Binary Options vs Forex Trading

If you have ever gotten these two types of trading, it is certainly a mistake that can be forgiven. This is because there are certain similarities between the two. For instance, they both involve financial trading markets where you can make trades online. It is also easier to join this market due to the lower amount of capital required.

Furthermore, with these trading types you are presuming the direction in which an asset will move. Despite these similarities, there are also many differences between binary options trading and forex trading. These article deals with some of the disparities of the two types of trading.

What are the Differences in Speculating with the Two Types of Trading

One of the variances between binary options trading and forex trading is the speculating process. With Forex trading, you decide whether one currency is going to perform better or worse than another currency. If you feel like the U.S. dollar is going to rise against the Euro, you will buy this particular pairing. You will hold onto the currency until it arrives at a price that you are happy with. You can then sell the currency that you hold for more than you bought it.

Conversely, binary options trading involves making a prediction based on whether or not an asset will increase or decrease in cost, according to its original value. You also have to make the prediction within a particular time frame. If what you say actually comes to pass, you will be able to make a profit.

Which Form of Trading is More Risky

There is a certain amount of risk involved in all types of trading. Nonetheless, one of the discrepancies between these two types of trading is the amount of risk that is involved. The more difficult it is to predict something, there is a greater chance that you will lose.

This is true in the case of Forex trading. Here, you are expected to do more than determine if the price is going to go up or down. You are also going to have to envisage just how high or low the prices are going to get. With binary trading options, however, it is enough for you to just estimate if the price is going to be above or below a particular price during a specific period of time. Thus, there is less for you to be concerned with.

Do You Know How Much You are Going to Make or Lose with Each Trade

Yet another dissimilarity between binary options trading and Forex trading is understanding how much you stand to win or lose. With binary options, you decide how much you are going to invest in a particular trade. You have a set amount and make a prediction. At this point, you are aware of just how much you can make or lose. For instance, most trades offer about 80 percent of the original amount.

This means that if you bet $10 and you are right, you will win your $10 back in addition to $8. The amount you lose depends on your broker. If you are engaged with a broker that offers “loss back”, you may make some money back even if you are wrong. If this option is not offered, you will lose all of your money.

With Forex trading, you can never be sure of how much you are going to make. Only once the currency reaches a particular price and you sell it, will you be able to make a profit. However, there is no guarantee that it is going to be a specific amount. However, you are afforded a way to minimize the damage. You can have a stop order loss order. This will prevent you from losing more money than necessary.

When Are Each of the Trades Over

An additional marked difference between the two types of trading is the time limit that each adhere to. Prior to going ahead with a binary options trade, you have to first decide how long the trade will last. At this point, the “expiry time”, the trade will close. You are restricted by the times, however, as they are predetermined and offered to you by your broker. If what you have predicted comes to pass at the point of expiry, you will earn a profit. If not, you lose out. There are certain instances where you can pull out early or extend the expiry time. This, however, will cost you a small percentage of your initial trade. Furthermore, this is not an option offered by all brokers or trades.

With Forex trading, however, the trader is in control. The trader will decide when they want to open and close the trade. This can last anywhere from a few seconds to several months. These individuals are on their own timelines and will decide when to make a move. Of course, there are certain risks that accompany this flexibility.

These are the most important differences between binary options and Forex trading. It is vital that you know the distinction between the two forms. This way, you will be able to determine the advantage or disadvantage offered with every disparity. This, in turn, will make it easier to decide whether it is binary options trading or Forex trading that is a better fit for you.

Page Updated: September 20, 2016

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