Betting on the markets is one of the fundamental fuelling rods for the world’s economy. Without the ability for the layman or the expert to place bets on the fluctuations in price of certain commodities, the modern economy as we know it would be a lumbering and unresponsive beast. This article looks at a specific type of betting on markets; namely, spread betting. As we’re in the wake of some constitutional intrigue, the looming spectre of Brexit amongst them, it’s an excellent time to learn how to play the markets in order to make cash for yourself or your business.
Spread Betting: In Brief
Spread betting is really rather simple. You’ll take a pair of currencies, and you’ll decide that one will go up against the other: that one currency will strengthen against the other. You might take dollars and euros, or yen and the pound. Now, the ‘spread’ is what’s offered to you by the FOREX trader, and it constitutes the difference between your purchasing of the bet and the expected change in currency valuation. You bet on low spreads in order to make cash out of the fluctuation of currencies over time.
How to Spread Bet Well
Naturally, then, the trick to spread betting well is to ensure that your bets are attempting to take advantage of predictable fluctuations in the markets of currencies. You can efficiently study the FOREX timeline IG have created that shows the relationship between political events and the currencies involved in them in order to get a better idea of how this works. Some examples of events that affect the currency market include:
- Political declarations, elections and referenda, such as Trump’s election, or Brexit
- Major world events, like a terror attack, a natural disaster, or a war
- Trade deals, tariff increases, trade wars and the declarations about them to the press
- New leaders coming into office with different promises made to business
All of these factors will affect how you should make your spread bet in order to win the currency you have placed a bet on.
Understanding Risk
Just as with any other kind of betting, there is risk involved in this kind of action. You will never be sure if your spread bet will end up losing or gaining money. The only way to be sure you’re not going to lose as a result of your betting on the currency markets is to not partake in the betting at all. However, in these volatile and increasingly unpredictable times, where stability has been replaced by a constant sense of instability, it is certainly a ripe climate for investing in currency bets.
One such use case comes from the UK and the Brexit deadlock. You should study in detail how Brexit has changed the valuation of the pound in the past three years in order to understand just how much money market players will have been making on spread bets since the date of the vote.
These tips will help you understand the phenomenon of spread betting, and when to take a punt on a currency rise or drop.