Binary Options and Forex Trading
At first glance, people who lacks of financial knowledge may consider binary options is the same as Forex trading because of some common features such as using currency as the underlying asset. Taking time and delve into these two isolated financial products, an investor could easily point out number of significant differences between them.
What’s Forex Market
Forex is the abbreviation of foreign exchange. Actually, it’s a group of regional markets that operate in locations around the world. The United States, Europe, Japan and Australia are the most popular of these markets. In a comprehensive way, forex is a financial market that making trades on only one product, which is currency.
Because of its regional characteristic, Forex traders could make trades at least in one place at any given time of a day, even when the stock markets are closed on Saturday. This is the reason why currency pairs are also used as underlying assets in binary options market.
What’s Binary Options
In comparison with forex, binary options contain more colorful choices to earn money in spite of its shorter existence. There are only two possibilities when you spend an amount, which is equal to the purchase price of the option in order to buy it: you either receive a fixed payout defined in the contract or lose that initial investment.
In binary options, a winning trade is named “in-the-money” while “out-of-the-money” is assigned to a lose one. A speculation on whether the value of an asset at the expired time will be higher or lower than its starting location is determination for your trade. Tradable assets of binary options trading could be any traded thing on financial market, including individual stocks, stocks indices and commodities. Extensively, foreign currency is still the most popular asset.
We are going to use a simple example to clarify how effective is binary options work. In this example, an investor believes that Euros will rise against the US Dollar by the same time tomorrow. This trader has a better choice with a binary options broker than going to a forex trader and exchanging US Dollars for Euros. Any binary options broker is represented by its trading platform, on which you can run your trade. In this example, the trader will contract with the platform for a change of the currency pair at the expiration, which will end at the same time tomorrow. This contract contains winning conditions, the return rates of the broker, the investment amount of the trader. We assume that the payout offered by the broker is 50% and the trader invests in only $1,000. At the end of the trading time, if the value between Euros and US Dollar is higher than the initial, the trader will receive an amount of $1,500. Vice versa, the trader loses the $1,000 since his prediction is wrong. In some broker’s promotion strategies, we have witnessed a term that traders have opportunity to take back a reimbursement in case their trades are out of the money.
Binary Options and Forex Markets
Binary Options is believed to be more risk and more like gambling than Forex trade even though it’s much more advantageous.
First, binary options trading offers more chances in order to chase your ambitions. It offers a huge number of tradable assets in several classes and even different markets, which could be up to more than 50. Meanwhile, forex trades are limited to foreign curency.
Secondly, binary options does not require for continuous research. All you have to care about is the location of the trading value at the beginning and at the end of the trade. Compare to binary options, Forex trades is more complicated since it won’t close until receiving an order by the investors. It would take hours to research each day to determine the best time to close a forex trade.
The third is it’s easier to control losses and profits in binary options trading. Before the very last decisions, every detail about each option is clearly performed on the trading window, so an investor knows exactly how much he will earn or lose. Results in Forex trading are completely mysterious until the end. They have to determine precisely how much a currency rises or falls against its base. This determination is extremely difficult to predict.
Finally, binary options trading are more favorable due to its ability to earning more money within shorter time-frame. With the same percentage of payout, Forex trades usually require a bigger amount to initiate the trades. Moreover, traders of binary options market have no need to worry about margin call when it comes to an unexpected loss. Check out our recommended Binary Options Brokers for the best binary options broker.