Forex vs Binary Options: Discovering The Difference
The rising popularity of online trading has mostly been centered in the Forex and binary options market.
Since changing from one market to another can lead to potentially costly mistakes, it makes sense to look at a comparison of both to determine which market is mostly likely to lead to consistent returns.
Forex trading and binary options trading are quite different and it is significant to understand these differences in order to build a very successful trading career.
The main difference
Like with forex, binary options traders profit or lose, from the price movements of stocks, currencies, indices and commodities. However, the main difference between the two is than in options trading investors do not purchase shares or a particular asset (to later sell for a profit and vice-versa).
They rather invest in their prognosis on whether the value will increase of decrease over a predefined time period. If the prediction is right, traders immediately realize a profit, but more importantly they always know exactly when and how much they stand to win or lose.
This innovative way of trading requires practically no previous trading experience or understanding of the trading world, unlike forex, where substantial financial knowledge is essential.
Both Forex and binary options trading involve risk. Nevertheless, if we take a closer look at both types of trading, we may draw the conclusion that binary options trading is a bit less risky. Namely, what immediately sets the two trading options apart is that in binary options, investors know in advance how much they are going to win or lose.
This is a considerable advantage over Forex trading, as the trader has better control over your money.
To make money in binary options in the long run, you must win the majority of the bets. Since forex trading allows users to set their own profit targets vs. stop loss orders, traders can still make a profit even if they do not win the majority of their trades.
The maximum margin is determined by each broker, and sometimes can be up to 1:200 or 1:500. Margin allows you to increase your investment capital so you can make a larger trade and make a larger profit if your trade is a winning one.
Margin is not used when trading Binary Options. You can still make a large return on your investment (sometimes 400%), so Binary Options are still very attractive for traders.
There are a variety of order types in Forex. The most important ones are the market (Buy/Sell) orders. Also there are more advanced orders such as: Limit, Stop, OCO (One Cancels the Others), Trailing Stop, Hedge orders and others.
There are about five Binary Options types which you can trade. They include: High/Low or Call/Put, 60 Seconds Options, Touch/No Touch Options, Option Builder and Boundary Options.
Both ways of trading have their pros and cons, so it is up to every trader to determine which one suits best their preferences.
Each one of these markets is meant for different types of traders. Currently, Forex is a dominant market segment at the moment, while binary options are a relatively new trend among Internet users and at the moment there are not so many people who make living by trading binaries.
On the other hand, that is not an obstacle to turn binary options trading into a full-time engagement.