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The general concept behind financial spread betting is quite similar to binary options trading and therefore the two are often confused. Spread betting is based on the prediction of financial movement and is also the same in that no ownership stake of the asset is gained by purchasing a trading contract. Other similarities include the fact that both include set time frames, require working with a broker, and offer opportunities using commodities, stocks, indices, and currency pairs.
So, what is the difference? The main difference is that the profit and loss amounts are not determined in advanced when participating in spread betting. Binary options traders are able to know exactly what the profit amount will be should the trade end in the money, as well as exactly what the loss amount will be should it not. The amount of money earned or lost in financial spread betting will be determined by the exact amount of asset price increase or decrease at the end of the expiry time frame.
The appeal of financial spread betting would be that profit amounts on certain trades could be higher than those earned in binary options trading. On the flip side is the fact that loss amounts could be higher as well. The same general levels of risk are present in both forms of trading. However, it will be binary options trading that provides a higher level of control in regard to financial aspects. The trader is always in complete control of loss amounts, as these can never exceed the initial investment amount of each trade.
Both of these forms of trading are relatively new and both only offer limited regulation at the time. Financial spread betting is regulated in certain jurisdictions at this time, but not much progress has been made in terms of higher levels of regulation. Binary options brokers, of which most are headquartered in Cyprus, now must become licensed per the requirements of the Cyprus Security and Exchange Commission. Negotiations are now underway for U.S. regulation as well.
The selection between these two forms of trading basically comes down to a preference of being able to know in advance the amount of money that could be earned of lost prior to executing each trade. Binary options trading allows this, financial spread betting does not. For this reason, spread betting is much more similar to traditional trading than binary options are. There is no need to select only one or the other, as both can be used to profit and both require similar research and analysis in order to make accurate predictions.
Written by John Anthony at http://www.MasterBinaryOptionsTrading.com
