Difference Between Trading and Spread Betting
There are a considerable number of trading terms that confuse both the beginner and experienced trader. Unfortunately, the lack of understanding usually ends up in substantial financial losses. Therefore, the scope of this article is to look at two of the phrases ( trading and spread betting) that can cause significant confusion in the online financial trading industry.
At the outset, it is crucial to reiterate continually that the most critical investment in your trading journey is an investment in the knowledge and understanding of the subtle differences between trading and spread betting.
Trading and Spread Betting: How they are similar
Before we look at these two financial instruments’ differences, let’s look at how they are similar:
Succinctly stated, both trading and spread betting are leveraged derivative products.
For the sake of a comprehensive explanation, a derivative is a financial contract (security) whose value is derived from, or dependant on, an underlying asset. Additionally, a leveraged product is a financial instrument that allows traders to achieve maximum exposure to the market without increasing their investment.
Therefore, in summary, leveraged derivatives allow traders to trade on an underlying asset's price movements without acquiring the underlying asset. Both trading instruments are useful when enacting short-term trading strategies such as scalping and positional trading. Because both are leveraged products, taking an extended position on a spread bet or will cost you extra money for every day that you keep the trade open. Why? Mainly, to open a trading position, you have effectively borrowed the money from the broker. Therefore, you will have to pay an additional daily interest rate on the money you have borrowed to keep the trade open. Paying this additional daily amount will start eating into your profits and, eventually, it won't be worth holding the trading position.
Trading Vs Spread Betting: The fundamental differences
Apart from the fact that spread betting and trading are both leveraged derivative financial instruments and can both be used to achieve a trader’s short-term trading goals, there is very little else similar between the two products. Also, at the outset, it should be noted that the primary reason for discussing the differences is to determine which instrument is more suited to deriving profit from a financial market asset's price movements.
The most critical difference between trading and spread betting is that s are based on the underlying asset's current market value of and not on a broker-determined price as in spread betting. This is spread betting's most notable disadvantage, and the biggest reason not to trade using spread betting. You are trading against your broker instead of being able to leverage the underlying asset's frequent, small price movements as its traded live on the global financial markets.
This is also the fundamental reason why are a superior product. s are still worth considering even though it might take longer to understand the -trading nuances. The good news, though is when you open a trading account with us, a expert will help you learn how to trade successfully with s.
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