The Differences Between Spread Betting and Binary Options Trading.
Unsure which is right for you spread betting or Binary options?, we break down what are the pros and cons of each so you can make an informed decision to which is right for you.
What Is Spread Betting?
Spread Betting, often referred to as a form of financial derivatives trading, is an efficient way of doing speculation on the price movement of a wide variety of global financial products which include shares, indices, currency pairs, treasuries and commodities.
With this form of trading, unlike the normal way of doing trade, you neither buy nor sell the underlying asset instead you place a bet on the basis on whether the price of the product is expected to increase or decrease in value. For instance, if you expect the value of a commodity to increase, you buy a share while if you expect the value of the commodity to decrease, you sell the share.
An important terminology when talking about spread betting is stake. When you spread bet, you either buy or sell a commodity in accordance with the movement of the commodity, for instance, £6 per point. The implication of this is that for every point of the price of the commodity that moves in your favour, you gain multiples of your stake X the number of points the share price moves in your favour. Alternatively, you lose multiples of your stake size for each point the share moves against you. Something noteworthy in spread betting is that losses can sometimes exceed the deposits you make.
The spread is another important terminology in spread betting. A spread is a difference in the buying price and the selling price of a commodity. A tight spread implies that the spread you pay is less and the implication is that the cost of trading is lower.
Margin and leverage is important to understanding when choosing to spread bet. Spread betting being a financially leveraged commodity means that all you need to do is deposit a smaller percentage of the total value of a spread to open a position, the amount is determined by the broker – often called a trade on margin. Leveraged trading enables you to magnify your returns but it can also magnify your losses because the margins are based on the full value of the position of the spread and therefore, you could lose more than your deposit.
Spread Betting Pros
One might wonder why to engage in spread betting on the financial market. Well, spread betting has a couple of advantages.
• You have the ability to sell or buy a commodity. If you suppose the value of a product will increase over the coming days, you can buy the product. On the other hand, if you think the value of a product will decrease, you can sell the product. Therefore, you can protect yourself from incurring losses.
• You have the ability to trade on a leverage. The implication of this is that you deposit a small percentage of the total value of the trade to ably open your position in the market. Therefore, it is cost effective as often the returns exceed the deposits- that is if you make a good prediction.
• Another benefit is that you can do trade on varied platforms; global share markets, currency pairs, indices and commodities.
Spread Betting Cons
As much as spread betting has a lot of pros, there are also disadvantages involved in this form of trade.
• When trading with leverage, profits can be maximised however the downside is that losses will also be magnified.
• Because profits made with spread betting are tax-free in the UK, losses are not tax deductible.
• You do not own the assets that you are betting on thus you do not benefit as much from them.
Top Spread Betting Brokers
ETX Capital have a wide choice of platform available that are designed specifically for traders. ETX Capital are one of the longest established spread betting providers in the UK and with their experience they provide access to an extensive library of trading resources and tools. ETX offer some of the tightest spreads available and a large variety of instruments to trade from currencies, stocks, indices, commodities, options and more.
For more information on ETX Capital, read our full review of ETX here.
With two great platforms which give access to a variety of markets, you can carry out trades easily with Core Spreads and their user friendly spread betting platform.
With this trading platform, you have access to a variety of markets with competitive prices.
Visit our spread betting comparison page to compare the top spread betting brokers.
What is Binary Options trading?
Binary options refer to a type of contract where the payout is dependent on the result of a proposition entered into. The payout has only two possible outcomes; a fixed monetary amount of a predefined unit of an asset or nothing at all. The binary option contrasts with the other financial options which the payoff has a continuous spectrum.
The main types of a binary option are either the asset or nothing binary option or the cash or nothing binary option. As an option holder, once you acquire a binary option you have no further decision as pertains the outcome of the option because they exercise automatically. In addition, a binary option limits the holder from selling or purchasing an asset. On expiry of a binary option, the holder will receive a predefined amount of money or nothing at all depending on the outcome of the option.
If you are looking into investing in binary options, you need to confirm that the offer and sale of the asset on binary options platform is registered. With the registration, you will have access to vital information about the terms of the commodity on offer.
Binary Options Pros
• Binary options platforms are online trading platforms thus providing traders with the option of doing trade anywhere in the world as all one needs is a PC or a mobile phone.
• There are a wide variety of binary options on the market therefore, you can adapt your strategy to suit the market conditions.
• With binary options, you know the amount of risk to expect if your option does not go as you foresaw – losses do not exceed your deposits.
Binary Options Cons
However, binary options like all rewarding investments, also have some disadvantages;
• Binary options have a high turnover. With the fast paced environment the potential for profit and losses is high. This means that binary options is better suited for those with bigger deposits to trade in binary options.
• Binary options is a short term trading strategy as the positions on trades can close within 60 seconds and last up to 30 days.
• Binary options, being new in the trading industry, suffers from the fewer assets to trade in compared to spread betting.
Top Binary Options Platforms.
With ETX Capital, you get the trust and security that comes with a long established and Financial Conduct Regulated broker. ETX Capital are not only a top rated spread betting broker, but also a popular choice for Binary options. They have a good variety of binary options from high/low, one touch, short term and longer term trading options.
Established in 2014, 10Trade is a relative new comer to the binary options industry and are quickly becoming a top choice platform with their high payouts and user friendly interface.
24Options are one of the most popular binary options platform available today, they also have a user friendly interface and offer a variety of different trading options to suit most traders.