BINARY OPTION V/S FOREX TRADING – A DETAILED COMPARISON
There has been significant growth in binary option trading over the past few years, and more and more people are getting into it. However, it does not mean that it is the right investment for any trader. Both binary option trading and forex trading offer notable profit potential, but they are very different from one another and may not serve the same requirements.
So, you must research well and find out which one is the most suitable for you before start trading.
Basics about binary options
When you trade binary options, you invest as if an asset, such as a stock, a currency or a commodity is going to increase or decrease in value within a predetermined period. The traders can see the value of their earnings up-front in binary options trading. To put it simply, when you are predicting the future price movements, you exactly know how much profit you will be able to make if your prediction is correct.
However, if you fail to predict it right, you will end up losing 100% of your initial investment. Any variability does not exist in this form of trading because the trader only decides if the value of the asset will move up or down, but it is not predictedby how much it would increase or decrease.
Key features of binary option trading are
- Profits and losses of the traders are established up front.
- The expiry time for trades is chosen up front.
- You can trade binary options only during normal trading hours.
- A wide range of binary options are available for trade across various industries.
- There is no potential for leverage in binary option trading.
Basics about forex trading
Forex trading is the universal platform to exchange currencies. It is by far the largest marketplace in the world where over 5 trillion USD is traded daily. Trading occurs in pairs and traders compare the value differentials between two currencies, like the US Dollar and the Euro. There is high variability in forex trading. Traders not only have to decide the direction of a currency’s next move, but they also have to predict how high or low it is going to move.
Key features of forex trading include
- There are no limits on profits or losses, but you can enact limits or stop loss orders.
- Forex trading does not have set expiry time.
- Compared to binary option trading, forex trading is less diverse.
- Forex traders can conduct trading 24/5.
- The potential for high levels of leverage exists in forex trading.
Binary Option Trading
|1||Access to the market||Binary options can be traded with the marketplace of the underlying asset is open. Usually, it means that the market operates during standard trading hours. However, trades can be made on currency pairs. Under that scenario, trades can be conducted 24/5.||The forex market is open 24 hours a day and 5 days a week. Unlike other markets, the accessibility of forex trading provides the smart traders with an opportunity to react to news and world events fast. Although most traders do not favor weekend trading, it remains open with limited functionality.|
|2||Trade duration||Before you enter a binary option trade, you need to select its expiry time. This expiry time can range from one minute to one hour. Some brokers allow traders to exit the trade earlier than the expiry time at a lower return than determined. You can also extend a binary option trade to obtain higher returns. However, keep in mind that not all brokers offer these options.||When it comes to the forex marketplace, traders are in control of their trade and they can choose any time to exit. However, you cannot exit open trades on weekends because the market is closed at that time. So, it is better to not keep a position open during the weekends because you never know when some major event turns up and the condition goes against your trade.|
|3||Diversity||Binary option trading offers a vast range of markets that includes currencies, commodities, and stocks.||The range of trades in forex market is smaller compared to binary option trading. However, there are many currency pairs available. Although, it mainly takes place in the four major currency pairs.|
|4||Risk and reward||It is appealing to conduct trading in binary options because you know the maximum profit or loss before you enter a trade. You already know that a loss is capped at your initial investment. So, you can simply wait for the expiry time of the trade after entering it. Usually, the potential gains are less than successful forex trades. Profits from binary option trading usually range from 65% to 80% of the initial investment.||The forex market offers more variability but with higher risk. Apart from deciding in which direction a currency would move, traders also have to predict how high or low it would go. Hence, the risk the trade can carry is unknown. Traders generally enact a stop loss order to manage the risk. This order prevents a trade from losing more than a certain amount of percentage of the trader’s initial investment. A successful forex trade can generate up to 200% of profits which is common among experienced forex traders.|
|5||Volatility||Binary options are not affected by volatility. As long as the prediction made by you while making the trade is right when the option reaches the expiry time, surprise volatility will not affect your investment.||Forex trading is affected by surprise volatility significantly which is caused by new events often. Therefore, it is essential to set up proper risk management procedures while trading in forex.|
|6||Leverage||Binary option trading does not offer leverage.||In forex trading, using leverage can increase the profit potential of trades significantly. However, you need to approach leverage responsibly if you want to minimizelosses. Leverage ranges from 50 to 500 times the initial investment. It means that forex investors can make greater profits in a short period with less upfront investment. However, keep in mind that profit is never guaranteed. It is affected by decisions of traders and market movements.|
Pros of binary option trading
Although there is a substantial risk associated with binary option trading, you can control the amount of money to be in risk. So, ultimately, it cannot cause significant damage to your finances. This is why binary option trading is comparatively safer trading option with low risk.
Easy and simple:
Compared to traditional trading, binary option trading is easy to understand. Even traders with no experience find it simple, enjoyable, and at times, profitable. You only have to predict the price movement of the assets without any complications. So, it is a great option for beginners in trading.
Effective risk management:
Managing your risk is not difficult when it comes to binary option trading. You can easily manage, track, and alter the level of risk according to your personal preference. Many brokers allow traders to trade with a very little initial investment. So, you do not have to put thousands of dollars in risk.
Compared to many other types of trading, the return on investment in binary option trading is rapid and efficient. You can see a return on investment in either hours or even minutes. Moreover, you are often offered a payoff of your investment that can be as high as 70%.
Trade regardless the market condition:
Traditional forms of trading generally hold many market condition limitations. However, in binary option trading, you make money, whether the price rises or falls, if you predict it correctly.
Trade anytime and anywhere:
Similar to various types of trading, you can trade binary options online. There are dozens of brokers around the world that allows you to trade on any device. For example, brokers like IQ Option offers binary option trading platform for both iOS and Android. So, you can trade from anywhere and anytime.
Pros of forex trading
A large global market:
The sheer size and scale of forex market is highly beneficial for traders. It is the world’s largest financial market that exceeds of $4 trillion on average every day. Traders from all over the world buy and sell currency pairs at all hours that make it a global market with many scope and profitability.
Great for beginners:
Accessibility is a big advantage when it comes to forex trading. It is very easy to enter compared to other markets. Moreover, it does not require a large initial investment. However, keep in mind that successful trading requires knowledge and skill, regardless of your amount of capital. You can gain this skill and experience while practicing on demo account that is provided by top-notch brokers like IQ Option.
Benefit from leverage:
The availability of leverage is one of the most appealing features of forex trading as it allows traders to open a high position even with a small amount of capital. Leverage is expressed in a ratio. If your leverage is 1:50, it means that you can trade up to $50 for only $1. However, leverage also increases risk potential. So, you must be careful about it.
Low transaction costs:
Forex trading not only requires little initial investment but also low transaction costs once you are in. Usually, brokers make money from spreads that are measured in pips. Spreads are generally low which makes forex trading relatively inexpensive.
Market with high liquidity:
Liquidity is the ease with which an instrument can be sold or bought with minimum effect on its value, and it depends on how active a market is. The forex market has high liquidity due to its high volume and 24-hour activity. It means, if you are dealing with major currency pairs like EUR/GBP or GBP/USD, you can easily exchange your assets with little variances to their value. Now, little variance means less profit, but with a strong trading strategy, high liquidity will allow you to trade with minimal risk effectively.
Whether you want to trade binary options or you want to get into forex trading depends on your investment goals and dealing with risks. Since binary option trading offers fixed risks and fixed rewards, it is suitable for the risk-averse trader. At times, forex trading may provide higher returns, but it is more complicated and involves more risks than binary options. With good practice and luck, forex trading can be exciting and lucrative. There are countless investors that enjoy great success, but it is important to note that profits are never guaranteed, and risks are always involved. So, you must take risk management seriously.
There are many brokers for you to choose from to trade binary options or forex. While some brokers are more suited to binary options, other brokers offer great features for forex trading. However, the best option for you is a broker that offers a platform to conduct both types of trading, like IQ Option. IQ Option offers binary option trading for non-EU traders and forex trading for all traders in one platform which is convenient for traders.
It depends on your trading goal and how much risk you want to take. As you already know, forex trading involves more risk than binary option trading as you already know how much profit or loss you will have at the end of the trade, but you cannot know that when it comes to forex trading. So, from this perspective, binary option trading is safer, so you may go for it. However, if you are okay with the risks and know how to manage and avoid them, then forex trading may be a better option for you as it offers higher return of investments.
The best binary option brokers are IQ Option and Spectre.ai
The best forex trading brokers are IQ Option and Plus500
A. Binary options are legal and available to trade, but they must be traded on a regulated exchange. Now, there are some countries where binary options are not regulated,but it does not mean that it is illegal. With a regulated exchange or broker like IQ Option, traders from those countries can also trade binary options.
For more please read our detailed Guides about Forex Trading and Binary Options Trading with IQ Option
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 73% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Difference Between Forex Trading and Binary Options
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