DEFINITION of 'Forex Spread Betting'
A category of spread betting that involves taking a bet on the price movement of currency pairs. A company offering currency spread betting usually quotes two prices, the bid and the ask price - this is called the spread. Traders bet whether the price of the currency pair will be lower than the bid price or higher than the ask price. The narrower the spread, the more attractive the currency pair. Like spread betting, traders do not need to actually own any currency.
BREAKING DOWN 'Forex Spread Betting'
A brokerage firm quotes an ask price for the EUR/USD pair at 1.0015 and a bid price at 1.0010. If you as a trader believe that the Euro will strengthen compared to the USD, you could “bet” € 0.5 for every point (Pip) the Euro increases above 1.0015. If the EUR/USD after a certain period of time came to $1.0025, you would receive € 5. If the price of the Euro was instead $1.0005, you would end up losing € 5.