Spread betting and forex trading are very popular concepts. However, many people tend to think that the two are similar. While they both deal with currencies, there are various differences between them.
If you are unfamiliar, let’s discuss all the differences between spread betting and forex trading.
How Spread Betting and Forex Trading Are Entirely Different
- Understanding Forex Trading and Spread Betting
Forex trading means selling one currency in exchange for another currency. For instance, a trader will sell a quantity of ZAR for USD as per the existing exchange rate. The difference between the buying and selling rate is known as the profit. Forex trading involved no universal exchange.
On the other hand, spread betting is considered a form of gambling. It does not involve buying or selling any asset. Instead, you bet on a currency’s performance. The betting includes anticipating whether the price of an instrument will go up or down in a limited time. For instance, an investor will win or lose based on the marginal variation of USD in the future. - Legality
Forex trading serves as a decent side job for many people worldwide. That’s mainly due to its legality. It is allowed in almost every country and has brokerage houses all across the world. This allows more traders to join in and make profits trading various currencies.
On the other hand, spread betting is limited to only a few countries. In fact, it is banned in the country where it was invented – the United States. However, spread betting is quite popular in Ireland, the UK, and some parts of Canada. Australia has also recently allowed spread betting. - The Markets
Both forex trading and spread betting have large markets. The former allows you only to trade currency pairs to make a profit. However, spread betting allows access to more than 12,000 worldwide markets for commodities.
You can also access some markets unavailable in forex trading, including political events, house prices, etc. Plus, you can bet on currency pairs.
This difference is also caused due to the trading instruments. In the forex triangle patterns, you will observe trading only currencies. In contrast, spread betting can be done via various financial instruments, including interest rates, commodity prices, shares, etc. - Commission
There is no need to worry about the commission in spread betting. Providers only make their profit via the difference between the bid and ask prices.
However, commission plays a vital role in forex trading. Most brokerage houses charge commissions on various accounts to make profits. - Ethnicity
Forex trading is acceptable to more ethnic groups, such as Muslim laws. Most brokers allow Muslim traders to open Islamic accounts and trade under their law.
On the other hand, spread betting is considered a form of gambling. Therefore, it is not acceptable in most laws.
Conclusion
There are similarities between spread betting and forex trading, such as platforms and profiting in a falling market. But, these are outweighed by countless differences.