Binary Options vs Forex trading, which is more profit efficient? This is the most common question every trader asks. But the reality is both trading forms are equally efficient and good.
Most beginners do not know the difference between fx trading and binary options. Few of them think they both are the same, but it is not true. However, along with similarities, they both also have significant differences which make them apart from each other.
To become a successful trader, you’ll first need to know the benefits and drawbacks of both trading forms. So to assist you in this here’s a detailed article on Binary options vs Forex trading, read it until the end to learn more about them.
What Are The Binary Options?
Binary options are option contracts that offer a fixed payout if the underlying market moves past the strike price. It has greater profit potential.
Future price prediction of assets is the basics of trading binary options. In binary options trading, investors make a profit from the rising value of specific trading instruments.
A binary option is a type of old trading form that came into demand over the past few years. It consists of an equal number of chances of profit and loss. If your certain price prediction value of asset is proven correct, then you will make a good profit.
Otherwise, you will lose 100% of your initial investment. In addition, traders can trade options on multiple trading assets. There are majorly 5 types of binary options, including:
- Boundary Options
- Options Builder
- Touch/No Touch
What is Forex Trading?
Trading forex involves predicting the movement between two currencies, such as the Euro vs US Dollar (EUR/USD), which can be affected by changes in global supply and demand.
Forex trading has seen significant growth in the last few years due to its decentralized nature. The Foreign exchange market is one of the rapidly growing markets because of its liquidity, where you can trade currency pairs for earning profits.
The process of trading currencies against another currency is known as forex trading. Currency markets also provide you with the opportunity to trade currencies using high leverage.
One of the significant benefits of the forex market is it never closes. Due to this, you will get sufficient time for balancing your profit and loss. All good things come with more risks. Similarly, the foreign exchange market also consists of maximum risks of loss due to leverage.
So, you’ll need to pick a proper strategy and market knowledge before performing trade in the currency market.
That’s it! let’s move forward to the next section, where we’ll discuss key differences between Binary Options vs Forex Trading.
Binary Options Vs Forex Trading: Key Differences
As we mentioned above, both financial markets consist of a few similarities and dissimilarities. It is challenging to differentiate them as they both have similar features. Here are some main differences between binary options vs forex trading.
Investors often compare binary trading with gambling because of the price prediction feature and time frame. For instance, you open a position of $ 40, and if the market moves as per your expectations.
In this situation, you will generate efficient profit by trade with an extra benefit of $24 rather than your initial investment. However, you can’t consider trading binary options as a complete form of gambling.
Alternatively, in forex trading, you may not be required to predict future prices of an underlying asset to perform trade successfully. In forex trading, traders do research and analysis of the market with the help of different strategies and tools.
In addition, the forex market’s trading time is longer than binary options trade timings.
In binary options, traders often know the number of risks before placing an order. If your price forecast will move in the right direction, the minimum profit percentage is roughly 60 percent.
Must note that the number of risks is often higher than the potential gain. There are no chances of ignoring loss left after opening a trade. Although, you can reduce your losses by using a rollover trading strategy.
In contrary, the forex market is popular for its high volatility with the enormous risks of losing trade. While doing forex trading, traders need to predict the direction of price movements and how much the asset’s price will rise and drop.
That is why traders are not sure about their profit and loss status. Binary options vs forex trading profit generation efficiently are pretty tricky to estimate.
In forex trading, until you may not use some tools to manage their trade, you can’t determine how much you will make or lose. An example of such a type of tool is “stop-loss”.
It helps traders to set limits on their loss of money. In simple words, if the traders started losing nearly to the set limit, Sto-loss will not allow them to trade and automatically close the trade.
Alternatively, traders can handle their profits and losses by applying for the limit/stop loss order. While performing forex trading, traders set their stop-loss and take profit. As a result of this, traders are still generating profits for all unsuccessful trades in the majority of the trade.
Binary Options vs Forex trading time duration are totally different from each other. Traders can trade Binary options in particular timelines for fixed period. In binary trading, traders lose their control of trade after placing orders.
The expiration date is selected by the trader before placing a trade order. The expiry time of trade begins from 60 sec. But in some pre-determined trades, the expiry time is lower than 60 seconds because most traders set their expiry date.
Some brokers allow traders to close their trade within 60 sec. But they advise you not to close your trading until you earn your target return. But not all brokers provide this facility to their clients.
Likewise, some brokers provide leniency to their traders to delay the expiry time until the next expiry time. This process is known as “rollover”. A few brokers offer this option only on the condition that the trader enhances their initial investment through a predefined percentage.
Forex markets stay active 24 hours all week which provides traders a longer time for earning profits. In the forex market, traders can keep their trade open from a minimum of one second to one week or month.
Similarly, traders are allowed to open and close a trade at any time at want. So the forex market is a perfect platform for those people who like to do trading along with their day job. Due to this, traders have control over trade timings.
Diversity options trading provides a huge number of financial instruments. Investors can invest in binary commodities, stocks, bonds, currencies, indices, etc. In addition, it allows traders to get select trading assets based on their payout ratio.
Fx markets offer a very limited range of tradable assets. Therefore, 70+ currencies are present in the forex market, but traders mostly trade on major currency pairs.
Must note that you are only able to trade those forex pairs which are available on your brokerage portal. There’s no way to trade other instruments such as commodities or stocks.
Traders are allowed to trade binary options while the underlying marketplace is available for you. In case you pick to trade forex pairs on binary options, then the market is open 24/5 for you.
Forex traders are allowed to trade 24 hours of 5 business days. Even the forex market doors are open for weekend trading, But weekend trading is not suitable for all kinds of traders because a significantly fewer number of opportunities are available in weekend trading.
Binary options vs Forex trading transaction costs are different from each other. In binary options trading, traders need not pay any hidden charges. All charges will be paid by their traders before placing a trade on binary options.
Whereas in forex trading, traders need to pay additional costs such as commission fees, spreads, etc.
Leverage and Margin:
Binary options trading does not allow any leverage and margin to their clients. Whereas, in the forex market, wide margins are available for investors. But the maximum margin ratio is fixed by your broker.
On the positive side, traders who have margin facilities can increase their investment amount. Due to this, they get the opportunity to generate potential profit in case their trade will move as per their expectation.
Binary Options vs Forex Trading: Which Is Better?
Which form of trading is ideal for you will be determined by your requirements and trading style. Forex trading is risky, takes more time to study and monitor trades, and allows for leveraged trading.
On the other hand, Binary options are a simple product that allows you to speculate on numerous financial markets with low fees, fixed rewards and fixed risk.
That’s all in this Binary options vs forex trading topic, here’s a quick summary – binary options trading is easier compared to forex trading. However, both financial markets are excellent in their criteria.
Binary options provide a wide range of trading assets that help you to generate profit in a short time, whereas forex offers you minimum currency pairs, but they are the best option for long-term investment.
As now you know all the pros and cons of these financial markets, you might be looking to start trading. If you’re looking for good forex brokers for binary options and forex trading, ABInvesting is our top recommendation. Open your trading account now!
There are several forex and binary options brokers available online, but choosing the right one is always crucial. That’s it! Hope this article ‘Binary options vs forex trading,’ has helped you in your trading journey.
Risk Warning: CFDs and Forex are complex instruments and come with a high risk of losing money rapidly due to leverage. Most new retail investor accounts lose money when trading CFDs. Make sure you carefully consider your investment objectives, risk management skills, level of experience, and risk appetite before starting trading on these trading platforms.