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Binary Options or Forex Trading, which is the best?

Binary Options or Forex Trading, which is the best?

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Estimated reading time: 6 minutes

Hi guys! It seems majority of us are confused with the differences between binary options and forex trading.

As this is our first article in our binary options series, we’ll be looking to give a brief overview of what it is all about and then compare it with the forex trading.

This will be beneficial to you especially if you are new to it and looking to start trading .

What are Binary Options?

In simple terms, Binary options are types of trade options where the payoff (reward) received is either all or nothing at all.  This type of option has really gained popularity in recent years with more binary options brokers appearing day by day.

In this type of trading, there’s no need to worry about liquidity and volatility of assets any longer when executing digital option trades. It fixed payout and there are only two possibilities in this type options. First, either the price of the current rate of asset will rise or fall within a specified time frame. Your ability to predict correctly, the result of your binary option trades will determine the reward you’ll get after the trade has expired.

Terms like “In the money” and “out of the money” are binary options jargons often used to denote when a correct prediction has been made within a specific time frame or incorrect prediction made within the same time respectively.

It is very simple to understand and use because the most important thing you need to know is to predict correctly, the asset’s trend direction within a specific time frame.

Assets traded in options could be stocks, commodities, indices and forex. Since it have expiry times and dates, your fixed return price is also known as the strike price.

What i consider best aspect is that regardless of how much the instrument or asset has moved, you are paid a fixed return on expiry provided the correct prediction was made. On the other hand, a trader who predicts wrongly on the asset’s direction will end up losing a fixed part of his or her investment or can even lose it all at expiration.

If a trader believes the market trend of an asset will go higher at a specific time, the trader would purchase a “call” while traders that believe the market trend of the same asset will go down for that specific time frame would purchase a “put”.

In both directions, you can make money by earning a fixed return on your investment provided the correct prediction was made.

For a call to make you money, the current price of the asset must be above the strike price at expiration. In the same vain, for a put to make money, the current price of the asset must be below the strike price at expiration.

One major advantage of trading options is that both the risks involved and reward are known. This simply means that it doesn’t matter how much he trade moves in favour or against the trader. One the factor is always certain, win a fixed proportion of your investment or lose a fixed proportion of the same investment.

Because of the high rate of return on investment often witnessed ( e.g 70%, 80% and up to 90% returns), one would think it’s a quick way to become very rich overnight. Don’t think that way because the major demerit is that the reward is always less than the risk staked on a trade.

You Can Also ReadHonest Reviews Of Option Bot 2.0

However, many binary option traders who apply the right strategies may quickly become rich 😆 .

 

Differences between Binary options and forex trading

Traders, especially newbie traders find it difficult differentiating between foreign exchange trading and digital options.

Though quite similar, both are not the same because they deal with different assets.

  • Forex trading deals with trading live currency exchange rates while binary options can be used to trade stocks, commodities, indices and forex.
  • In binary options, there’s no liquidity or volatility issues while in traditional option (forex trading included), such liquidity issues always arise and can lead to huge losses if not properly managed.
  • A beginner who decided to start trading options immediately can start off instantly with no technical knowledge required. In foreign exchange market, you need to learn most of the terminologies, skills, risk management rules, fundamental and technical analysis e.t.c before you can start trading.
  • In options, no matter the rate at which the price of an asset has moved in favor or against you, you will still receive the same fixed payout provided you predicted the market trend direction correctly.  In foreign exchange market, the extent at which the price of a currency pair moves in favor or against you is always considered and it determines if you will profit or lose in a position.
  • In binary options, there are no spreads (commissions paid to forex brokers in terms of pips) to worry about.  In foreign exchange market, spreads are the only way brokerage firms get paid for offering trading instruments to their clients.
  • Digital Options provide a full payout due to a single pip movement. In foreign currency trading, a the amount of pip movement is what determines the either the extent of profit or loss you will get from a position.
  • In binary options, there’s a risk to reward ratio meaning that both the risks and reward involved in a trade are known even before entry.  In the foreign exchange market, there’s no defined boundaries of risks and rewards and therefore the profit and losses can be limitless.
  • The payout amount is not proportional to the amount by which the option ends in the money in options. As long as the trade is in the money by even one tick (regardless of how much in the money it is), the winner receives the full payout amount. In the foreign exchange market, the payout amount highly depends on the instrument involved, the extent of movement, and the broker.
  • In digital options, knowing the magnitude and direction of price movement is not required but it’s one of the key concepts you must learn before you can start trading forex.

Similarities between Forex trading and binary options

  • Both involve substantial amounts of risk.
  • Both are traded with the help of brokerage firms.
  • You can apply your forex knowledge in binary options and still make money
  • The brokers are regulated by the same companies like the CFTC, SEC or CySEC

Which do you consider the best between Binary Options and Forex trading?

I don’t know about you but for me, I trade options most of the time and rarely trade foreign currencies. Even if i consider trading forex, i use free signals so that i won’t have to monitor my trades all day long.

To trade binary options, you need to register with a broker that offers quick support to its clients, high return on investment, simple and easy to use trading platform.

Here’s a Quick Review of 24Option broker

Name
Regulated
Yes, by CySEC
Minimum Deposit
$250
Accepts US clients
No
Trading Platform
Excellent 
Suitable for beginners
Absolutely
Payout/Returns
High, up to 89%
Assets
Commodities, Stocks, Currencies, Indices
Customer service
Fantastic
Reliability
Yes

Since 24Option has been around in the market, they know and provide everything a beginner trader needs to be successful in options and i suggest you try them out if are still a new trader.

Although a minimum of $250 is required to start trading at 24Options, depositing  more than that will ensure you don’t risk majority of your funds when trading.

You are more than welcome to tell us which one is the best between foreign exchange trading and digital options, which do you currently trade and any difference we’ve missed out above.

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Valforex.com cannot be held liable for any damages incurred due to the usage of any information displayed on this website. The information and trading guides found on the website constitute the authors’ opinion only. Both Forex and Binary options involve high-risk and are not suitable for all investors. Either Forex or Binary options may not be legal in your jurisdiction. It’s visitors’ responsibility to make sure these entities are legal in their jurisdiction before engaging in trading activity… Read More

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