It is extremely common nowadays that Binary Options traders are fully aware of Forex trading, as well as the other way round.
These two, now with Cryptocurrencies trading as well, are the most popular methods in which people can venture into the trading world.
Binary Options is a relatively new trading method compared to Forex online trading, which has been literally around for decades.
For this reason, when Binary Options first came out, all traders where ones who had some experience with Forex trading, but in 2018, we can say there are more and more traders each day who trade on Binary Options and have never head the word ‘Forex’ in their entire life.
There is one very simple reason for this.
Binary Options are much simpler… or at least, that is how it is presented to the public.
Brokers found out that if they made it easier for people to understand how trading works, with just two possible decisions that lead to only two possible outcomes, a lot of more of traders would come up.
No one can deny it is a more didactic trading method, but be careful, this does not mean it is easier.
Do not make the common mistake of thinking that way.
B.O and Forex certainly have many similarities and differences which need to be taken into consideration.
Before deciding in which markets you want to start your trading career, you need to have crystal clear the pros and cons of each trading method.
We have come with what we think are the most important similarities and differences between both methods, so you can analyse, compare, and make the best possible decision!
- Variability: The major difference between these to types of trading is how your risk and reward in each trade can differ.
In B.O, the rule is pretty simple, you either predict the price of the asset is going up or down within a expiry time, and you lose or win consequently a previously established amount.
e.g, Let’s say you have a 80% profit reward, if you open a 10$ position with a 5 minute time frame, either you come out with 18$ or 0$ after those 5 minutes have passed.
As you can see, your risk is established before entering each trade, so you can know exactly how much you could win or lose consequently.
In Forex, the story is a bit different. You do not only predict direction but also distance.. in other words, amplitude.
Putting it into simple terms.. if you predict an asset price is going up, opening a ‘Buy’ position, the higher the price goes, the bigger the profit.
On the other hand, if you predict the price is going up, opening a ‘Buy’ position, the lower the price goes, the bigger your loss.
As you can see, Forex has no certainty’s to the possible outcomes before entering trades, meaning your results with remain unknown until you close your trades!
- Expiry times: Continuing with the variability concept, you can now also understand what expiry times are. As I just explained, a time frame and an expiry determines in exactly what amount of time the trade will close from the moment the position was opened.
In binary options trading, time frames and expiry can vary from as little as 60 seconds to 3 months, while on the Forex markets, there is no determined time to which the trade will end.. meaning you can close it seconds after opening it.. or weeks, months, years.. as much as you wish.
- Margins: Forex trading features also has a tool called margins. Margins give the trader the capability to increase their investment capital so that they can make a larger profit if the trade is a winning one. On the other side, margins is not available as a tool for binary options trading.
- Types of trading: Within the different types of trading Binary Options include High/Low, 60 seconds options, touch/no touch options, boundary options, and option builder, while there are many different types of orders in Forex trading.. Buy/sell is the most important one, although there are also more complex types such as limit, stop, trailing stop, and hedge orders, for example.
Many times we get the question ‘Which type of trading is better’ and the answer is the same each time: none.
Not one type is better than the other. They are totally different, meaning they suit different types of traders, and each method has its pros and its cons.
So what you should do is analyzing from which one you could take the greatest advantages, and just dive right into it!
Hope this post helps everyone who is still deciding which style of trading is the adequate for them!
Please, do not hesitate to hit us up with any message, feedback or suggestions. We will be more than glad to receive them, and get back to you as soon as possible!
Happy trades and Kindest regards,