Forex trading vs Binary Options, are they the same or are they different?
This is a question that comes up a lot. As the Binary Options industry starts to get more traction and the massive machine that is Forex beings to look over its shoulder to this new kid on the block the question crops up time and time again.
The first thing to remember is that Binary Options compared to Forex trading requires very little in the way of seed or investment money and the leverages on offer and profits can be great.
To open most traditional Forex trading account would require something in the region of $500. With a Binary Options account you would be able to open an account for around $100 depending on which broker you choose. This is extremely important for the new trader and perfect to avoid having cash flow tied up. So as an example lets presume that you have information to believe that the price of the EUR USD was to go up on a particular day then as a Forex trader there are a number of points to consider. Firstly after opening your account and depositing around $500 you would need to place a buy trade with your broker. You would need to place a stop loss. This is designed to prevent you, the Forex trader, from possibly losing to much of your investment on that particular trade. The stop lose can be put within 10 pips or even 1,000’s of pips all depending on how you are carrying out your strategy. The stop lose highlights how much a particular trade can go against the Forex trader.
This is a very important and highly recommended technique to use to avoid large financial loses. In Binary Options trading though the phrase or requirement of a stop lose is unheard of. The maximum possible lose you, the Binary Options trader, is likely to suffer is the amount of money put into that trade. If you have invested $50 because you think the EUR USD is going to increase that day and you are incorrect then regardless of how many pips it falls the only amount you would lose is the investment money being $50. If however you are correct in your estimations then again, regardless of how many pips it increases by, you would receive around 80% (depending on broker) of your investment money as profit i.e. £120. The last factor to consider is that in Forex trading you would pay a commission to a broker. In Binary Options this is not the case as there is never a commission to pay. The only time the Binary Options broker is profitable is when the Binary Options trader loses.
The duration of a Binary Options trade compared to a Forex trade is also different. Most Binary Options are carried out over a one-hour period where as with Forex trading these tend to be 2 hourly, daily or weekly. This again is seen as an advantage for the traditional Forex trader considering Binary Options as the speed involved in a Binary Options trade can create excellent profits when obtaining information on a currency at short notice. This also goes back to the profit and lose subject of Binary Options v Forex trading as due to the trader being aware of the potential loses in Binary Options the Forex trader would need to carefully monitor their trade over a longer period to protect that investment. This can be time consuming and stressful!
However something for the traditional Forex trader to consider is not coming away from Forex but just adding Binary Options trading to your armory. When involved in a declining Forex trade maybe it is worth considering placing a large enough put Binary on the same trade. This can work when done correctly as a hedge to protect yourself.
Experts are advising Forex traders to research and test some rated Binary Options brokers to make this feature a part of their strategy. Not only can a well-executed hedge help with the softening an unsuccessful Forex trade but it can also help to increase profits.
