Binary Options vs Forex If you are just about to start investing, you may wonder which one you should choose. Or maybe you have tried other one and you are thinking if you should change to the other? Or maybe you have just another reason why you want to compare the two and to know if superior in some way. Binary Options are actually a new form of investment, while foreign exchange trading has been for as long as there have been various currencies.
Therefore, it is obvious that the currency markets are much bigger by turnover. When you invest in currencies, you are directly competing against other top professional investors such as Warren Buffett and George Soros. Binary options markets are hundreds of time smaller than currency markets, and there are surprisingly small number of professional investors involved.
Also, investors have much more trading assets to choose from than currency traders have. In addition to that, only a few people know how to use auto traders like binary option robot , when for currency traders, highly sophisticated trading software is almost a necessity.
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The reason for this is simple: Thus, as with everything else, you should spread your risk over a number of Binary Option Robots, to maximise potential profit and prevent loss. Each one of the Binary Option Robot suggested in this article, has been rigorously tested, regulated, licenced and approved for the territories listed in the drop-down menu. Your Binary Option Robot will analyse the market and decide, which asset currencies, indices, commodities and stocks , is right to trade at that point in time.
Your robot will assess a wide-range of factors, and then make a prediction on how the assets price will move, saying: Call up if it believes the price will rise and Put down , if it believes the price will fall.
Then you need to decide how much you want to invest in the commodity and when that investment will expire. After that I will tell you what kind of investors should choose forex trading over binary options. Forex trading fits better for a small number of experienced investors who know for sure what they are doing and invest in larger sums. If you invest in currencies using mere intuition, you will only lose your money. The Difference Between Forex and Binary Options Though it looks similar, the binary and the forex trading is very different from each other and it is of high importance to understand the differences in order to be successful.
The binary options are contracts which have a fixed risk and reward ratio. The binary options trading requires you to predict the direction of an underlying asset within stipulated duration. The binary options are available for commodities, stocks, indices, and currency pairs.
The traders are informed their reward upfront in case their prediction turns out to be correct. Binary trading, as the name suggests and as explained earlier, requires you to predict the direction of the asset. The setup is very simple; traders get 80 percent payout in case their prediction is right.
To be a successful binary options trader, you must win a majority of your trades. While in the case of the forex trading, you are allowed to set your profit target and stop loss for the trade, which allows you to make a profit even if the underlying does not achieve your set targets.
So, in the case of the forex trading, the traders can make money even if they do not win a majority of their trades. Both the forms of trading are tradeable online, and also you can start trading with small capital. Traders speculate on the movement of the underlying in both the markets and if the prediction is true both reward the traders with the handsome amount.
In binary options trading, the traders predict the direction of the next move within certain time period. In this way, there is no variability in the risk or the profit potential.
As the name suggest, the binary market operates on only two outcomes Up of Down. While in the case of the forex market, the traders are required to predict the direction but also they have to estimate how high or how low the asset can go. This way there is an uncertainty in terms of the return and a higher risk.
Meaning, the trade will automatically close if the stop loss has been hit. Similarly, the trader can decide how much money they want to make by deciding the value at which they want to close the trade. So, in the case of the binary options, the maximum amount of loss could be the entire investment amount whereas in the case of the forex the risk can be mitigated by using certain tools. The binary options trade with specific expiry durations and once the trade has been initiated, the traders have no control till the expiry over their transaction.
Each and every binary option have a specific expiry attached to it and the trader needs to select the expiry before initiating the trade. Though some brokers allow closing the trade before expiry with restricted payout options, the majority of the brokers does not allow to close the trade before expiry. However, the forex trading allows you to initiate and close the trade whenever you want. The rollover is possible in case of the forex trading while the majority of the binary broker does not offer this facility.
The forex trading allows to invest higher capital with the leverage allowed by the FX broker, but such facility is not available with the binary options trading. This allows the forex trader make higher winning with limited investment but in the case of the binary trading, the trader can only allow investing the money which is available on the account or the amount which is restricted as per the brokerage site.
The binary trading offers 5 variants of the trading types. These options are high or low, 60 seconds, one touch, boundary, and option builder. Whereas, the forex trading offers several option types for the trading including buy or sell, limit, stop, One Cancels the Other, trailing stop, hedge amongst others.
Although the forex trading and the binary options trading look similar, there are some striking differences and one should be aware of these before initiating their first trade. Pros and Cons of The Forex and Binary Trading In the recent past, the binary options trading has seen an unprecedented rise.
The little known binary options of early , now have more than operators who offer binary trading. Accepted, that the binary options trading is growing at a rapid rate but why you should indulge in it? Or why should you learn a new trading platform when you are already deep into forex trading? Is it really superior to already known trading mechanisms? There are several advantages and disadvantages of the forex trading and the binary trading.
The following text describes some of the most pros and cons, and hopefully, it will assist you in making the selection. The biggest advantage of the binary trading is that the traders are aware of the maximum risk per trade, and it is the amount of money the trader invest in the underlying. Certain brokers, also allow you to close the trade before the expiry allowing you to further cut the losses, of course with certain conditions.
However, the same is not true for the forex trading. Even if with stop losses, you cannot be percent sure that you will lose only the pre-decided amount. Though less likely, there is a chance that you may lose higher amount due to slippages, illiquid asset, price jumps, technical issues, amongst others.
In the case of the binary trading, except high or low options, the strike prices are set by the broker and even if you have a fair idea on how an underlying asset will behave, you cannot place an order to be executed at certain price points.
On the other hand, the forex market offers the flexibility of placing limit orders or market orders during market hours to suit your requirements. In an open trade, there are limited brokers in the binary arena who allows you to close before the expiry with certain conditions while the majority of the broker disallow pre-closing of open trade.
On the other side, the forex trading allows you to close the trade even after 1 second of opening the trade, giving you a complete control over your transaction.
If you are on a winning trade, then the forex trading allows you to scale the investment and gain higher returns, whereas, the risk and rewards are fixed in the case of the binary options trading. The forex trading attracts transaction costs in terms of a brokerage or spread or both. Whereas, in the case of the binary trading there is no addition cost for trading the instruments.
Unlike, the forex trading which has only one asset type for trading, the binary options have evolved to provide trading in commodities, stocks, indices, and currency pairs.
This is one of the biggest advantages as one can diversify the trading portfolio by staying only with one broker whereas the same cannot be said for the forex brokers. This is another advantage for the binary options traders.
As the traders are well aware in advance the maximum loss they can incur in a single trade. So the events which induce high volatility in the market have a limited impact while trading with the binary options.
Also, along with the risk, the reward is also fixed in the case of binary trading, and there is no possibility of scaling in more amount to gain higher rewards. Whereas, in the case of the forex trading, the market reacts to events and sometimes the reactions cases heavy volatility increasing your risk multiple times.
For instance, if you have taken a position in a specific currency pair expecting it to move higher, an unfavorable event can crash the prices of the currency pair, giving you no time to cover your losses. This way the volatility risk is very high in the case of the forex trading compared that with the binary options trading. The errors in entering the trade are very low in the case of the binary trading as there is only one action which needs to be taken which is to open the trade and the rest is being done by the software.
The binary options trading does not offer limit orders or stop losses for adjustments, these have their own advantages and disadvantages. Even if you are a professional trader in the forex trading, your one mistake has potential to wipe your entire account. For instance, you forgot to exit from an open trade and the tide has turned unfavorable, in that case, the trade will continue till you may lose the total amount available for the trading in your account.
Such errors will never occur in the binary trading, as the expiry is set and the trade will close automatically limiting the loss only up to your per trade investment amount.
As discussed above, both the platform provides ample opportunity for the traders to make money and both offers distinct advantages and disadvantages over others. The above text provides definite insights into both the trading world. However, the ultimate decision of selecting the trading market rests in your hand.
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Forex trading is a hard game dominated by experienced professionals. For a novice trader, it is really hard to make profit with forex trading, most likely result is a rapid loss of money. Binary Options vs Forex was last modified: December 5th, by Michael Allen Author: Michael Allen Michael Allen is the main author at www. He holds a PhD in Economics and has worked in investment banking for 24 years.More...