Binary Options vs. Forex
If you have been learning about binary options trading, it’s likely that you have already been learning certain Forex trading strategies. The main reason why the two are so closely tied is that you can trade currencies either way. Simply said, binary options trading is an alternative form of trading, and you can also trade other assets. Should you trade forex or binary options? Nobody can choose for you in the situation. In this essay, I’ll try to explain how the two differ from one another so you can choose wisely.
How to Trade Binary Options
Let’s start off by going over the fundamentals. When trading binary options, you are speculating on the direction that an asset’s price will go (up or down). The most fundamental kind of exchange is that. Let’s imagine, for illustration, that you trade GBP/JPY. You select “up” or “high” or “call” because you anticipate the exchange rate will increase in fifteen minutes (they all mean the same thing). After an hour, the price increases and you are reimbursed for your initial payment. Other trade types exist as well, such as Range, 60 Seconds, and One Touch.
What is Forex Trading?
For FX, there is just one form of trade. Let’s say you think the GBP/JPY exchange rate is rising. You make a lot of purchases, then you wait and observe the results. You are always free to get out of the trade. Keep in mind that for you to profit, the price must move. With range trading in binary options, the price can remain static and still produce a profit.
Now that you are familiar with each in general, let’s move on to the differences.
Trading on margin
Forex:
You can trade on margin in forex. This is often referred to as leveraged trading. In order to hold a larger investment position than you could control with just your own money, you essentially borrow money from your broker that you do not have. With FX, you can trade with astronomically high leverage. The highest possible ratio is 1:200. Although you are not required to trade on margin, the number of brokers who will let you trade with extremely tiny amounts of money will be limited if you have a very small account. Some people compel you to trade in certain lot sizes.
Binary choices
Many individuals mistakenly believe that binary options do not allow for margin trading, however this is untrue. Because you can’t withdraw bonuses from binary options brokers as cash until you meet a particular trade turnover, they are actually a form of leverage. You can only use them for trading up to that point. Therefore, you are in charge of money that you do not own. That cash will eventually be yours. Some traders, whether they trade binary options or foreign exchange, find value in margin trading, while others stay away from it. You must have a financial management strategy that directs your choices. Do not yet possess one? To learn more, click here.
Prices for Trading
Forex:
With FX, commissions are seldom, but there is a cost you must pay called a spread. This is a price gap between the offer and bid that benefits your broker. Every time you place a trade, you pay this kind of built-in charge. In other words, you would actually lose some money if you initiated a transaction and left it at the same price. To break even, you must be at least marginally profitable. Although the costs are small, they would mount up over time if you consistently lost money.
Binary choices
There are no commissions, spreads, or costs associated with trading; however, there can be expenses associated with withdrawals and wire transfers. These costs can be avoided. On this page, you can read more about them. That is not to imply, however, that there is not another element in currency trading that is comparable to the spread, namely the payment percentages. The majority of binary options brokers pay you 65-85% of your investment when you make a winning trade and return 0–15% of it when you lose. There is always a difference between the two that benefits the broker. Similar to FX, you need to win more often than not in order to break even.
Trades Categories
Forex:
Typically, FX trading only allows for straightforward buy-or-sell trades. Although there is such a thing as a “hedge order,” when both your buy and sell activate, you are essentially at a loss until you close the incorrect one. You are essentially engaged in a buy-or-sell exchange in any case.
Binary choices
This is one area where I would say binary options offers a pretty clear edge over FX trading. Binary option trading encompasses a variety of deal kinds. In addition to the traditional High/Low, there are other options such as Range Trading, One Touch, and No Touch. With One Touch, you bet that the price will stay inside a specific range while No Touch is the reverse. This enables you to make money even while the market is stagnant. There are also 60-second transactions, which are High/Low trades that happen very quickly. If you prefer the type of trade you can execute with Forex over these other types of transactions, then FX would have the advantage over binary options in this category.
Items for Trade
Forex:
Obviously, trading currencies is a part of currency trading. Other asset categories cannot be traded.
Binary choices
This is another area where binary options offers a clear benefit. You can trade equities, indices, commodities, and currencies in addition to currencies. Some brokers also provide bonds and other financial instruments. Find out more about what to trade here.
Trade Volume
Forex:
Typically, you must trade with a predetermined lot size. For example, a “micro lot” is typically 1,000 units of a base currency. There is typically a maximum lot that you can trade, but it is frequently quite high. For instance, 100 ordinary lots could cost as much as $10 million. If you have a huge account, forex is fantastic. Unless you discover a broker who allows you to trade any amount of money you desire (custom lot sizes—Oanda offers these), it might not be appropriate if you have a very tiny one.
Binary choices
The minimum and maximum investment amounts are set by each broker. The upper limit may change, although it normally falls between $1,000 and $5,000. Binary options trading is mostly aimed toward traders with smaller amounts, while there are a few brokers that are suited for traders with higher accounts. Although it is usually the case for 60-second options, you might be able to trade for as little as $5. For High/Low transactions, twenty-five dollars tends to be the more typical sum.
Closing Trades
Forex:
FX trading is much easier to understand than binary options in this particular sector, in my opinion. You get to close your position whenever you choose. If you prefer, it can happen right away, or it can happen in a few hours, days, weeks, or even months. Some traders invest for years in long-term carry trades! You have the power.
Binary choices
Trades in binary options have preset expiry durations. A trade will automatically terminate when the time on it expires, and you will either be in the money or out of the money. Although some brokers offer contracts that last for days or weeks, the bulk of brokers only offer trades that expire the same day.
Some brokers, but not all, will provide you with extra tools to manage how long you stay in a deal. The “rollover” option enables you to keep your trade open after its initial expiration period. This could be used to wait for a losing trade to turn around or to ride out a winning trade. In foreign exchange, “early closure” is the same as using a “stop loss” or “take profit” order. Before a transaction turns against you, it enables you to close it out before the expiry time has passed and either cut your losses or keep your earnings.
The odds of success are significantly higher for traders who make use of these tools when they are made available than for those who do not. However, they do have some restrictions. The majority of the time, brokers will ask you to up your investment risk in order to rollover, and they may also force you to wait a particular period of time before using the early closure tool.
Which is superior? FX or binary options?
Since only you can decide what is best for you to trade, I hope you can come to your own conclusions from this. I have made an effort to explain a few things that traders could find unclear and to offer my own ideas, although you might not agree with them. Each trading technique has its own benefits and drawbacks, and one you favor greatly relies on your personal trading preferences and objectives.
Learn More About Our Top Binary Option Brokers
Why not sign up with one of our top brokers if you want to utilise your newfound knowledge of binary options? These brokers have been examined by our experts to make sure they are trustworthy, equitable, and profitable. You may read more details about each binary broker below. Once you’ve determined which one is best for you, open a demo or live trading account to hone your skills.
• IQ Option: IQ Option is a reputable broker with top-notch CySEC regulation. They provide a wide variety of binary options with up to 95% possible returns. You can open a free demo account with $10,000 in fictitious money and start trading these options with as little as $1. Along with binary options, IQ Option also provides over 250 other CFDs, ranging from commodities to cryptocurrencies, as well as FX options, digital options, and forex currency pairs.
• RaceOption: One of the top trading interfaces available sets this well-known worldwide binary broker apart from the competition. Modern technology enables nonstop trading, lightning-fast withdrawals, and rapid execution. RaceOption is ideal for newcomers because it has a fair $250 minimum deposit requirement and a $1 minimum trade size. You can also take advantage of multiple incentives, contests and promotions.
• Binarycent: Using an intuitive trading platform, Binarycent allows you access to options, forex, and CFDs. With just a $250 initial deposit, you can choose between three different account kinds. Each account includes a generous deposit bonus, speedy withdrawals, round-the-clock service, and a demo account as well. Binary transactions can be made for as little as $0.10, and the broker promises returns of up to 95%.
• ExpertOption: Serving clients from 48 different nations, ExpertOption is a global binary broker. You may quickly access more than 100 assets whenever and wherever you want thanks to a trading platform that is compatible with all devices. ExpertOption offers six different account types, one of which, the Micro account, may be opened for as little as $10. Additionally, you can use the broker’s social trading platform to research the trades of VIP clients.