Traders have often discussed Forex and Binary option trading around which is better. Both of these trading options have their own advantages and disadvantages, similarities and differences.
This is what you need to know.
Forex trading is a field that attracts a lot of traders from all over the world. Forex trading is about making money through currencies. There is a difference between currencies and foreign exchanges in the markets where the currencies are traded. Forex trading is one of the largest markets in the world and one that has the highest liquid financial assets.
Binary Options is another investment tool for the trader. These options have high payoffs but with a high underlying risk factor. In binary trading there is an “all or nothing” approach. Traders have to predict the “in-the-money” price or “out-of-the-money” price of the underlying asset as compared to its pre-specified price, known as ‘strike price’ at an estimated time. In case of profit, a trader gets all the profit and in case of loss, nothing is refunded.
Differences Between Forex And Binary Options
The major difference between the two is in the handling of the assets. Binary trading involves predicting whether the value of the underlying asset will increase or decrease within the specified time frame. If you are able to predict it correctly, you will reap the rewards.
In Forex trading you have to buy the assets first and then wait for some time before selling them, hopefully at a higher price. This mitigates the risk.
Another factor that is widely different is the time duration. In Binary options you can make profits within minutes or hours, but in the case of Forex trading you need to wait for days or weeks for the outcome. Handling of assets for such a long period requires more resources and planning. Choice of options should be made only after proper evaluation of the pros and cons of both forms of trading.
Pros And Cons
The Forex market is very complicated. However Binary option trading is much simpler with just 3-4 steps involved. In Forex trading, you have some complex parameter settings like managing risk levels, choosing parameters and a lot more.
Forex and Binary options, both have an underlying level of risk. With a closer look at both however, you can easily draw the conclusion that Forex trading is riskier than Binary options. With the latter you have the knowledge of what amount you are going to lose or gain. This gives better risk assessment and management. Forex trading has no such feature.
Forex Trading is also dependent on leverage that is offered by the broker. In order to gain larger profits you need to take advantage of leverage that will also spike your losses. Binary options have no such risks.
Additionally, in binary trading you can receive portions of your investment if your projections go awry, thus minimising overall losses.
The profit you can make in Binary trading depends on your knowledge and experience, as well as on the profit offered by your broker. Your profits can be as high as 300-400% based on the type of trade. In Binary trading there is complete control over the investment, which means that you can decide accurately how much money you make or lose.
In Forex trading, however, there is a big difference in profits and control over money is not as flexible. You need large amounts of money to make decent investments in Forex trading.
Binary option trading can be carried out with minimum investments easily. It is a great way of generating passive income. In the case of Forex trading, you need larger amounts especially in view of low leverage. However the temptation of making high profits in Forex can also lead to high losses and rush into making investments will only increase the risks.
Both Forex and Binary trading have pros and cons and decisions should be made according to your level of knowledge and investing capability. Forex trading is a full time occupation for millions over the globe while Binary option trading is a new trending market with a low number of traders. These options are for different types of investors and you will need to decide which suits you better.