The Differences Between Binary And Forex
If you are new to the world of trading you may be feeling slightly bamboozled by all the terminology and the options open to you. There are many ways to trade but two very popular methods are Forex and binary options. When you look more closely at what is involved in these types of investing it really isn't as complicated as it might seem.
Forex is currently the largest trading market in the world and is the based on the movement of currencies. It is commonly known as Forex or FX and stands for Foreign Exchange. Quite simply you have to correctly trade on the one currency strengthening whilst another weakens.
Another popular method is binary trading. This differs greatly from Forex in that you can invest in many more assets including things like commodities, stocks and currency. Options are a more recent entry and have only become popular in the last few years.
In this guide, you will learn:
- The difference in the two online methods
- Which type of trading is better suited to you
- All the pros/cons of both types of investing
Trading Payouts And Losses
There is one main difference between the payout and losses of binary options vs Forex trades and that is knowing how much you stand to win or lose on the result of your trade. With Forex you don't know the maximum profit you can make on a trade. By the same token you don't know how much you could lose on a single trade and you could in fact lose of all the money in your investing account.
With binary trading you know exactly what you stand to win or lose with every trade. The way to manage this when it comes to Forex is to put a limit/stop on the trade so that you don't go past a certain level. For that reason many traders prefer binary vs Forex as the risk is less and the amounts more manageable.
There are many ways to trade but two very popular methods are Forex and binary options.
The Costs of Each Method
With binary options trading you simply open an account, make your deposit and trade a certain amount each time on the call or put of an asset. There are no commissions or costs and any money that the broker gets is already calculated when working out the stated up front payouts of each trade. You know from the start how much you stand to win or lose and there are no hidden extras.
With Forex it is different. There are spreads and commissions involved which vary from broker to broker. The trader basically pays a small commission for each trade. The commissions are not always a clear cut amount and are often added into the spread, the spread is the difference between the currency pair buy and sell price. This involves more of a risk in that the spread could be huge or tiny. You just don't know.
Which Trading Type Suits You
The format you choose is dependent on your preferences. You may be less of a risk taker and like to know up front what the outcome will be or you may be comfortable with Forex trading and the risks associated. You may be an experienced hand that likes to trade both. One of the major factors to consider, apart from the investment factor, is whether you will find it enjoyable and comfortable to trade and which one suits your style.
If you prefer the choice when it comes to assets then binary options definitely gives you this. If you prefer to trade in currencies then Forex could be the ideal option for you although you can trade currencies with options trading too. How much work are you willing to put in? Well, trading Forex is more complicated with the trader needing to put in more work and research.
The Final Pros And Cons
In binary trading there is still the option to get a percentage of the money invested back with an unsuccessful trade. With a Forex trade you lose it all on an unsuccessful outcome. There are also options to rollover binary trades to give the asset a chance to recover if it's not doing as well as anticipated.
When it comes to basic investing itself and the ease of use then again binary trading comes out as the easier way. All you need to do is choose the asset, choose how much to invest, select the time of expiry and press the button to trade. It isn't as simple in Forex and the process is more involved and complicated, you really need a solid strategy or signals. In fact, for a beginner, binary is the simpler of the two.
The cost to trade varies between the two types and where options trading already ticks many boxes, for those entering the investment market, it is no different when it comes to cost of entry. You can sign up to a broker and invest as little as $10 dollars to start, there are some platforms where it costs nothing to open an account which is ideal for the beginner looking to dip their toe. It isn't as easy to open a Forex account and a much bigger deposit is needed to open one.
Whilst there are benefits to both types it is clear to see that for the beginner or trader who isn't looking to invest thousands of pounds then binary options is the less risky, more accessible option. It is no surprise that it continues to experience such growth in popularity.
Jacob has been an author for Binary Options Expert since our launch in 2012. He has over 40 years’ experience in the financial sector and has held a variety of positions within financial services corporations and venture capitalist organisations. Learn more.