The share dealing market is massive business and many people, even in these current times of financial hardship, are interested in investing in shares.
What many people don’t know though is that there are some other alternatives to share dealing that come with some pretty handy benefits.
This article has been written as an overview of these alternative methods of financial trading and why they can be better options for many.
Specifically we will be discussing CFD trading, spread betting and options trading.
Options are financial derivatives that give the buyer the option but not the commitment to purchase a set number of shares in a company at a predetermined price within a set timeframe.
There are two different types of options: Binaries and Vanilla.
Binary options (also known as all or nothing options) are one of the simplest ways to speculate on the markets.
Simply choose the asset you want to speculate on and the direction you think its price will go and buy the option.
At the time of expiry, depending on whether the price has gone for or against you, you will stand to receive either the profit stated when you open the trade OR you will lose your stake.
Vanilla options are slightly more complicated than binaries.
When you trade a vanilla option you are also speculating on which way the price of an asset will go but you pay a premium at the start which is basically the most you can lose.
Even if the company goes bankrupt, your losses are limited to the premium you paid at the start.
On the other hand, if the price increases tenfold, you will make ten times the value of the trade value.
This is the beauty of the vanilla option – unlimited upside with a capped downside.
Spread Betting and CFDs
Because these two derivatives are so similar with regard to their features, we have decided to cover them both at the same time.
You will even find that the majority of CFD brokers also offer spread betting services.
With spread betting and CFDs you are speculating on the future price direction of an underlying asset.
There is a massive amount of market choice with these derivatives and brokers offer markets such as stocks and shares, entire indices, precious metals, soft commodities, interest rates, bond rates and much more.
As with options, spread betting and CFD firms allow their clients to bet on falling prices, as well as rising prices allowing them to hedge and generally take advantage of prices that are in a downward trend.
Forex Trading Companies
The platforms that forex trading companies offer are essentially the same as what CFD and spread betting brokers offer.
The only real difference is that you will normally find a larger number of currency pairings available to be traded.
As we can see there are a number of viable alternatives to share dealing with a broker.
The main problem when you invest into shares is that you are very limited on many different levels: you can only speculate on rising prices and market choice is limited.
It can be a very expensive way to invest if you are successful with your stock pick as you will be taxed on any positive outcome.
The key alternatives to share dealing are financial derivatives, namely spread betting, CFD trading and options (vanilla and binary)
Although each has similarities, there are a number of key differences that should be understood before investing your hard earned cash!