Both spot forex and binary options are emerging industries with a number of people joining their respective markets every day. Whereas forex seems to be drawing a lot of interest across the globe as of recently, binary options existed over-the-counter for quite a while only to start getting more attention in the past few years. While we know how both markets are tradable online allowing traders to start off with small amounts of capital, there still may be reasons why anyone would prefer one over the other. If you are wondering which one is better, buckle up because today we are going through all advantages and disadvantages of the two financial trading markets.
The binary options market depends on the trader’s choice
Before we start comparing and contrasting, let us first see what we know so far about binary options. This financial product, which is also referred to as all-or-nothing options, digital options, and fixed return options, is essentially based on a prediction that offers the trader a fixed payout. The overall success of any binary options trade depends on whether the outcome matches the trader’s yes/no proposition. The fact that there are only two possible outcomes of such trades, yes or no, also determined the market’s name (binary). Interestingly enough, most binary options trading takes place outside the United States and many outlets used for these purposes have already proved to be fraudulent. While the FBI keeps investigating binary options scams across the world, Facebook has even banned any binary options trading advertisements. Still, the market is said to currently number approximately 90 companies offering binary options trading services.
Forex is limited to currency trading
As opposed to currency trading, binary options trading is increasingly flexible in terms of available markets. Binary options traders have the ability to choose between forex, stock indices, and commodities, among others. Binary options trading begins with a trader’s decision whether an asset’s price, for example, will rise above a specific amount on a particular day and time. If the events unfold as the trader hoped, he/she will get the specified percentage of the agreed-upon stake. Nonetheless, the value returned to the trader also depends on whether the market is in or out of the money.
Binary options involve no additional costs
While forex allows traders to take a specific position in a trade, binary options trading does not. It does, however, specify a fixed maximum payout, while the risk is tied to the initially invested sum. Although price movement in forex can have quite a significant impact on the trade, profit, and loss in binary options trades are not affected in the same manner. Transaction costs are another point where the two markets differ since binary options trading does not involve any additional transaction costs apart from the money included in the payout or the loss. Forex traders, however, also need to think of a variety of other costs such as the spread or commission.
Forex traders can maximize their profit
Unlike forex, binary options have a predetermined expiry date (point in time) after which the gain or loss is automatically credited/debited to the trader’s account. Some binary options, however, can be closed before expiration, but this usually influences the amount of money a trader will earn in the end. Similarly, some brokers permit traders to delay their expiry time to the next expiry time, which is only plausible when traders increase their investment by a specific percentage. In the forex market, on the contrary, market participants can close their trades at any time except weekends (true for most brokers). Moreover, while in currency trading long trends can be recognized and utilized so that a trader can maximize the profit through the use of specific strategies, binary options traders are limited by the set expiry dates and cannot use margins.
Binary options traders actually have fewer options
Even though both forex and binary options can be traded Monday through Friday, many binary options deals are only available at certain times of the day or the week. Therefore, with binary options, traders may not be able to find the best option even if they have an idea of how the market is going to behave. Furthermore, the strike prices in the binary options market are generally set by the broker, which does make it different from forex.
The forex market can react unpredictably
While currency trading is prone to volatile and sluggish periods alike, binary options trading is typically unencumbered by volatility regardless of events taking place at the time of the trade. Also, while in forex the market can react quite unpredictably, binary options traders can be at peace knowing that both their maximum risk and maximum reward are already set. In forex, however, the maximum loss may be one’s entire account.
You need to win the majority of binary options trades
Forex trading allows the market participant to set individual profit targets and stop losses so that any trader can make a profit even if they fail to win most of their trades. Nonetheless, if you want to invest in binary options for the long haul, you will probably need to win the majority of the bets. However, since it is a trader’s call to decide on the price’s direction and how high or low it will go, the ultimate risk is unknown.
The binary options margin for errors is small
Binary options vary in type, so traders can opt for high/low, 60-second options, touch/no-touch options, boundary options, and option builders. Forex also entails a variety of different orders, with buy and sell being the most important ones. Still, despite these similarities, the trader errors can have a carrying impact on the two markets. In binary options trading, the error margin is quite small since there are only two possible actions to take – open and close. In forex trading, however, a trader may forget to set a stop loss or fail to readjust orders, which could lead to a major loss.
Acknowledge and accept the differences
The forex and the binary options markets are quite different and they require traders to understand the existing discrepancies so as to gain success in either of them. Those who have started off with binary trading may need to recognize the importance of developing a stable and tested system along with learning the forex-specific tools. Likewise, experienced forex traders may find binary options to be too different, which is what professional currency traders claim to have felt the first time they interacted with this market as well.
You know the answer
Some forex traders may misunderstand and even underestimate the binary options market as much as binary options traders may find forex to be too risky or volatile. Therefore, the answer to the question in the title lies in you – are you open to learning about a new market? Whatever answer you give and whichever market you opt for, make sure that you do it all the way and that you protect yourself from the risk. Expanding to the binary options market may be a perfect opportunity to increase your income, while for some learning about forex may not be worth it. Although forex may take time to understand and earn a profit, one can become a prop trader and thus ensure affluence. On the other hand, any trader may choose to earn extra income alongside gaining forex education through trading binary options. Either way, traders will surely gain from learning about both because each market comes with its own set of benefits.