SHOWCASE MAGAZINE | 2018
For instance, the price of one British
pound could be measured as, say,
two US dollars, if the exchange rate
between GBP and USD is 2 exactly.
In forex trading terms this value for
the British pound would be repre-
sented as a price of 2.0000 for the
forex pair GBP/USD. Currencies are
grouped into pairs to show the ex-
change rate between the two curren-
cies; in other words, the price of the
first currency in the second currency.
Some commonly traded forex pairs
(known as ‘major’ pairs) are EUR/
USD, USD/JPY and EUR/GBP, but it
is also possible to trade many minor
currencies (also known as ‘exotics’)
such as the Mexican peso (MXN), the
Polish zloty (PLN) or the Norwegian
krone (NOK). As these currencies are
not so frequently traded the market is
less liquid and so the trading spread
may be wider.
FOREX TRADING SPREAD
Like any other trading price, the
spread for a forex pair consists of a
bid price at which you can sell (the
lower end of the spread) and an offer
price at which you can buy (the high-
er end of the spread). It is important
to note, however, for each forex pair,
which way round you are trading.
When buying, the spread always
reflects the price for buying the first
currency of the forex pair with the
second. So an offer price of 1.3000
for EUR/USD means that it will cost
you $1.30 to buy €1. You would buy
if you think that the price of the euro
against the dollar is going to rise, that
is, if you think you will later be able to
sell your €1 for more than $1.30.
When selling, the spread gives you
the price for selling the first curren-
cy for the second. So a bid price of
1.3000 for EUR/USD means that you
can sell €1 for $1.30. You would sell if
you think that the price of the euro is
going to fall against the dollar, so you
can buy back your €1 for less than the
$1.30 you originally paid for it.
CALCULATING YOUR
PROFIT
Take another example. Suppose
the spread for EUR/GBP is 0.8414-
0.8415. If you think the price of the
euro is going to rise against the pound
you would buy euros at the offer price
of 0.8415 per euro. Say in this case
you buy €10,000 at a cost to you of
£8415.
The spread for EUR/GBP rises to
0.8532-0.8533 and you decide to sell
your euros back into pounds at the
bid price of 0.8532. The €10,000 you
previously bought is now therefore
sold for £8532. Your profit on this
transaction is £8532 minus the orig-
inal cost of buying the euros (£8415)
which is £117. Note that your profit
is always determined in the second
currency of the forex pair.
Alternatively, suppose in the first
instance you think the price of the
euro is going to fall, and you decide to
sell €10,000 at the original bid price of
0.8414, for £8414.
In this case you are right and the
spread for EUR/GBP falls to 0.8312-
0.8313. You decide to buy back your
€10,000 at the offer price of 0.8313, a
cost of £8313. The cost of buying back
the euros is £111 less than you origi-
nally sold the euros for, so this is your
profit on the transaction. Again your
profit is determined in the second
currency of the forex pair.
SPREAD BETTING OR
CFD TRADING
InterTrader provides two different
vehicles for trading forex: spread
betting and CFDs. Both of these
products allow you to speculate on
the movements of currency markets
without making a physical trade, but
they operate in slightly different ways.
With spread betting you stake a
certain amount (in your account
currency) per pip movement in the
price of the forex pair. So for instance
22
you might buy (or sell) £10 per pip on
USD/JPY, to make £10 for every pip
the US dollar rises (or falls) against
the Japanese yen. Forex traders have
been using spread betting to capi-
talise on short-term movements for
many years now. Find out more about
spread betting.
With CFDs you buy or sell contracts
representing a given size of trade. So
you might decide to buy 1 contract of
GBP/USD, which (with InterTrader)
represents a trade of £10,000. Your
profit or loss is calculated in the sec-
ond currency, in this case US dollars,
and then converted (if necessary) into
your account currency. Find out more
about CFDs.
Either way you don’t have to provide
the full currency value to open your
position. Instead you put down a mar-
gin deposit, which is a fraction of the
full value. And you don’t actually buy
or sell any currency: you are opening
a speculative position on the change
in value of the forex pair. Your profit
or loss is realised when you close your
position by selling or buy
WHAT IS SPREAD
BETTING?
When you spread bet, you do not buy
an actual share or futures contract.
Instead you make a bet as to which
way you think your chosen market
will move. You are betting per penny
or point movement in the underlying
market, and the amount you wish to
bet is your stake, which can be as little
as £1 per point.
Because you never actually make a
physical purchase or sale you are not
liable for stamp duty or Capital Gains
Tax.* And to open your position you
only need to put down a deposit, a
small fraction of the full value of your
position.
One advantage of spread betting
with InterTrader is that we are a
market-neutral provider – with No
Dealing Desk. This means that when
you place a bet with us we immedi-
ately place the equivalent trade in the
actual market. So you’re not betting
against us, you’re effectively trading
against the market itself. Find out
more about market-neutral execution.
The ‘spread’ in spread betting is the