Forex vs. Binary Options

Forex vs Binary Options Trading

fx binary optionsForex and binary options are two ways of trading the financial markets. As such, there will be similarities between forex and binary options, and due to the peculiar nature of the binary options market, there will also be differences. When you have read through this article, you will then be able to decide whether to trade forex or binary options exclusively, or to trade both in a complementary fashion.

Forex vs Binary Options: Similarities

The similarities between forex and binary options can be seen in the fact that it is possible to trade currencies in both markets. The range of currencies that can be traded will be determined by brokers.

Another similarity between forex and binary options is the ability of traders to profit from the two directional movements of assets. A trader can profit in forex from a rise in prices by buying a currency pair, or from a fall in price by selling the currency pair. In binary options, traders can benefit from rising prices using the Call option, or from falling prices using the Put option.

Yet another similarity when we talk of forex vs binary options is the ability of traders to use similar tools of technical analysis to derive their trading decisions. Traders can use the same indicators and tools of technical analysis such as trend lines, Stochastics oscillators, the RSI, MACD, moving averages, etc, to make trading decisions. There are only subtle differences in how traders can use them in each individual market, but both sets of traders will derive benefits using them.

Forex vs Binary Options: The Differences

The binary options market has some peculiarities that serve to differentiate it from the forex market. In forex, profiting from the market is based strictly on the up-down movements of the currency pair, depending on where the asset heads and if the trader gets the trade direction correct. In binary options, it takes more than just up and down movements of a currency. A trader can even make money if the market does not move more than two pips in any direction (IN boundary option). The trader can even set a trade that is contrary to what the market is doing and still make money from it (No Touch).

Forex trades can be set to last for the next ten years if possible. They only end when the trader says so (either via profit targets, stop loss or manually closing the trade). In binary options, trades do not last till infinity. They must be set to end at a particular time. Expiries can last 60 seconds to a maximum of three months. So wherever the trader decides to go with the trade, it must perform to expectations within the expiry. On expiry, the trade is closed automatically and a scan of the performance of the trade is done. If the trade performed according to the trader’s expectations, then the trade is recorded as a winner. If not, then a loss is sustained.

How much does a trader lose in a trade when forex is compared with binary options? In forex, all invested funds are lost when a loss is sustained. In binary options, most brokers will offer an option to receive back up to 15% of invested funds in case of a trade loss.

Traders can end trades manually in the forex market without any penalty or fees charged. If the trade was in profit, the full complement of the profit to that point is earned. In binary options, use of a similar function to close trades before expiry is attained will always attract a fee which is deducted from the payout.

In terms of whether the trader can get information about his potential earnings ahead of time,  we see another difference when forex is compared to binary options. The binary options market is structured so that traders are shown what they stand to earn even before the trade is executed. This is because earnings are fixed, which is why binary options is also called fixed return options. In forex, traders do not get such access; usually because earnings are not fixed.

Do leverage and margin requirements impact trade outcomes in forex? Yes they do in no small way because forex is a highly leveraged market. Do they have any impact in the binary options market? No, principally because the binary options market is an unleveraged market.

Conclusion

Will it be forex vs binary options for you? Now you know the similarities and differences, you can make an informed decision.

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