Binary options are all about fixed rewards and prices. During a binary options’ trade, every trader has to decide whether a major asset, such as a commodity, a stock, or a currency, is going up or down in a settled duration. Before the start of the trade, the predicted earnings are shown to the traders. It is not the same for when it comes to Forex Trading.
If you aren’t familiar with Forex, we highly recommend you to check, this comprehensive forex trading for beginners guide by Paul.
Binary Options and Roulette
We can represent the work of binary options as a roulette: you make a bid on specific numbers, which are the assets, if you are lucky enough and got the predictions right, you get all your money back with a profit. However, if you miss the predictions, you lose all the money. It may seem a game of luck, but trading with binary options is far from being like that. There are many calculations and techniques you need to follow to get the best out of the trade, which would require a lot of knowledge and practice.
A commonly used setup among the traders is 80% profit of the initial money when the prediction is right. For example, if you put in $20 as a bet on the value of EURO/USD going up, and you get that right, you would get $36, $20 as initial money and $16 as a profit. But on the other hand, if your guess is wrong and the value of the currencies go down, you will get nothing in return. You lose all the investment that you put in.
To make a fortune out of a binary options trade, you have to win most of the bets you put in. For forex trading, there are options of setting the profit target and stopping loss orders. Even if the trader doesn’t get lucky and loses the majority of the trades, he can still make some profit.
There are many similarities between forex trading and binary trading. Both of them allow the traders to start with a small budget as a capital investment and use online trading. On both sides, traders are gambling on which direction an asset is potentially moving in. High profits are provided in both markets.
Now we move to the differences between forex and binary options. In the binary options market, every trader must choose whether an asset, a foreign currency, for example, will go high or low in value during a fixed duration. Once it is settled, there is no change in the profit or the risk. There are only input methods in the binary market, 1 or 0, hence the name binary. Likewise, the only two options in binary trading are whether the price is going up or going down.
With a Greater Variability, Comes More Risk
While the forex markets, also known as currency markets or FX markets, provide greater variability, they come with more risk for the traders. During the trading process, traders can control all the assets, from deciding on which directions they’re going, to predicting how high or low an asset can get. Hence, future risk and profit are unknown.
There are no limits in the forex markets. Every trader can gain as much money as he wants, or on the contrary, can drastically lose as much money as possible without any limitations. However, traders can use specific tools to close the trade once a certain profit or a particular loss is reached. One of these tools is “stop loss“, which is a beneficial tool to prevent losing more than a fixed amount. To make it simpler, the trader sets a certain amount. Then when the sum of the loss reaches the fixed number, the trade is automatically closed. Likewise, the trader can fix a certain amount of the total profit, and the trade shuts automatically once it is reached.
You need to be careful while trading with Forex. Because the amount you can lose is limitless, you may end up losing everything. That is why you need to make sure to manage all the limits with the dedicated tools. Trade safely!
Chronologies: How Limited Are BOs?
Binary trades follow specific timelines. It is not possible for a trader to choose when to start a trade or when to end it. Once it begins, there is no magical button to stop it. The only option for traders is to choose the expiration date of the order. It must be selected before the beginning of the options trade. Every choice has two limits, the time when it starts and the time when it ends.
Once the expiration time is reached, the trade comes automatically to an end. For some brokers, it is allowed to close before the end time, but you will get a percentage of the estimated return. This option is unavailable in many brokers. You may consider consulting the regulations of the broker to check the availability of this option before performing any trade.
Likewise, many brokers offer an option to delay the expiration time. It is named “rollover”. It can only be activated if the initial investment raises by a fixed percentage. If you find this option useful, it is best to consult the regulation of the brokers as well and look for a suitable one.
On the other hand, the process of forex trading offers a lot of flexibility. The traders are free to open and close any trade without limitations. There are no restricted rules that every trader needs to follow before performing any trade. If you feel like you need to seal the deal, go with it and close it. Even more, the duration starts from one second and can last up to many months. However, this total freedom and adaptability have both advantages and drawbacks.
Margins: Forex’ Wildcard
One of the main features of Forex is that it has a tool named margins. Every broker sets the maximum margin. The goal of margins is to raise the capital of investments, which results in a higher profit for the traders. This fantastic feature can’t be found in binary options.
Are you looking for binary options to trade? Here are five types of them: Sixty seconds options, high/low, touch/no touch options, option builder, and boundary options.
For forex, there are many different orders. It is more complicated for forex trading as there are many advanced types like stop, limit, one cancels the other (OCTO), hedge orders, and trailing stop. However, the essential type is buy/sell.
To become a very successful and fortunate trader, you need to understand the differences between binary trading and forex trading, even the small ones. Here you have all that you need to get more profitable trades and aim for the top.