Understanding The Difference: Binary Options Versus Forex Trading
Binary options are the option contract with fixed rewards and fixed risks. In the binary options trading, trader should decide whether a basic asset, like a stock, a currency, or a commodity, will go upward or downward during a fixed time period. Traders are shown the values of their earnings up front if their forecasts are right.
The binary options trading works in the same system as roulette: in case your prediction goes wrong, you will lose all money that you risked; however, if your prediction goes right, you get all your money back along with a return.
To make big money in the binary options in long run, you should win most of the bets. As forex trading lets users set their profit targets versus stop loss order, traders can still earn a profit even though they don’t win most of their trades.
Of course, there are a few similarities between forex trading and binary trading. Both these trading markets are easily tradable online, and both let users to begin trading with small amount of capital.
But, there are a few differences between forex and binary options. In binary market, traders guess whether any asset will go upward or downward in value after a fixed time period. There is no inconsistency in the risks or in the profits potential. In binary trading, only 2 options are available that is upward and downward.
HIGHER VARIABILITY, MORE RISKS
Forex markets provide higher variability along with more risks for traders. In the forex markets, traders must not only decide in which direction the asset will go, however must also envisage how low or high that asset goes. Therefore, the ultimate profit and risk is unidentified. In forex, there is no limit to how much wealth a trader can lose or make, unless they utilize certain tools to manage trading. In forex, the maximum loss would be all money on your account. In the forex, both profits and losses can be managed easily with limit/stop order.
The binary trades work on particular timelines. The traders have no control on when a trade starts or ends after a trade has begun. Before any binary options trade starts, users should choose when an order expires. Every option has an end time and a start time.
At expiry time, a trade closes automatically. Some brokers let you to close before time, but you’ll exit your option on a percentage of expected return. All brokers don’t offer this option.
In forex trading, the users can take a trade lasting from 60 seconds to many months, as they can close and open the trade when they feel like.
Forex has a tool known as margins. Every broker determines maximum margin. Margins let traders to boost their investment capital in order that they make a higher profit if trade is winning one. But, margin isn’t available for the binary options.
Binary trading and Forex trading are quite diverse and it’s important to know these differences to become a very successful trader.