Binary options and forex trading are the two most common investments for traders who are looking to make some extra money. There are a number of differences between binary options and forex trading. Knowing the differences can help you to decide whether you should trade binary options or forex.
Binary options has lesser risks compared to forex. Binary options offers traders a fixed payout structure. It offers a more favorable risk to rewards ratio. You can get a high return for your investment in a relatively short period. On average, the return is about 71% in a time frame of 15 minutes. The price movement will not affect your profit in binary options. Binary options is a highly regulated market with a centralized exchange. On the other hand, forex is not highly regulated so they can be tricky.
The profits and losses in forex are variable. In forex, the trader is responsible for making calculation on the potential profits and losses. It is easy for a beginner to make the wrong decisions that can affect their forex accounts.
Forex traders cannot know the exact time frame for each trade so it is difficult for them to open multiple trades per day. Binary options have fixed time frame so you can easily open and close multiple trades per day. Unlike forex, binary contracts are backed by an exchange. You don’t have to worry about not getting your payout when you win. The price you see on the platform is the price that you will be quoted by the binary options broker.
Options are subjected to time decay. The options will have lesser value as time passed. Binary options lets you make money through various market moving conditions including up, down and sideways. On the other hand, the market can only move either up or down in forex market. Your forex winnings and losses will depend on the price that your broker quote you.
Forex traders can exit the trade at anytime they want. Usually, the forex traders will exit the trade when they make a profit. Many forex traders also choose to exit the trade at stop loss or when they read a news. In binary options, you must select the expiry time when you place a trade. You are committed to that trade until the expiry time. There are a number of binary brokers that allow traders to exit the trade early.
If you choose to exit the trade early, you will get a slightly lower return than the original payout rate. Binary options has a trading hours between 9:30 a.m. – 4 p.m. New York Time. Forex market is open for 24 hours.
Binary options has no leverage. Forex has a leverage of 1:200 – 1:500. It is important to develop a correct management in forex trading otherwise you will get a margin call. To avoid a margin call, you must have proper training in forex trading.
There is a low chance of making an erroneous decision in binary options. The only possible mistakes you can make is entering the wrong amount or wrong direction. With binary options, all you need to do is to make the correct prediction about the asset.
You will earn a profit if you successfully predict the asset value will increase or decrease within the timeframe. Forex is harder because you have to spend many hours in front of your computer to follow the latest trends in the market.
It takes longer time to master forex trading. Statistic shows that about 95% of forex traders will lose their money in forex trading. Most of the forex traders only trade for short term because they lack knowledge in economics. With forex trading, you will have to make wise decision in uncertain circumstances. If you want to succeed in forex trading, you must have good analysis skills. You can reduce the chances of making the wrong decision in forex by using forex tools.
In conclusion, both binary options and forex have potential for traders to generate profits. Binary options is suitable for beginners because it has a simpler trading process. Forex trading is suitable for experienced traders as there are many factors you need to take into account in order to make a winning investment.