Currency trading with spread bets

First things first: currency trading is not for the faint-hearted. I just needed to get that out of the way!

Spreadbetters and active traders are typically attracted to volatile markets. With the advent of online trading and access to currency markets, small private traders can now get involved in forex too. This has made for a potent cocktail, and now, the internet is plagued with website selling currency trading software and secret currency insider tips.

Before you get carried away and spend a fortune on a supposedly ‘guaranteed’ forex trading system, you may want to consider the next few paragraphs.

Trading currency markets using spread betting—how it works

For the purposes of practical financial spread betting, the foreign exchange markets work in a similar way to other markets. The broker provides a spread and you decide whether to buy or to sell on the basis of your expectation of future moves in the particular currency cross of interest to you.

Applying technical analysis to currency trading

One of the fundamental tenets of technical analysis is that it can be applied to any market irrespective of what the actual underlying instrument is.

This core premise of technical analysis is the main source of my objection to those who claim to have specific ‘secrets’ or ‘FX trading systems’. Essentially, my argument is that if you have a sound, practical understanding of technical analysis, then you really do not need to concern yourself with chasing the next new system up for sale on some random website or by some dodgy broker.

Sure, technical indicators can be modified to suit the specific market environment. For instance, while it may be perfectly okay to use the standard 14-day setting on stochastics or RSI for short term trading on the FTSE index, you may need to adjust the setting somewhat to derive optimal time periods for more volatile markets for instance. This sort of tweaking is not quite the same as suggesting that you need a black box system for trading any particular market.

So the objective for those interested in spread betting currencies ought to be to learn the standard methods their preferred form of analysis—be it technical or fundamental. That should form a sound foundation from which to develop effective trading strategies.

If you enjoyed this article on currency trading, then click here for more insightful articles to hone your spread betting skills