Motley Fool, InsideBitcoins, Blockonomi, Learnbonds, and the Malta Association of Compliance Officers.

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