Online trading has grown in popularity over the past several years. Most of the focus and growth is centered around the binary and forex trading markets. With this being said there are many traders who are interested in both types of trading, but are not sure which one is better for their particular trading style.
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Since both styles of trading involve some knowledge and there is the potential to both make a profit or lose money, it is important to fully understand both forex trading and binary options trading in order to make an educated choice about which to choose.
This article will look at the pros and cons of both binary options trading and forex trading in order to help potential investors make a choice about which market would most likely lead to consistent returns on their investments.
When comparing the binary options market and the forex market, one of the most critical factors to consider is the differences in risk management. Many experienced traders agree that trading on the forex market poses far more risk that trading binary options. The main reason for this is because when trading binary options the contract has a guaranteed loss level that cannot be expanded and on the forex market there is no limit to the amount that can be lost.
Additionally, the forex market is often marked with higher leverage. This improves the risk of larger losses or gains. New traders often find that the risk side wins out when leverage is used. This means that the number of enhanced gains is smaller and tends to lead to trading accounts becoming depleted.
When trading on the binary options market there is the potential to earn a refund for some of the invested capital. Unlike the forex market is an all or nothing contract, there are some binary options brokers that provide up to a 20% refund of invested capital when a trade expires out of the money.
One other benefit of binary options trading is a rollover function. This function helps with risk management as it allows the trader to extend the expiry time of positions that are not yet profitable. An early closure function is also available that allows a trader to close trades that are profitable early.
The next thing to look at when comparing the binary and forex market is trade accessibility. It is easier to place trades on the binary market than on the forex market. Trading on the binary market typically involves 4 steps. First, the asset and strike price are chosen. Next, a position size is chosen along with a contract expiration. Finally, the trade is confirmed. The overall process is quite simple.
The process for the forex market is a bit more complex. In forex trading a trader will need to calculate the stop and limit order, the position lot sizes, and the asset type along with the price entry level. Forex platforms can be more complex and the trading requirements on this market can be intimidating for those who are new to online trading. Making a mistake is easy and when this happens with a live account it can be costly.
To compare, when trading on the binary options market you choose between 2 orders and when trading on forex there can be as many as seven or eight orders that have to be dealt with in order to conduct a trade.
It is important to balance the risks and the rewards of investing in order to be successful. Binary options provide a unique payout system that allows a trader to achieve a ratio of risk to reward that is much more favorable. This system is in place as soon as a position is opened.
Binary options trading differs from forex trading because when trading binary options you know how much you can win or lose before the position goes live. In forex trading the gains and losses are variable and it is harder to predict the outcomes.
When trading on the forex market the trader will be responsible for all of the calculations for the potential profit or loss. This makes it easier to make a mistake that could affect your account negatively.
Another difference between forex and binary trading is that with binary options trading you can make several trades a day as the time frames for each trade are clear from the start. In forex it is impossible to know how long a trade will remain open.
The trading environment is always changing. As changes take place it is clear that many brokers are adapting to cater to the needs of online traders. There are flexible account sizes as well as different option contract periods available. Trading on the binary options market offers a bit more flexibility and risk management opportunities than what can be found on the forex market.
Many online brokers are now offering the option to trade on both the binary market and the forex market from a single account. This provides traders with the opportunity to test both markets before either committing to one or choosing to trade both.
Overall, there are pros and cons to both the forex market and the binary options markets. With forex there is a greater chance of making a large amount of money if you take the time to study the market and how it works. With binary options the rewards are typically smaller, but it is possible to make money trading binary options at a steady rate.
When it comes to any type of investing it is important to make sure that you have done your research and come up with a good investment strategy before putting any real money on the line. Using a demo account for both the forex and binary market can help you determine which market that you prefer. Demo accounts use play money so you are not risking anything while you learn more about the markets.