Trading in shares on the stock market is one of the most important activities in the global economic sector today. This is due to the fact that it not only enables companies to raise capital, but also gives the traders an opportunity to get a piece of the profits gained by the companies whose shares they invest in.
For traders, there are two directions they can choose to go when investing in shares: Traditional forex trading or spread betting. These methods have a number of similarities and differences that may act as a guide to the trader depending on their needs. In the next paragraphs, we discuss some of these aspects with an aim of comparing and contrasting the two.
Definitions
The logical point to start at would be to define each method since by definition, they are quite different. Forex trading involves buying and selling of the shares of the companies listed on a given forex market.
Spread betting on the other hand refers to speculative betting on such shares by placing a bet whose outcome depends on whether the future price of the shares increase or decrease.
Leveraged trading
Given that spread bets are leveraged products, it makes it possible for a trader to gain exposure to large share values by investing with only a fraction of that value. For instance, to spread bet on Vodafone shares, a trader needs to invest about 5% of the stock value for that number of shares only.
In forex trading, the trader has to invest the exact amount of money that is needed to purchase a certain number of shares. In this context, it requires more capital than its counterpart.
Commissions charged
Forex trading of shares usually attracts commission which is a percentage of the total stock value traded; it is charged by the stock brokers.
Spread betting however does not attract any commission charges whatsoever. The trader gets to earn the whole amount of cash of the stock they invested in.
Capital Gains Tax and Stamp Duty Charges
For spread betting, the trader is neither required to pay any stamp duty charges nor any tax on the capital gains.
Forex trading does not attract stamp duty but the trader is charged a capital gains tax. However, losses are considered as tax reductions.
Expiry
Spread bets do have expiry bets that are fixed to specific timelines. After these dates are reached, the investment is no longer active.
Forex trading do not have any expiry dates (except binaries, options and forwards), thus enabling traders to hold onto and gain from the shares for decades.
Physical Ownership
Stock traders gain physical ownership of the company thus the ability to attend AGMs and hence participate in the formulation of company policies. The more shares one holds, the more influence they have.
Spread betters do not have such privileges since it is simply speculative.
Profit Gains
For stock traders, one can only gain profit when the value of their shares appreciate. They suffer a corresponding loss when the price falls.
Spread betters have the ability of going both long and short- and can therefore bet and gain from either a fall or a rise in share value.
http://www.commexfx.com/forex-vs-spread-betting/
For traders, there are two directions they can choose to go when investing in shares: Traditional forex trading or spread betting. These methods have a number of similarities and differences that may act as a guide to the trader depending on their needs. In the next paragraphs, we discuss some of these aspects with an aim of comparing and contrasting the two.
Definitions
The logical point to start at would be to define each method since by definition, they are quite different. Forex trading involves buying and selling of the shares of the companies listed on a given forex market.
Spread betting on the other hand refers to speculative betting on such shares by placing a bet whose outcome depends on whether the future price of the shares increase or decrease.
Leveraged trading
Given that spread bets are leveraged products, it makes it possible for a trader to gain exposure to large share values by investing with only a fraction of that value. For instance, to spread bet on Vodafone shares, a trader needs to invest about 5% of the stock value for that number of shares only.
In forex trading, the trader has to invest the exact amount of money that is needed to purchase a certain number of shares. In this context, it requires more capital than its counterpart.
Commissions charged
Forex trading of shares usually attracts commission which is a percentage of the total stock value traded; it is charged by the stock brokers.
Spread betting however does not attract any commission charges whatsoever. The trader gets to earn the whole amount of cash of the stock they invested in.
Capital Gains Tax and Stamp Duty Charges
For spread betting, the trader is neither required to pay any stamp duty charges nor any tax on the capital gains.
Forex trading does not attract stamp duty but the trader is charged a capital gains tax. However, losses are considered as tax reductions.
Expiry
Spread bets do have expiry bets that are fixed to specific timelines. After these dates are reached, the investment is no longer active.
Forex trading do not have any expiry dates (except binaries, options and forwards), thus enabling traders to hold onto and gain from the shares for decades.
Physical Ownership
Stock traders gain physical ownership of the company thus the ability to attend AGMs and hence participate in the formulation of company policies. The more shares one holds, the more influence they have.
Spread betters do not have such privileges since it is simply speculative.
Profit Gains
For stock traders, one can only gain profit when the value of their shares appreciate. They suffer a corresponding loss when the price falls.
Spread betters have the ability of going both long and short- and can therefore bet and gain from either a fall or a rise in share value.
http://www.commexfx.com/forex-vs-spread-betting/