Know your options - binary, regular, or spread bet?
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Published by Barry Jenkins February 8, Print. Binary option trading is the easiest and is undoubtedly the fastest growing way to trade assets on financial markets. If you are already familiar with financial markets or forex trading then you would have certainly heard of spread betting.
If you live in the UK you probably are already somewhat familiar with financial spread betting because of how common they are in the bookies. You can place financial spread bets at your local betting shops and bookmakers. Binary trading is rapidly gaining in popularity and has recently started to reach the levels seen in spread betting.
Binary options are new, exciting and a simplified way to trade. Binary options and spread bets are very similar in many aspects in that they both give traders the mechanisms to predict the price movements on a wide variety of underlying assets and risk money on those predictions. With both binary options and spread bets a trader never actually takes a physical position in the underlying asset in question, they both just allow the trader to place a bet on the directional price movement of a selected asset.
Binary options are fixed risk contracts; this means that you are aware of your potential profit or loss when your trade is placed as it is fixed. This means you can only win a certain amount or you can only lose a certain amount. This differs from financial spread betting in that wins and losses can theoretically be unlimited, so you have to manage your trades and use stringent limits to maximise your profits and limit your losses.
With binary options your risk and profit are limited. With spread betting you can win or lose depending on the size of movement. With binary trading the size of movement does not determine the payout amount. If you finish in the money by just one pip, it is the same as finishing in the money by pips. With spread betting, you would make considerably more money by earning a pip move and considerably less with a 1 pip move as with spread betting you are usually betting a certain amount on each point move in your direction.
Binary options trading and financial spread betting are quite similar but operate somewhat differently. The main differences arise from the way that trades themselves functions. Both binary options and financial spread betting allow you to make a prediction about the directional price movement of an underlying financial instrument and then win or lose money based off of what happens depending on if your prediction is right or wrong. Binary options are known as fixed options because you risk a certain amount of money and when you win, the payoff will be fixed at a certain percentage of your initial stake.
If you lose, the amount of money you get back will also be fixed at a certain percentage. So say you are looking at the price of gold and you think it will go up during the expiry period. With financial spread betting you are betting on what a financial instrument will do. You can place a similar high or low trade. If you think the price is going up, you buy, if you think the price is going down you sell.
The big difference is you do not fix highly experienced option kings binary robert and more international stock trading avis risk when you select how much money you are staking on an outcome with financial spread betting.
Instead, your losses or wins can both theoretically be un-limited. This is very similar to trading in other markets such as Forex. So it is important to use limits to manage your exposure when trading via spread betting. You use standard limits to lock in a profit or a trailing stop.
To minimise any possible losses you should set stop loss limits depending on your chosen risk profile. Which is better, financial spread betting or binary options? The real answer is it is up to the individual trader and their psychology. Binary options are simpler to understand and easier to trade but that does not make it easier to win.
They also allow for a very strict risk reward policy. Spread betting is more complicated and it requires you to make more decisions about your trade, even a small trade can turn into a big trade if the price really starts moving and so the risk is higher.