financial independence

Whats the difference between these 2 trading methods?

Trading the Spread is where you can make a possible endless profit or loss, which can be locked in with Stop Loss and limit orders - if you trade £10 per point, for each point up or down you make or lose money per point. Depending if you traded Long or Short. Spread betting is more volatile than Fixed Odds.

Spread betting could be said to have leverage to its power. But leverage can work against aswell as for you.

Fixed Odds are different. You stipulate how much you wish to win and you are then presented with a trade/bet price based on that value.

If the trade you make goes in your favour, you win that amount, if it does'nt you lose the amount it cost you to open the trade. You have a FIXED profit and cost to open that trade. You decide how much you want to risk, and by how much you want to win, you can however place stop loss and limit orders on some fixed odds trades aswell.

Advantages of spread Trading

1. You can limit your risk with a stop loss order and still take endless profits. (Trading with out a Stop isn't Trading its, well its something you should never ever do).

2. There are no set time periods, with fixed odds you buy a contract say USD/JPY will touch 119.50 by the end of Christmas Day, If USD/JPY touches 119.50 at 12:01 AM on December 26th you lose. With a spread you win and can leave the trade open to hit 120.00 or even higher if you want.

3. Many spread brokers offer services like free charts live news feeds.

4. Leverage in forex means you can control up to a 10,000 unit trade with £1. What does that mean? It means is if you want to be a bull go long GBP/USD would effectively be controlling 10,000 worth of USD with one pound. This may sound scary but a one PIP deviation either way will still only win or lose your £1 stake, really all it is is a way for you to get a better return if you'd just bet a pound the most you could win would probably be a few pence, obviously leverage will work against you aswell.

5. Most importantly with proper risk management and letting winning trades run to their full potential, Spread trading means you can be right less than half the time and still get a good return on your investment.

6. Instant execution means you can trade the news and close trades when ever you like.

Advantages of Fixed Odds Trading

1. Classed as gambling therefore returns are tax free here in the U.K.

2. Accounts can be opened with much smaller amounts of risk capital as little as £5

3. Some Brokers can have whats called slippage this rarely happens, it is when market activity moves faster than trades can be executed and can wipe out your trading account sometimes even more if you have not taken proper risk management measures. With fixed odds this can never happen you will never lose more than your stake.

4. A Stop loss orders can sometimes work against you due to market volatility going just one or two points beyond your stop loss before achieving your target price or limit order. This rarely happens with Fixed odds a move in the wrong direction might effect your contract (depending on contract size and type of fixed contract by just a few pence).

Both trading methods have their advantages and disadvantages, it depends really on the trader and their risk tollerence. I personally believe spread trading offers better opportunity but trade fixed odds aswell, as I believe do many traders.