Spread bet brokers offer a wide range of Foreign Exchange markets via two different spread markets -
- The spot market
- Quarterly bets
Most business because it's of a short term nature is done in the Spot market, often referred to as the cash market.
The Spot market
Spot currencies are the rates you'll see on the news and internet sites such as Google Finance. Spread betters normally trade these because the bid-offer spreads are the tightest. But how tight they are will depend on the currency cross and how popular it is. For example, the spread on Euro/Dollar will be below 3 versus 10+ for New Zealand Dollar/US Dollar.
The currency crosses are normally split into different groups -
- Majors - For example, EUR/CHF, EUR/USD, USD/JPY etc
- Minors - GBP/JPY, EUR/CAD
- Australasian - AUD/EUR, NZD/CHF
- Scandinavians - EUR/DKK, USD/NOK
- Exotics - USD/Polish Zloty
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Stockmarket/Trading Providers
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Quarterly Bets
There are normally 2 quarterly bets offered. For example if the month is currently January they'll be quotes for both March and June.
So which market should you trade, the Spot market or the quarterlies? It's the same rule for all types of spread betting -
- If short term trading, holding positions under 7 days you should trade the Spot
- If longer than 7 days the quarterly bets are cheaper
The spreads are tighter on the Spot market but a financing charge normally has to be paid every night if you hold an open position. Whereas the bid-offer is wider for the quarterlies because the financing charge is built in, thus eliminating the overnight fee.
Currency profits and losses are paid in Sterling
One final point, all trading is done via Pounds per point even if you're trading something like the US Dollar/New Zealand dollar. This is a nice touch as changing up profits and losses in different currencies back into sterling is always a hassle.
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