Spread betting and binary options trading are very similar in concept.

Both involve making predictions on price movements. Both also involve trading financial instruments based upon the price movements of their underlying assets. And neither type of trading requires you to actually own the asset on which a given trade is based. But there are also notable differences between spread betting and binary options.

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Spreads are commonly used in sports betting. When a game or match is held between a favorite and an underdog, a point spread is used to create a market on both sides. Otherwise, everyone would simply bet with the favorite. The spread ensures that half of the bettors back the underdog.

Thus, a market can be created very easily around nearly any event. Spread betting works similarly in the financial markets. Your profit or loss is determined by the number of points the price moves. Suppose you want to participate in spread betting on shares of Google. The stock has a bid of and an offer of Instead of falling below , it rises to , then , and then Again, you choose when to close it out.

Those are the basics to spread betting in the financial markets. Trading platforms that accommodate spread betting allow you to set stop loss orders to limit your losses.

Using Spread Bets to trade the Options Markets

A stop loss essentially closes the trade when the price of the underlying asset reaches a certain point. Instead, the price begins to climb with no sign that it will turn around. One way to protect yourself is to submit a stop loss order. It causes your position to automatically close, putting a cap on your losses.

Another useful tool is the limit order. Limit orders are used by traders to lock in profits on their trades. Suppose in our earlier example that the share price of Google did indeed fall below It continues to drop, expanding your profit. A limit order can automatically close the trade once the price falls to a certain level.

So, why would you want to close your position early in a profitable trade? Even worse, you might sustain a loss if the price rises far enough. A limit order locks in your profit and prevents such a scenario from occurring. Recall from earlier that we said spread betting was similar to trading binary options. And so it is for the reasons already mentioned. But the differences between the two types of trading are arguably more important since they can have a direct impact on your profits and losses.

With binary options, you know how much you stand to win or lose before you execute a given trade. Your potential profit is posted as a percentage of your investment amount.

Your potential loss is equal to the amount you have chosen to invest. This is much different than spread betting, where your potential profit or loss on the trade is essentially unknown and unlimited. Lastly, trading binary options is simple. A complete novice can get started within minutes. Of course, this is not to suggest you should jump in without having a trading strategy in mind.

So which is the better form of trading: Having said that, trading binary options tends to be simpler and there is less uncertainty about profits and losses. It also involves understanding the relationship between risk and reward and the importance of properly managing your capital. First, it should be clear that there is a significant degree of risk involved with both forms of trading. In other words, you can lose money. Even experienced traders make lousy calls that result in losses.

It happens to everyone. The key is to minimize your risk, which brings us to our second point…. That way, if a binary option ends out of the money, or a spread bet runs the wrong way, you can bounce back easily. One of the worst things you can do while trading binary options or spread betting is to chase your losses. Instead, if a contract ends poorly, cut your losses and take whatever lesson you can from the experience.

Getting started with binary options is very simple. Although the charts may seem intimidating at first glance, they are very easy to understand. Whether you participate in spread betting or binary options trading, it is critical that you understand the risks involved. Having said that, you can drastically improve your trading results by properly managing your bankroll, learning to read candlestick charts, and being receptive to lessons as you gain experience.

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Sign Up for the newsletter. Spread Betting Spread betting and binary options trading are very similar in concept. How Spread Betting Works Spreads are commonly used in sports betting.

Limiting Your Losses And Locking In Your Profits Trading platforms that accommodate spread betting allow you to set stop loss orders to limit your losses. Spread Betting Versus Binary Options Recall from earlier that we said spread betting was similar to trading binary options. How To Get Started With Binary Options Getting started with binary options is very simple. This Months Bonus Offers.