Forex vs Binary - The Pros And Cons
If you are new to trading and considering your options then you may be torn between two very popular types of trading - Forex and binary options. While they both offer the opportunity to make money, and to enjoy the trading experience, there are considerable differences between the two and the benefits they offer.
Forex or Foreign Exchange currency trading involves trading on the performance of a currency pair against each other. It is quite simply a case of predicting which of the two currencies will finish the stronger and the position in which it will finish in. Binary Options is about predicting the outcome and whether the asset will finish higher or lower within a specific expiry time.
In order to evaluate the two types of trading and which is best for you, it is important not only to understand them but also to understand the benefits that they offer and what suits you better as a trader. Are the opportunities to make money the same, is one going to offer a quicker turnaround than the other and what are the costs of trading?
In this guide, you will learn:
- The payouts and losses that are incurred
- How much fees cost to trade both either
- Which of the two is most likely to suit you
Trading Payouts And Losses
When you make a successful binary option trade you receive a fixed payout. This means that you know in advance, the value of the payout that you will receive if you are successful. By the same token, you can also predict the value of your losses as you will lose the money that you staked on an unsuccessful trade.
With Forex, there is no limit to the amount of profit you can make with a trade unless you use tools such as stop/loss to ensure that once you reach a certain point you exit the trade. Maximum Forex losses would involve all of the money in your trading account. Binary trading is good for the cautious who like to know the possible outcome of their trades before they place them and how much they are going to lose.
For more serious investors, Forex is a great way to make a lot of money and offers you the chance to make trades over longer time frames. You don't just have to predict the outcome - you can predict the position you think that the currency will reach.
Forex has been around longer than binary and is the biggest market in the world.
The Costs of Each Method
In addition to the amount of money you can lose, there are also commission costs to consider. With binary options, you will be charged a premium for making the trade. You will know when you place the trade how much this charge will be. Shopping around for different brokers will show you the differences in the money that you can make. Some offer much higher payouts than others.
Generally speaking, a binary options payout will be between 60 and 80% of your initial investment. What this means is that if your trade is successful you will get back anywhere between 60-80% of the amount that you invested. If you lose, you lose 100%. With Forex, you are charged both a commission and a spread.
Because you never know how much you are going to win or lose, you don't know how much you are going to be charged until the outcome of the trade is known. With binary options trading your risk is always greater than your reward.
Which Trading Type Suits You
There are so many variables which can be applied when comparing Forex to binary options trading and which will suit you the most. As Forex is a much larger, much more liquid market, it has become a very popular form of trading with many investors. The market reacts to market news, economic factors and there are a number of tools to help you become a successful trader.
If you want to make a lot of money in just one trade then you will want to consider Forex. Binary options trading is much newer and much more variable. In addition to the various assets there are also many different trade types. Some of them are simpler than others. Forex is for those that enjoy the thrill of trading.
Rather than just guessing which direction the price will move, you also have to predict how far it will move in a particular direction – this is where many traders get the both the buzz of trading and the large profit margins. Of course, there is a tool called a stop loss if you want to be able to predict the direction but stop once it reaches a certain level. Another reason why Forex is more flexible for traders.
The Final Pros And Cons
In addition to the cost of trading and how much money you stand to make or lose there are some definite pros and cons to both. Forex has been around a lot longer than binary options trading and unsurprisingly is the biggest market in the world. That said binary options offers the chance to trade on a variety of assets including currency pairs and is suited for those who prefer to not take as many risks.
For those who don't mind the risk, Forex trading offers the chance to make much greater sums of money with each trade. If you want a flexible form of trading then Forex certainly gives you this. Time frames are much longer with Forex as binary options just offers short-term time frames.
While binary options are simple and offer the trader advanced knowledge of how much they will win or lose, Forex offers a lot more flexibility and the chance to be clever with your trades to offset the risks. Of course, the type of trading that you choose will depend on your personality and the amount of risk you are happy to incur. If you want to make a lot of money from your trades though it could be said that Forex is the preferred option.
Jessica has written for us for 5 years and offers a unique perspective due to her having worked in the financial industry internationally. In fact, Jessica has worked in a staggering 8 countries including Germany, China and the USA. Learn more.