With the evolution of technology and easy access to online platforms, there’re several ways individuals are making their money.
For instance, there’s the forex market, which is arguably the largest in the world, with over $5 trillion daily trading volumes.
As a novice trader, you may need guidance to discern, which between them can fit your needs.
Forex trading has been in the game for an extended period; about over 40 years, while binary options only became famous almost a decade ago after the Exchange Commission and the US securities’ approval.
At a glance, binary options are merely betting on price movements for various assets such as market indices, stocks, currency pairs, and commodities like gold.
Forex trading, on the other hand, is the exchange of one currency for another to make the profits from the difference in the exchange rates.
But to understand the difference between the two, learn the following differences:
Leveraging Support and Liquidity
One of the main reasons while most folks take on the forex market is the high leverage being offered.
Leverage allows a trader to invest more than their balance and hence, use it to increase returns significantly.
However, with binary options, leverage is not available.
Moreover, the forex market is a liquid market whereby over $5 trillion daily transactions take place, which surpasses binary options by a considerable margin.
Besides, transactions are instantaneous in forex trading, meaning traders get their profits quickly.
In binary options, orders take time to be filled, and a trader is only left to guess the price at which an order can be filled.
Furthermore, unlike in binary options, forex trading has no slippage.
24 Hours Open Market
The forex market is open 24 hours a day and five days a week. Trading is also done at any time of the trader’s choosing.
However, in binary options, trading is only done during the day when the market is open.
Therefore, forex trading provides unlimited time as well as the flexibility of executing several trades a day hence high returns potential than in binary options.
Choice of Assets
An area where the binary options get a node is the number of assets that you can choose to trade, which is unlimited, unlike in forex trading where it’s limited only to the currency pairs.
Forex brokers are paid in commissions for every transaction or spreads, or on other occasions, both.
The brokers make their profit from the spread between an asking price and the bid price. In binary options, commissions or brokerage fees are not present.
Brokers get their profit when a trader loses a trade as the whole amount invested in trade is lost to a broker.
Risks and Declining Markets
The forex market is excellent with leverage, but it can get messy with high risks in case the trades go incorrect.
Moreover, brokers won’t make profits with a declining currency market or downfall in main currency pairs.
Since traders in forex trading speculate the direction of the asset as well as its price, the risk and profits are unclear when a trader places a trade.
However, with binary options, the risk is very much limited as a trader won’t lose more than the invested money for trade.
With binary options, a trader knows the maximum loss or profit precisely when placing a trade.
Moreover, binary options benefit from the market volatility thanks to the fact that there’s no actual buying of assets but only betting on price movements.
Therefore, binary options traders have high chances of making profits even with declining markets.
Also, binary options offer social trading support to novice traders, unlike forex trading, whereby a lot of time and knowledge is required to become successful.
The Bottom Line
Just like in a casino, anyone can get lucky and gain some profits. However, to understand the difference between forex trading and binary options, you must first understand trading in general.
Therefore, in considering which is on top, consider all your needs, and if you’re just entering into the game, binary options’ social trading support will be of great help.