The Differences Between Options Trading and Spread Betting

What is Options Trading?

An option is a form of a contract. A person who buys an options contract is buying the right, although they are not under obligation, to either sell or to buy a specific underlying asset either before or at a set time. Anyone who is already trading options will tell you that an option is a type of a security and is bound by strict terms.

What is Spread Betting?

Spread betting is a type of betting. It is a derivative product which is widely used by many traders to trade on different financial markets, such as currency markets or shares. Spread bets can be used to make speculative guesses as to whether a market will rise or fall. A broker will set a buy price and a sell price for a particular asset. The difference between the two is the spread. The trader looks at the spread and decides whether to sell or to buy. If the trader buys, his profits will increase if the price rises. If the trader sells, his profit will increase if the price falls.

The Main Differences Between Options and Spread Bets:

1. Spread betting is betting, whilst options trading is structured trading in contract form.

2. Spread betting is tax free, options trading is taxable.

3. In options trading you actually trade on the underlying asset, in spread betting you trade on the movement of the price of the underlying asset.

4. Options trading requires a more detailed knowledge of the underlying asset in hand, as there is no spread to guide you as is provided when spread betting.

5. Spread betting is widely regarded as a simple, quick way to begin to get involved in the financial markets, whilst options trading is seen as a more serious pursuit.

Risk warning: Spreadbetting, CFD trading and Forex are leveraged. This means they can result in losses exceeding your original deposit. Ensure you understand the risks, seek independent financial advice if necessary. The value of shares and the income from them may go down as well as up. Nothing on this website constitutes a solicitation or recommendation to enter into any security or investment.

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