Binary Options versus Forex
When people want to start trading or are already trading, in general they will most likely make the choice between these 2 different trading options.
Thou they work with the same assets, they are very different when it comes to trading.
The aspects as to how decide which kind would work best for you, you have to look at the following aspects
- Ease of Trade
Risk is one of the main differences between Binary options and Forex trading, as Forex trading carries simply more risk then trading binary options. the reasons for this are simple and clear.
In Binary options the risk is controlled by the trader and some brokers offer the options to extend the predetermined time of a binary options trade or close out earlier. Keep in mind thou that all these additional features come at a cost or an amount of % in the payout.
The leverage in the Forex market is one of the aspects that makes it so much more risky. When you have a high leverage your profit is higher but also your risk is increased dramatically. When brokers offer 1:1000 leverage you can bank on it that one mistake and your funds are gone.
How easy is to trade
This is hand down the biggest difference. Binary options is the easiest way to trade in general. with this i means not just compared to Forex trading but to every kind of financial trading. to open a position in Binary options is actually so easy that this will never be the problem for you, opening the right position and predicting the market accurately is another matter altogether . but we will not go into that here , go for more information to the education section.
Every broker offers the same very simple steps, with small deviations, for opening a trade.
All you have to do is:
- Choosing the asset – what do you want to trade
- Entering the investment amount – make it never more then 5% of your total funds
- Selecting expiry – for how long will this option trade be.
- Payout & Losses – make sure you know how much you are to earn.
- Trade execution . choose the direction , sell or buy.
Forex can be much more complicated as there are many more aspects you have to take into account. To begin with most of the time the platform will be a bit more difficult. More important and this you should not forget. Is that in forex you need to enter a stop loss make calculations concerning spreads , set take profit and so more, for traders that have been doing this for some time it will be going as fast as trading binary options but for new traders this is way more intimidating.
In Binary Options you know your payout and thus are able to calculate your risk rewards very easily. In short you know what you are getting into.
In the Forex market, it is left entirely to the trader and also his or her abilities to do all the calculations regarding trade cost and profits to be earned.
While in Forex the profit can but much larger as there is no set pay out. It requires an entirely different state of mind to make this profitable. Many Forex traders will hedge their trades in order to limit their exposure and risks. This is not possible in Binary options. A Forex trader often does not know when he will close his trades where there is predetermined in Binary options trading.
Ease of Market Entry
Binary Options is made for people to trade easy fast and also important cheap. The entry level for Binary Options trading can be as low as $5
The learning curve for Binary options trading is much shorter then Forex trading. A real Forex trading is always learning and will never totally perfect his craft as this is against the nature of the market. With Binary options you are able to trade literally within minutes of opening your account with a minimum amount of knowledge on the financial markets. This will be in effect more like gambling but you will already have the built in controls to minimize your risk where in Forex you all have the learn this most often, the hard way.
Now let’s set them against each other even further.
Payouts and Losses
Forex: With Forex there is no way to predetermine the maximum profit the trade can make. You can set of course a “take profit” but in general as long as the market goes your way you want to push this higher and higher to make your profits grow for a long as possible. On the other hand with Forex you also are at risk of losing all your funds if you did not protect yourself. You can all managed this with limit/stop orders. Something a good Forex trader is master in.
Binary Options: here the Pay-outs are key. When opening a trade you will know your Pay out % and will know your profit when you are in the money when the trade expires. Brokers offered different % of pay out and in general also within the broker this differs per asset. The maximum amount you are able to loose is the amount you opened the trade for. No more and no less, making sure you are at all times aware of the maximum loss you would be able to suffer.
Forex: You are able to use margin where trading Forex. Margin allows you to increase your investment capital which in turn allows you to open larger traders and aim for larger profits, this is where it difference between the different brokers.
Binary Options: Margin is not used when trading Binary Options. you are actually not entering the market , you just predict the direction the market sis to go , you will never receive a margin call with Binary Options Trading , regardless if you open a position for a long period , like some brokers offer.
Different Orders Types
Forex: There are several different order types in Forex. The most common and important ones are the market (Buy/Sell) orders. But you have the options to trade with more advanced and complicated orders such as: OCO (One Cancels the other), Trailing Stop, Hedge orders, and others.
Binary Options: There are approximate five Binary Options types which you can trade. Thou many brokers are looking and trying additional types in order to keep the clients engaged and distinguish themselves from the other brokers. They include: 60 Seconds Options, High/Low (also known as: Call/Put or Up/Down), Touch/No Touch Options, Boundary Options, and Option Builder.
Forex: the smallest way to trade in Forex are micro lots, which is 1,000 units of the base currency in a Forex trade. Every brokerage has its own rules and trading conditions when it comes to the maximum amount and volume you are allowed trade. Some don’t have a maximum at all.
Binary Options: The minimum and maximum trading size allowed is decided by the broker and part of your account. In general the smallest trade is just a few dollars and the maximum trade is a few thousand dollars. there are of course possibilities to talk to your broker about the maximum size but especially for the 60 seconds trade , they do not really want to take the risk to have you trade with huge amounts, as their exposure will be too high an there will be no risk management from their side.
Closing a position
Forex: a Forex trader is able to close an option whenever the market is open and the broker has to comply. So this is where a Forex trader has more control.
Binary Options: in Binary options this is totally predetermined. When opening the trade you select the time frame and thus when this trade closes, now broker do offer some tools and alternative to close early or lengthen the time frame.
Forex: in Forex trading Forex you have to consider the costs of the spreads and rollover/swap, and if there are any commissions costs applicable.
Binary Options: with trading Binary Options there are no real spreads, rollover/swap or commissions , making the trading costs actually non existing, you take the chance when you open a position and this is it .
in short Binary option trading xis faster and easier but the potential return per trade is lower. i think that for beginning traders this will be a much easier way of trading but at the same time for those that really plan to be come professionals, Forex is the name of the Game.