Foreign Exchange

Foreign Exchange

Over 4 Trillion Dollars is exchanged every single day on the foreign exchange market. The 8 main Foreign Exchange trading centres in the world are: London, New York, Hong Kong, Sydney, Paris, Tokyo, Zurich and Singapore.

The Foreign Exchange Market is often known as the Forex Market or the FX Market. Foreign Exchange is the exchange of one currency for another, or conversion of one currency into another.

For example If you was to exchange Euros into Dollars, then you would be given an exchange rate of how many dollars you would get for the amount for the amount of euros you are going to exchange. If the Eur/Usd exchange rate was 1.11 and you wanted to exchange 200 Euros then you would have 222.00 Dollars.

The Forex Market is open 5 days a week. It opens Sunday night at 10pm (GMT+1) and closes Friday night at 10pm (GMT+1). The markets run 24 hours during this period.

The Foreign Exchange Market is traded by businesses, investors, banks and retail traders. A retail trader is an individual trading their own personal capital, not for a business or organisation. Forex trading is done by speculation through fundamental and technical analysis. Many people all over the world trade the forex market with different types of technical analysis to gain a bias whether the next move for the currency pair is going to be up or down. Each individual has their own trading account that is provided by a broker that allows you to enter and exit a trade when you want during trading hours.

CFD & SPREAD BETTING

At first glance it may be quite hard to tell the differences between Contract for difference (CFDs) and spread betting however there are a few differences that you should be aware of…

Spread-betting:

With spread betting you choose your stake size and are betting on the fluctuations of the underlying asset moving up or down without ever owning the asset and can profit on either buying or selling. You are betting a monetary stake size per pip that the currency pair or other asset moves.

So lets say you are doing £10 per pip then each pip movement will increase your potential winnings or losses by £10. So lets say you buy the GBP/USD at a price of 1.5000 and prices then rise to 1.5100 this is an increase of 100 pips and at £10 per pip would net you a total profit of £1,000.

Spread-betting is currently free from capital gains tax and stamp duty so any profits made are solely yours to do as you wish with, there is also no commission to pay on entering a spread bet the only thing you have to pay is the spread to enter the trade.

CFDs ( contract for differences):

As with spread-betting you are also not buying the underlying asset when you take out a CFD, you just take out a contract which is normally a set price for each contract you take out with not as much control over your stake size however you will be able to choose how many contracts you would like to take out on each trade.

Just like with spread-betting you also do not have to pay stamp duty however you will have to pay capital gains tax which does come with the added benefit of offsetting your losses.

(Tax laws are subject to change and depend on individual circumstances. Tax law may differ in a jurisdiction other than the UK).

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