What’s the Difference Between Spread Betting and Stock Investing?

The following is a 3rd party contribution:

If you look at spread betting and traditional stock investment casually, it might be difficult to understand the difference. In reality, these two investment types couldn’t be more different. They both have their place in the life of the smart investor, but it’s important to understand what the differences are so that you can include them in your portfolio appropriately.

First of all, spread betting and stock market investment may have a lot of the same stocks involved, but this doesn’t mean that they are the same thing. With stock market investment, you are buying up small pieces of different companies. With stock, you are a real owner of a portion of a company. With spread betting, there is no ownership whatsoever. You are making financial speculations about the way a stock’s value is going to change (spread betting also included things like currencies, indices, commodities, and other financial entities).

Second, stock investing and spread betting are totally different in the risk incurred when waiting for that return. With stocks, prices can and do fluctuate very quickly. But most sound investors don’t invest in just one or two stocks at a time. Instead, they diversify, so that if one stock tanks the other ones’ growth balances out that loss. Spread betting is totally different. Since there is no ownership, diversification doesn’t matter in the same way. No matter how many stocks you are focused on (you might be betting on the whole stock market!), you are only concerned with a single price: does it rise or does it fall, and did the value change in the direction that you picked?

Third, stock market investment and spread betting take place in entirely different platforms. Trusted spread betting platforms like ETX Capital allows you to trade on Forex as well as commodities and indices, but (again) they’re not actually selling you ownership in anything. As such, they are regulated completely differently than traditional stock brokers are. If you want to buy stocks, you’ll have to go through a company that is licensed and regulated for the sale of stocks and bonds.

Finally, stocks take time to make money for their investors, especially if the investor is well diversified. Some people strike it rich by picking winners in the stock market, but most people know that this is extremely risky and opt instead for diversified funds. These usually take decades to grow to great levels. On the flipside, spread betting investments can resolve in minutes, hours, days, or weeks. The time period is almost immaterial because you are just concerned with the direction the price changes, beyond the limits of the buy and sell spread.

At the end of the day, stock market investment and spread betting couldn’t be more different, even though they both focus on many of the same financial options. There are investors who prefer one or the other, and many who like both. Both investment forms have their place. At their best, spread betting can provide fast growth and stock investment can give sure, steady growth. Why not try both?