Differences Between Options Trading and Spread Betting

What Exactly Are The Differences Between Spread Betting and Stock Options?

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Differences Between Options Trading and Spread Betting - Introduction

Options trading is definitely the most talked about investment method in the world today due to its incredible leverage and versatility through the use of options spreads. However, a recent innovation in the finance market has caused much confusion with options spreads trading and that is what is known as "Spread Betting". So, is spread betting the same as trading options spreads? What are the differences between options trading and spread betting?

This tutorial shall explore the very nature of spread betting and options trading in order to uncover their real differences.

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Differences Between Options Trading and Spread Betting - What Exactly is Spread Betting?

First of all, the very nature of spread betting itself is contrary to the nature of real financial investment instruments such as options trading or stocks and shares where there are actual obligations and responsibilities surrounding a financial security or asset. Spread betting is as its name suggests, Betting. It is actually regulated as a form of gambling activity in the UK rather than an investment actitivity and has actually led to many problems with people getting involved in it.

There are actually two kinds of spread betting; Sports Spread Betting or Financial Spread Betting.

Sports spread betting is simply betting on the outcome of a sports event, such as a soccer match, based on a spread of odds made by bookmakers in order to balance the number of betters on both sides of the outcome. This kind of spread betting has absolutely nothing to do with the financial market.

Financial spread betting is probably what most traders are confusing options spread trading with. Financial spread betting has been touted as a "simple, cheap, tax-free way to play the markets" by spread betting companies. Being "tax-free" tells something of the unregulated nature of this new innovation. In fact, financial spread betting is almost exactly the same as sports spread betting with the only difference being that instead of gambling on the outcome of a soccer match, you are gambling on whether the price of an asset is going to go up or down. This asset can be anything from a stock to an index or even house price, basically anything that can give a binary result can be spread betted. Indeed, in spread betting, you are simply betting on an outcome against the bookmaker with no actual involvement in the financial markets. Yes, it is purely a form of gambling activity. Starting to see the vast difference in nature between options trading and spread betting now?

Differences Between Options Trading and Spread Betting - What Exactly is Options Trading?

Stock options are contracts that grant the buyer of the options contract the right to buy a stock at a fixed price no matter what the price of the stock is in future (Through Call Options) or the right to sell one's stock at a fixed price no matter how low the stock may be in future (Through Put Options). This means that when you trade options, you are trading an actual contract in the financial markets to profit from movement in the underlying asset. An options contract allows you to actually buy or sell the underlying asset rather than simply betting on the direction only. Options spreads are sophisticated options trading strategies that are created by combining different long and short options positions together. This creates options strategies which allow an options trader to profit not only when a stock goes up or down but even when it is sideways or in multiple directions at once! These are definitely not what spread betting can do.

Differences Between Options Trading and Spread Betting - Conclusion

In conclusion, options trading and spread betting are completely different things and are not even related by nature. There are vast differences between options trading and spread betting in the sense that spread betting is simply a gambling activity on a binary outcome with nothing to do with the financial markets but are simply bets made outside of the market with gambling institutions on the outcome of price movements happening in the financial markets. Options trading makes you an actual participant in the financial market with actual obligations and responsibilities. Options spreads are sophisticated options strategies that allow you to structure exact payoff structures with exact risk reward ratios to meet your investment objectives while spread betting isn't even anything close to that. I hope this tutorial clears up the vast differences between options trading and spread betting.

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