Online trading has risen in popularity in recent years. Most of this trading done online is centered on forex trading and binary options trading. Many new traders face the choice of which type of trading they will do. Some people may even consider futures or stocks, but this type of trading involves more capital, which is why the binary and forex markets are popular as the average person can more easily access these markets.
While the same charts can be used for both binary and forex trading, there are many differences between these two types of trading and it each one appeals to different types of traders. Before you start trading on either market it is important to make sure that you create a trading plan and have a reliable method for trading as well as a sound management position in place.
When it comes to forex trading vs binary options there are several main differences. Here are a few things to consider when it comes to forex vs binary options that can help you decide which type of trading you should start with.
When it comes to forex trading vs binary options one of the biggest differences to consider is the margin. When trading binary options a margin is not used. Even without margins being used it is possible to make anywhere from 65% to 100% profits on standard options. This is very attractive for many traders.
In forex trading a margin is used. The maximum margin will be set by the broker that is used. Typically, the margin will be 1:500 or 1:200. The margin will allow you to increase the amount of your trading capital so that you will be able to make bigger trades. This can produce larger profits if things go right, but it also can mean greater losses when things do not go your way.
Payouts and Losses
Another difference between forex vs binary options is the way payouts and losses work. When trading binary options you will know what you stand to lose before you even open your trade. You will also know how much you can make off the trade if you win. Typical returns on binary options trading are over 65%. Knowing the potential payout or loss makes it easier to manage your risk, which is an attractive feature for some traders.
When trading forex, there is not a limit to the amount of profit that can be made from a trade. Stops or limits can be placed to guarantee a profit percentage if they are executed. Stop and limit orders can also be used to manage losses. Maximum losses could be your entire trading account.
Binary options offer a number of different orders from which to choose. One of the most popular orders is the high/low or call/put or up/down. Depending on the binary options broker that is chosen there may be other types of orders available as well.
Forex trading offers a number of order types as well. Buy/Sell orders are the most important types of forex trading to learn about. Other types of orders include trailing stop, hedge orders, stop, limit, OCO, as well as several others.
Perhaps the biggest difference when it comes to forex vs binary trading is that with binary trading your trades are not limited to simply currency pairs. Currency pairs are a common asset that can be traded with several binary options brokers, you also have the choice of trading a number of stock indices, individual stocks, and several commodities.
The size of the trades that can be made also differs between forex and binary trading. Each binary options broker will have a minimum and maximum trading size. These numbers will depend greatly on the broker with some brokers offering minimums as low as $5 and maximums of up to $5000 or in some cases more.
There are a few forex brokers that offer micro lots to traders. These micro lots are 1000th of the base currency. The broker will set the maximum and some brokers have the maximum set at up to 100 standard lots, which is $10 million.
In binary options trading there is no rollover, commission, spread, or swaps. When trading forex you will need to consider swaps, rollover, and spreads as these are all charges that are incurred when trading forex. Most brokers do not charge commission fees.
In binary options trading surprise volatility is not typically a factor. Any trade that is made can survive the volatility that may be caused by certain events taking place. The max risk and reward are set so there is no need to worry about knee-jerk reactions to the market.
In forex trading there can be sharp swings in the market that can greatly affect the value of your position. This means that appropriate risk management must be considered as part of the trading process.
When it comes to choosing between forex vs binary options trading the risk management must be considered as this is a critical factor between the two types of trading. Experts tend to agree that trading forex is much riskier than trading binaries because trading binaries always have a guaranteed loss level that cannot be exceeded. For example, if you are trading binaries and have invested $100 on a stock that you think will go up in price, if you are correct you know that you will receive a profit of $65 if you are correct, but if you are not correct you will lose your $100 and nothing more.
However, the forex market offers higher leverage. This means that there is a chance you can make greater profits by investing in forex. This is something that many new investors find the most attractive about forex trading.
Overall, both binary options trading and forex trading have their pros and cons. As an investor you will have to decide which one sounds better to you and choose the appropriate broker to meet your needs.