Binary Options Vs. Forex Trading: The Differences That You Need To Know
As a trader, you will find the differences between binary options and forex trading. The differences are major, it’s imperative that you need to know and understand these differences to become an expert trader.
Apart from the other options types or the regular option, Binary options come with fixed risks and fixed rewards.
In binary options trading, you have to determine which asset will increase in value or go down within a fixed period.
The right price prediction will increase your profit during a fixed time-period.
What Is Binary Options
In binary options trading, traders get profit from the increasing value of a particular trading asset. The payout percentage is fixed for traders.
Either you have to predict the right value of an asset or will lose the contact. Trading binary depends on the “Yes/ “No” outcome.
What is Binary Options Trading is a great educational article to know about binary options trading. You can consider it as a guide for new traders.
It is popular for low-skilled traders. Along with the traders choice, there are some other advantages of trading binary options. These are:
- High return
- Fixed risk and rewards
- Not complicated trading like other trading types
- Verity in trading assets
- Fast turnover rate
What Is Forex Trading
Forex trading or currency trading is popular among all traders because of their decentralized marketplace. It is the most liquid market in the world.
Currency trading is mainly exchanging one currency in terms of another currency. Only because of the improper trading strategies, more than 90% of traders walk away with empty handed.
You will get the opportunity to trade Forex using leverage. Leverage will help traders to trade in the market using more money.
There are some advantages of trading Forex. These are:
- Flexibility in trading
- A lot of verity for traders
- High liquidity
- Most volatile trading market
- Flexibility in trading time
- You can trade at the weekend
Binary Options Vs. Forex Trading
Along with their trading terms, you will get many more differences between these two trading types. We will describe all differences one by one in this article.
Binary Options Is A Gambling
Traders compare binary trading with gambling. If your prediction goes wrong, you will lose all of your money. If the predictions are right, not only will you get your actual investment, but also will receive some profits.
Suppose, you are going to open a position of $30 dollar. If everything goes right, then you will win the trade with an extra $24 dollar with an actual investment. Here, the return percentage is 80%.
On the other side, if the value of the asset goes down, the trader will lose 100% of the money that they invested in.
To make the trade profitable you have to win the maximum trade. There is no opportunity to minimize your loss amount.
In forex trading, users can set the stop-loss, and take-profit. As a result, traders are still able to make a profit in spite of if they’re unsuccessful in winning the majority of their trades.
However, you can not consider binary trading as a full form of gambling. Because at this moment most of the broker platform is regulated by different Financial Institutions.
Traders now can trade with different types of options offers by the different trading platform.
Trading Verity With High Risk
Forex markets are known to have higher variability and greater risk for traders.
Sometimes known as currency markets or only FX markets, in forex markets traders must decide both the direction in which the asset will go and predict how high or low that particular asset will go.
So, traders don’t know for sure the final status of the risk and profit.
In forex trading, unless traders implement some tools to control trading, there are no definite limits to how much money a trader can make or lose.
One such tool is stop loss, which restricts traders from losing money more than the allowed limit.
In other words, if a trader has lost a certain amount of cash, he/she won’t be allowed to trade, and the trade automatically shuts down.
Similarly, the potential profit might also be determined beforehand.
Forex traders have the option to close the trading once a certain amount of profit has been realized.
You can lose all of your cash in forex trading, and that will be the maximum amount of money you can lose.
But, in forex, both the profits and losses can be managed by implementing the limit/stop orders.
Binary trading operates on specific timelines.
In binary trading, the trader has no control over when a trade will begin or end, once trading has commenced.
Each option comes with a start time and an end time.
Before the commencement of a binary options trade, users must select when the order expires.
At the expiry time, all trading activities will automatically close.
Some brokers give traders the option to close early, but it is recommended that you exit the trading when you have received a percentage of the expected return.
But, not all the brokers offer this facility.
Similarly, few brokers will allow traders to delay the expiry time until the next expiry time.
Known as “rollover,” this option is only available if traders can increase their investment by a pre-determined percentage.
Things are a little different in forex trading.
In forex trading, users can perform trades that last to one second to a few weeks or months.
They can open and close the trade whenever they like.
However, keep in mind that this flexibility has its own version of advantages and disadvantages.
In forex trading, there are mechanisms that are called margins.
Brokers fix the maximum margin. Margins facilitate traders to increase the amount of their investment capital, in which there is an opportunity to make a sizable profit if the trade is a successful one.
This tool however, isn’t available for binary options trading.