Please note: Spread betting brokers no longer offer binary betting and this article’s purpose is show how spread betting is different from conventional betting on the outcome.
Spread betting and binary betting are two similar trading styles that share a number of common features. Both concern spreads on markets and are traded largely with financial spread betting brokers, while both investment styles also provide highly leveraged returns in the form of stake multiples. When compared, it is clear that both instrument types have their own positive and negative factors that make them more or less suited to individual trading scenarios, and depending on the circumstances at hand the advantages of one may make it the front-running investment type.
Characteristics of Spread Betting
The advantages of spread betting are well-trodden, but in comparison to binary betting they hold one distinct and extremely valuable point of difference. Spread betting is, by nature, an unlimited transaction. That means earnings can rise to an unlimited level depending on the movements of the market. If the market rises 100 points, you earn 100 times your stake – considerably more than you would earn on the same rise if you’d opted instead to choose a binary transaction.
But spread betting’s greatest advantage can also prove to be a negative, particularly when compared to the helpful limitations of binary betting on the downside. With unlimited earnings comes the correlative of unlimited losses, and that can never be a good thing. While it is a bit too convenient to say binary betting beats spread betting because the comparative risks are lower, it’s nevertheless a valid point to consider that spread betting isn’t always the most applicable instrument for a particular transaction.
Characteristics of Binary Betting
Binary betting is like spread betting on a restricted scale. In binary betting, spreads are quoted out of 100 rather than on the basis of the market price, and reflect the likelihood of a particular outcome in either direction. If the bet wins, the transaction is made up at 100, and if the bet loses it is made up at 0 – regardless of how heavily the market moves in either direction.
This means that there are tangible scenarios in which binary betting beats spread betting as a transaction type, both in an upwards and downwards direction. Say for example, with a £10 stake across both investment types, the market closed up 3 points with spreads 85-85 (i.e. a zero point spread). On a spread betting transaction, that would deliver a profit of £10, plus the original stake, whereas as a binary bet the trader could expect £150 return – 15 points to make the bet up to 100 multiplied by the stake.
Of course this isn’t always an advantage, and sometimes it can be disadvantageous to limit your profit potential in this way, forcing you to lose out on otherwise extremely successful transactions. Likewise, a one point drop in the market settles your position at 0, and so could potentially be much more costly that the same loss in a spread betting position.
Financial Spread Betting vs Binary Betting
Both financial spread betting and binary betting have something to offer traders, and relying on a blend in part of both of these strategies can be no bad thing in an environment where diversification makes you stronger. By understanding the advantages and limitations of each type of trading module, you can be best placed to decide whether spread betting or binary betting is the most suitable instrument for a particular trade, while deciding which represents the best value in terms of the return it can provide.