If you’re based in the UK and looking to trade forex online – consider spread betting. In doing so, not only will you avoid paying any tax on your profits – but you can apply leverage of up to 1:30 on your positions.
If you’re new to Forex Spread Betting UK – this comprehensive guide covers everything you need to know.
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In This Guide
Before reading our guide in full – check out the basics of how to start forex spread betting UK from the comfort of your home.
End to end, the above process should take you no more than 10 minutes to complete. Best of all, the forex spread betting UK department at Capital.com is 100% commission-free!
Trillions of pounds worth of currencies change hands in the forex trading industry. This is why so many traders in the UK are turning to this lucrative investment scene.
However, spread betting forex UK does require some background knowledge of how things work – as you are putting your hard-earned capital into complex financial derivatives.
To ensure you enter the forex spread betting UK arena with your eyes wide open – make sure you read through the sections below.
In its most basic form, spread betting forex is a form of online trading that allows you to speculate on the future value of currency pairs. For example, let’s suppose that you are trading the British pound against the Australian dollar. This pair – which is represented as GBP/AUD – is currently priced at 1.7830.
As a forex spread betting pro – your objective is to predict whether this exchange rate will rise or fall. If you speculate the market correctly – you will close the trade in profit. In this sense, spread betting is not too dissimilar to traditional forex trading. However, as we discuss in much more detail shortly – there are some clear differences.
For example, the forex spread betting UK markets move in ‘points’ as opposed to ‘pips’. Additionally, you also need to enter your stake in terms of pounds or pence per point movement.
Although the overarching objective of forex, spread betting, and CFD trading are very similar (i.e predicting whether a pair will rise or fall in value) – there is a crucial difference when it comes to taxation. That is to say, in the UK – forex spread betting platforms allow you to avoid paying any capital gains or stamp duty tax. This is because spread betting is defined as ‘gambling’ by HMRC.
The section above provided you with the basics of how forex spread betting UK works. However, this financial trading arena is a tough cookie to crack – as most newbies end up losing money.
As such, we are now going to delve into the core characteristics of spread betting forex in much more detail.
First and foremost, it is important to remember that when you trade via a forex spread betting UK site – you do not own the underlying currencies. For example, if you’re trading USD/JPY – you are not buying or selling US dollars or Japanese yen.
On the contrary, you simply speculating on whether the forex pair in question will increase or decrease in value. As you do not own the underlying asset – this means that you won’t be liable for stamp duty tax. Straight away, this saves you 0.5% on all positions that you enter.
When you trade currencies at a traditional forex broker – you will enter your total stake in pounds and pence. For example, you might decide to risk £200 on a GBP/USD buy order. Then, if the pair increases or decreases by 10% – you will either make or lose £20.
However, in the case of forex spread betting UK – you will stake an amount per point of movement. This essentially allows you to target uncapped financial returns. Of course, this is also the case with losses, too.
In terms of minimum stakes, this will vary from broker to broker. With that said, some of the best forex spread betting UK platforms that we came across allow you to stake from just 10p per point. This ensures that spread betting is suitable for traders of all budget levels.
As we mentioned earlier, traditional forex price movements are calculated in pips and in spread betting – this is in points. The fundamentals are, however, very similar.
However, when it comes to calculating profits and losses – there is a clear difference between spread betting and forex trading. This is because in spread betting – you are staking an amount per point movement.
Let’s look at a practical example of how this works when using a forex spread betting UK broker:
Of course, had USD/CHF increased by 40 points – your short position would have resulted in a loss of £60. This is why you need to install a number of risk-management tools when forex spread betting UK – which we cover later.
Finally, it is important to note that spread betting forex UK markets will at some point in time expire. This is either on a daily or quarterly basis – depending on which market you prefer. If opting for the latter – this means that you can keep your forex position open for up to three months before it expires.
The former means that the market will expire on a same-day basis. Either way, if you still have a forex position open at the point of expiry – the spread betting broker will close it on your behalf. If you wish to remain in that particular marketplace – you will need to open a new position.
We have loosely covered the difference between spread betting and forex trading in the sections above. However, in the name of clarity, check out the core similarities and differences below in bullet-point form.
As you can see from the above, there are a lot of similarities between forex trading and spread betting. Perhaps the most pertinent difference is that the latter allows you to trade forex in a 100% tax-free environment.
We would argue that if you are interested in trading currencies from the comfort of your home – spread betting is by far the best way of doing this.
Below we unravel the main advantages of forex spread betting UK for your consideration.
When you trade at a conventional forex or CFD trading platform – all profits that you make throughout the year will be liable for capital gains tax. The amount you pay will depend on a variety of factors – such as how much you make and what tax band you are on.
For example, if you are a higher tax rate payer – this stands at 20%. Fortunately, this can be avoided in its entirety by using a forex spread betting UK platform. In doing so, each and every pound of profit that you make is yours to keep. Crucially, this is because spread betting profits are viewed as gambling winnings in the UK – which are exempt from tax.
This is mainly because of the previously mentioned expiry date system using in spread betting. That is to say, because there is always an end date on spread betting markets (like in gambling) – this allows the sector to remain free of capital gains tax. Additionally, there is no stamp duty tax payable when using a forex spread betting UK site.
Many newbies are unaware that you can trade on margin when using a forex spread betting UK platform. This simply means that you can open a spread betting position that’s worth more than you have in your account. In fact, UK residents can enter a position with a margin of just 3.33% when trading major forex pairs. This includes the likes of GBP/USD, EUR/USD, and JPY/USD.
In practice, this means that for every £100 you stake – you only need to have an account balance of £3.33. To put it another way, an account balance of £500 would allow you to enter a forex spread betting position worth up to £15,000.
We should note that you need to understand the enhanced risks of spread betting on margin. The less margin you put upfront on the trade – the more chance you have of the trade being ‘liquidated’.
This means that the spread betting broker will close the position automatically if it goes down by the same level of margin you have on the trade. For example, if you are trading AUD/USD with a margin of 5% and the position drops in value by 5% – you will be liquidated.
Spread betting markets – whether that’s on forex, stocks, indices, or commodities – always allow you to choose from a long or short position. This means that you can enter positions irrespective of wider trading conditions and thus – profit from rising and falling markets.
For example, if the UK economy is strong – you might decide to go long or GBP/USD. Or, if interest rates in the US fall – you might decide to short AUD/USD. Either way, forex spread betting platforms UK give you lots of opportunities to make money on the back of political and economic developments.
The forex spread betting UK markets are heavily regulated. In fact, for a spread betting platform to offer markets to UK residents, it must be authorized and licensed by the Financial Conduct Authority (FCA). This ensures that you are trading in fair and transparent conditions and that your capital is kept safe at all times.
For example, the FCA expects all of its licensees to keep client funds in segregated bank accounts and verify the identity of all customers to prevent financial crime.
Furthermore, the best forex spread betting providers in the UK that we came across are also covered by the FSCS. This means that if the unlikely happened and the spread betting site wen bust – your capital would be covered by the FSCS up to the first £85,000.
If you are confident that forex spread betting UK is right for you and your financial goals – you need to ensure that you have a strategy in place before risking any money. As we cover in more detail later – platforms like Capital.com offer a free spread betting demo account.
This allows you to test out your trading strategies in real-time without needing to risk any money. Then, when you are ready to start trading with real money – you can upgrade to a live account.
If you don’t have a forex spread betting strategy in mind – take some inspirations from the suggestions discussed below.
If you don’t know how to read and analyze pricing charts or deploy technical indicators – it’s best to start with fundamental research. This will require you regularly keep up to date with key economic and political news announcements. Crucially, this is because real-world news – whether positive or negative, will always impact the value of a currency.
These are just two examples of many. The main economic developments to look out for include interest rate decisions, GDP forecasts and results, inflation levels, and industrial output – like gold or raw materials. Additionally, you should also have an understanding of how geo-political events can impact the value of a currency.
Ultimately, once you have identified a potential trading opportunity on the back of an economic or political news development – it’s then just a case of heading over to your chosen forex spread betting UK broker to place the relevant market orders.
Swing trading is a flexible strategy that requires you to identify prolonged trends. The idea is to enter forex spread betting positions when you identify an ongoing pricing trend on a specific pair. For example, in the chart below – we can see that GBP/USD hit record lows of 1.16 in March 2020.
Since then, the markets have been extremely bullish on this currency pair – meaning that sentiment on pound sterling is strong. In fact, this upward trend has remained in place since March 2020 – since hitting highs of over 1.42. This is where a swing trading strategy comes into place.
That is to say, rather than attempting to predict daily price movements – simply enter positions that follow the current market trend. In this respect, you would be required to enter a long position on GBP/USD at your chosen spread betting broker – meaning you will make a profit if the exchange rate continues to rise.
If you have a bit of experience in forex trading and know your way around a pricing chart – then identifying support and resistance levels can be an effective way to profit from the spread betting scene.
For those unaware:
Support and resistance levels are not an exact science – as there is every chance that the currency pair will break through these price points.
But, in many cases – these levels often prevent a currency pair from moving outside of an established range. For example, in the image above you will see the 1-hour timeframe on GBP/USD. In particular, you will notice that on two occasions over the past week – GBP/USD has met resistance just below the 1.38 level. That is to say, when the pair has approached this price – the trend has reversed southwards.
In terms of how you can capitalize on support and resistance levels that you have identified – you’ll need to place a series of orders at your chosen forex spread betting UK broker.
As per the above, you are also advised to deploy a stop-loss order when entering a spread betting position – irrespective of how confident you are. This ensures that your losses are limited in the event your precision does not come to fruition.
For example, you might decide to limit your potential losses to 20 points. This means that if you staked £2 per point – the most you can lose on the trade is £40. This is because your stop-loss order will be executed by the broker if GBP/USD hit a price 20 points above your short position of 1.3820 – at 1.3840.
Before you can deploy your chosen forex spread betting UK strategy – you need to open an account with a broker. We came across a number of platforms that are worth considering – but nailed our selection down to just two. Capital.com is the best option for beginners and Pepperstone for advanced traders.
We review both of these top-rated forex spread betting UK brokers in more detail below.
Next up we have Pepperstone – which is an online CFD and forex spread betting broker that is arguably more suited for seasoned pros. This platform is compatible with a number of third-party providers – including MetaTrader 4 and 5, as well as cTrader. These third-party platforms are highly sought after by experience spread betting traders – as they come packed with tools.
In particular, both MT4 and MT5 allow you to install automated algorithmics – subsequently pacing the way for an automated spread betting strategy. Additionally, if you’re a technical trader – Pepperstone, through MT4/5, offers dozens of indicators and chart drawing tools. This will be highly conducive for a day trading or scalping strategy. When it comes to supported markets, Pepperstone offers more than 60 forex pairs in its spread betting department.
Much like Capital.com – this covers a wide variety of major, minor, and exotic currencies. Trading fees and commissions will depend on which account you opt for. If you find yourself trading larger volumes – the Razar Account permits ZERO spread markets on major forex pairs. In turn, you will pay a very low commission of just $3.50 per slide. The Razar Account also gets you competitive spreads on exotic pairs – with the likes of EUR/TRY costing just 2 pips.
If you prefer to trade with smaller amounts, the Standard Account offers commission-free forex markets, albeit, you will pay a higher spread. This is still competitive at Pepperstone, with both EUR/USD and GBP/USD costing just 1 pip. In terms of payments, there is no minimum deposit at Peppertsone and you can fund your account with a UK debit/credit card, bank transfer, or Paypal. Crucially – Pepperstone is authorized and licensed by the FCA.
Your capital is at risk.
Capital.com is the best forex spread betting broker in the UK for beginners. It takes just minutes to get set up with an account and you can start spread betting via the demo facility straight away. In doing so, you can learn the ins and outs of how forex spread betting UK works before making a deposit and risking any funds.
In terms of account minimums, Capital.com requires a deposit of just £20 to start spread betting with real money. You fund your account instantly with a debit/credit card or e-wallet. When it comes to supported spread betting markets, Capital.com is home to dozens of pairs. Although this covers major and minor pairs - the platform also gives you access to lots of exotic currencies. This includes everything from the Singapore dollar and South African rand to the Mexican peso and Turkish lira.
A major benefit of choosing Capital.com as your go-to forex spread betting UK broker is that the platform is commission-free. This means that you can go long or short on your chosen market and only pay the spread. The spread is typically very competitive with this broker. For example, EUR/USD can be traded at a spread of just 0.8 points. There are no ongoing platform fees either and all deposits and withdrawals are facilitated on a fee-free basis.
An additional reason why Capital.com is the ultimate forex spread betting UK broker for beginners, is that it offers an extensive number of educational tools. For example, the 'Learn to Trade' section of the platform offers everything from mini-courses, webinars, guides, strategies, and a trading glossary. Finally, and perhaps most importantly - Capital.com is heavily regulated. This includes full authorization from the FCA - so your capital is in safe hands.
Your capital is at risk
By this point in our guide on forex spread betting UK - you should have a firm grasp of how this trading scene works, have a strategy in place, and have chosen a suitable broker.
Now all that is left for you to do is enter your first spread betting position! If this is your first time spread betting online - follow the simple walkthrough below to trade at commission-free provider Capital.com.
As is the case with all online trading platforms - the first part of the process is to open a brokerage account. At Capital.com, this should take you less than five minutes. All you need to do is head over to the provider's website and click on the 'Trade Now' button. You'll find this in the top-right hand corner of the homepage.
Then, you will need to enter your personal information - including:
After confirming your email address - your Capital.com account is ready to use.
All registered users at an FCA-regulated broker are required to go through a KYC (Know Your Customer) process. All this requires from you is a copy of your ID. A valid passport or driver's license will suffice. In most cases, Capiotal.com can verify your submitted document instantly.
If you wish, you can use the Capital.com demo account to try spread betting for free. This will allow you to perfect your forex spread betting strategy without risking any money.
When you are ready to trade with real pounds and pence - the minimum deposit at Capital.com is just £20. Instantly processed payment types at this broker include a debit/credit card (Visa/MasterCard) and a range of convenient e-wallets.
Capital.com offers dozens of forex pairs across the majors, minors, and exotics. You can search for the pair that interests you or have a browse by hovering your mouse over the 'Markets' button and then click on 'Forex.
Once you find the forex pair that you wish to spread bet - click it.
You will now see the main trading screen for the forex market you wish to trade.
Finally, confirm your order to enter your first spread betting position at Capital.com!
If you're looking to get your spread betting forex endeavors off on the right foot from the get-go, consider the following tips.
When you enter a spread betting forex position - it's best to avoid using margin when you first start out. Sure, the thought of only needing to put 5% of the position value down can be tempting - especially if you only have a small amount of capital. However, you stand the risk of having your spread betting forex position liquidated.
As we covered earlier, this means that you will have your trade closed by the broker automatically, and subsequently - you will lose your entire stake. Instead, consider trading within your means by avoiding margin.
Major forex pairs always contain the US dollar and another strong currency like the pound sterling or the euro. In turn, major pairs benefit from the largest trading volumes and thus - greatest levels of liquidity. As a result of this, you will find that major forex pairs are much less volatile than minors and exotics.
This is ideal if you are a forex spread betting newbie - as volatility can be intimidating. Plus, when you trade volatile markets, you will find that both your profits and losses move up and down in a much more parabolic manner. This in itself can result in irrational spread betting decisions being made - so stick with majors when you are first starting out.
Before you enter a forex spread betting position - always have an entry and exit plan in place. This means identifying the best price to enter the market based on your technical and fundamental research.
This also means assessing the best time to exit the market. The latter can be achieved by setting up a stop-loss and take-profit order. In following this simple strategy - you will be able to trade in a much more risk-averse manner and thus - protect your bankroll.
In summary, this guide has explained the ins and outs of forex spread betting UK and why this investment niche is ideal for active currency traders. Crucially, not only do spread betting forex providers like Capital.com allow you to trade commission-free, but you won't be required to pay any capital gains tax on your profits.
You can also spread bet forex pairs at this FCA broker with leverage of 1:30 and the minimum deposit is just £20. If you want to start off with a risk-free demo account at Capital.com - the registration process takes just minutes!
71.2% of retail investor accounts lose money when trading CFDs with this provider.
Foreign exchange betting is a popular trading mechanism, that allows you to speculate on the exchange rate of currency pairs like GBP/USD or USD/JPY. For each point that the exchange rate moves - your profit or loss will increase. For example, if you stake £10 per point on an AUD/USD long order and the pair moves in your favor by 5 points - you will make gains of £50.
CFD trading and spread betting both allow you to trade forex pairs from the comfort of your home. However, forex spread betting is potentially more attractive - as all profits are exempt from tax.
Financial spread betting will see you trade the future value of asset classes like gold, oil, stocks, ETFs, or forex. The other form of spread betting in the UK is focused on sports. This is more aligned with gambling and not financial trading.
In both the UK and Ireland - profits of forex spread betting are exempt from capital gains tax. In the UK specifically, there is no stamp duty to pay when you enter a spread betting trade.
Spread betting demo accounts are great for learning how this trading scene works in a risk-free manner. The best demo account is offered by Capital.com. Once you have registered your information - you can start spread betting via the demo account straight away.
Forex spread betting is perfectly legal in the UK. The industry is regulated by the Financial Conduct Authority (FCA) - so spread betting brokers must ensure they remain compliant with UK laws. Additionally, the best spread betting brokers are covered by the Financial Services Compensation Scheme (FSCS). This protects your money up to the first £85,000 in the event the broker went bankrupt.
If you are a resident of the United Kingdom - you will be offered leverage of up to 1:30 when trading major currency pairs. Minors and exotics come with slightly less at 1:20.
Kane Pepi is a British researcher and writer that specializes in finance, financial crime, and blockchain technology. Now based in Malta, Kane writes for a number of platforms in the online domain. In particular, Kane is skilled at explaining complex financial subjects in a user-friendly manner. Kane has also written for websites such as MoneyCheck, InsideBitcoins, Blockonomi, Learnbonds, Buysharesand the Malta Association of Compliance Officers.
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