Difference between Binary options and Forex
The fixed risk and fixed returns is usually an attractive proposition that drives many traders into binary options trading. They are often considered to be simpler than trading any other markets and this is one of the reasons many beginners prefer to trade binary options rather than forex or CFD’s. In this article we’ll explain the differences between binary options and forex so that readers can learn the differences and also the pros and cons and thus be able to decide if trading binary options is ideal for them or not.
Characteristics of Binary Options trading and Forex trading
Binary options trading offers the following features
In comparison, Forex trading offers the following features
Binary Options vs Forex – Which is better?
While both the above markets have their own distinct features, one cannot simply dismiss one market for the other. Of course, a complete beginner might find binary options easier to trader compared to forex, while a seasoned trader would know that binary options trading can complement their forex trading and vice versa.
To better understand the difference between binary options and forex, let’s take the following example.
Let’s assume that a Forex trader entered a BUY trade on EURUSD at 1.383 on 24/04. The trader sets their stop loss and target limits to 1.3792 and 1.38858 respectively. After entering the position, the trader waits for price to reach its target, which it eventually does on 01/05. Although the trade was profitable, during the course of the trade, EURUSD was volatile where it dropped back to below the entry price (which could have been risky for the trade). The forex trade lasted for 6 days. Depending on the number of lots bought (assuming it was 0.1); the trader’s profit would have been $55.
Now if a BinaryOptions trader would have purchased a CALL option on EURUSD at 1.383 with an expiry of 24 hours, the trader would have made a quick profit. If the trader invested just $50 the profit they would have made would be $44 within 24 hours.
In terms of risk, with binary options the trader would have risked $50, while with forex, the risk was $38.
The same example will show different results if the option expiry was set to more than 24 hours or even a weekly option expiry date.
From the above example, we can therefore learn that we cannot simply state that binary options is better than forex or vice versa. However, an astute trader would take advantage of binary options and try to make additional profits during the course of the trade