Difference Between Binary Bets and Spread Betting
Binary betting and spread betting are very closely aligned as trading tools, and both exhibit like for like properties that result in their frequent pairing. Indeed, many spread betting brokers also offer binary betting through the same platform, such is the degree of similarity between the two. Of course, binary betting and spread betting are distinct trading styles, and each has its own merits over the other that makes it different and worthy of independent consideration.
Perhaps the main difference between binaries and spread betting is the limitation effect of a binary transaction. Binaries are either up or down, with no half measures – hence the name. They are truly binary, insofar as a winning position, no matter how slight, is considered as a good a win as any other, with the reverse being true of any losses in the market. Contrast that with spread betting, where there are theoretically no limits on upside gain or downside losses, and where a 100-point market gain is 100 times better than a 1-point gain.
What this means from a practical perspective is that there is a cap on binary betting, whereas spread betting is entirely uncapped (excluding the option for positioning stops). Depending on your perspective, this can be a useful distinction to employ in your favour, and makes binary betting and spread betting a useful double act.
Aside from their distinctions, binaries and spread betting have significant similarities, mainly the fact that both quote spreads on markets, both are treated favourably for tax purposes, and both facilitate an in-built leverage component that saves on financing costs. In this vein, binary betting and spread betting share many of the same advantages over other forms of trading, making them a natural pairing for investors looking to capitalize on market movements.
Although both disciplines are similar to one another, they each have their own distinctions that require specific treatment, and thereby lend themselves each to different trading scenarios. By developing a working knowledge of both, you will give yourself an edge over the bulk of spread betting traders, and find yourself better equipped to deal with the various trading conditions that present themselves, leading to a more flexible and potentially more lucrative trading career.