Spread betting has become very popular over the last few years but now Binary Options betting is the new kid on the block in terms of simple ways of trading for retail investors. The main advantages that binary options betting offers over spread betting are:
- No spreads
When placing a spread bet you are automatically putting yourself in a disadvantage as you have to pay the broker ‘a spread’, this is the one edge that the broker gets and it can end up being expensive if you trade no-major forex pairs or if you place frequent trades.
- You cannot lose more than your initial deposit
With spread betting, you can lose more than your initial deposit because if you don’t set a stop loss (which is what many clients don’t do) and the market moves against you very quickly, then this can wipe out your account. With binary options this is impossible as you are the one who decides the amount of profit and the amount of risk. This is much safer for clients and is especially useful if you are a new client and are looking for a safer way to trade.
- More ways to profit
With spread betting, there is only one way to make money; this is by going long/short via making pips. With binary options however, there are multiple types of bets that you can place which suit your style, ranging from One-Touch bets to a standard binary bet, there are options that will suit you, and not to forget, these involve minimal risk.
In conclusion: It’s the simpler and safer way to trade
With spread betting, it can be very intimidating for new clients due to the amount of risk that is involved with spread betting. As mentioned, binary options betting provides you with the opportunity to trade on financial markets with limited risk, but high potential reward. It is perfect for the new trader wanting to start in financial markets, and it is also great for the experienced trader to take advantage of the profitable opportunities in the financial markets.
Binary options are a great alternative to spread betting as they offer numerous advantages which increase your ability to profit in the markets. Binary options eliminate many of the pitfalls commonly experienced when spread betting.
One of the major pitfalls of spread betting is the inability to correctly manage position sizes and stop loss levels. It is of paramount importance to have strict money management rules in place, these rules are often broken. The reason why investors break such fundamental rules is because most cannot stomach a small loss, they second guess their original bet and hope the market will turn in their favour. The culprit of this is the stop loss, this tool causes more problems than any other as the temptation to move a predetermined stop loss is impossible to fight. An investor will commonly move a stop loss further away to avoid an imminent loss, this reduces the level of anxiety in the short term but ultimately can result in a magnified loss. Some investors fail to utilize stop losses at all when spread betting, the result of this is that potential losses are completely unlimited.
Trading binary options at Markets World eliminates this problem which can be the Achilles heel of a spread bettor. With a binary option, the maximum loss is strictly limited to your premium (the cost of your trade); there are no stop loss levels to worry about and second guess. In addition, the market only has to move one pip/tick in your favor for the trade outcome to be net profitable resulting in an industry leading profit of up to 95%. This black and white approach is a major advantage, keeping one’s trading strategies simple is said to be the key to success. Markets World puts the binary options trader in control, you determine the level of risk you are willing to take and the profit level is known before the trade is even placed. In contrast, with a spread bet, the profit level and risk of loss is unknown unless a limit level is set, this however is commonly moved resulting in the same complications as the stop loss order.
Other valuable advantages of trading binary options with Markets World are:
- All profits are tax-freeunder current UK legislation.*
- There are no fees,spreads or commissions.
- Profit when markets are rising or falling.
- Placing a trade takes seconds.
- Trades can be placed with as little as $1 / €1 / £1 up to a maximum of $1,000 / €1,000 / £1,000.
- A free and unlimited demo/practice account is available for demonstration and testing purposes.
- Flexibility,trade when it is convenient for you, once a position is placed there is no need to screen watch for hours at a time because the expiry and profit payout are predetermined.
- Trade indices, forex, commodities, and stocks from a single account.
Spread Betting VS Binary Options
Years gone by, I used to confuse spread betting with binary options, thinking they were one and the same thing. It took some research on my part to discover the differences between both types of betting on outcomes in the financial market. The comparisons and contrasts between spread betting and binary options are listed below.
So, what are the differences between spread betting and binary options?
The risk profile between spread betting and binary options is quite different. Binary options have alower risk profile as the loss that can be sustained by a trader in a trade is restricted to the amount that the trader invested into that trade. In other words, unless the invested amount is the last in the trader’s account, a trader cannot lose his account from just a single trade. In spread betting, the situation is different. If the market is to go against the trader in a super-volatile environment, the trader can actually lose his entire account if a stop loss is not used to control losses in this situation.
This is what makes binary options a fixed risk investment, as profit or loss is limited. On the other hand, spread betting is a variable risk investment, where profit and loss are not fixed to the invested amount, but rather to the degree of stop or profit setting that the trader implements.
Avenues of Profitability
Spread bets typically involve trades betting strictly on asset direction, which leads the trader to either go long or short, depending on if the asset ends higher or lower than market price. Binary options bets involve not only asset direction (Call/Put), but other asset behaviour such as trading in/out of a range, touching/not touching a particular price level (the strike), etc.
Binary options traders incur very little trade cost which is usually built into the cost of the trade; it is quite negligible. In contrast, traders who engage in spread betting have to pay the broker a spread on the bet that they are trading. The size of the spread increases with the trade investment amount, which can make this quite pricey.
Spread betting involves trading in assets that are outside the purview of the financial markets (e.g. sporting events such as horse racing) and this can make them quite complicated for the new trader. Binary options assets are restricted to those assets that are found on the financial markets, making this a straightforward and easier way for greenhorns to get market experience.
Entry into the binary options market does not cost much money. With just $100, a trader can open an account with a binary options broker. Furthermore, a trader can start trading binary options with as little as $5. This is possible as the binary options market is a zero margin investment vehicle. However, spread betting runs on margin and this requires that the trader must have a well-capitalized account to cater for the margin costs of the spread bets, effectively making it more costly to start trading spread bets.
Similarities between Spread Betting and Binary Options
Both spread betting and binary options provide payouts based on asset behavior. For spread bets, this is the up-down movement of an asset. For binary options, this also goes further to include other asset behavioural patterns.
Spread betting and binary options trading do not require the trader to own the asset being traded. They only require the trader to make predictions based on the asset behavior.
On a final note, spread betting and binary options are tax-free in many jurisdictions, so traders who are worried about the tax guys hunting them globally have nothing to fear when trading either of the two investment vehicles. Please note that this last point does not apply to US traders.