At some point, you must have found yourself between choosing either binary options and forex trading. Most people look at the profits to define which one of them is better than the other.
However, one thing for sure, it can be challenging to be consistently profitable in whichever you choose if you have no understanding about trading itself.
Just like in a casino, you may get lucky sometimes, and therefore you need to understand trading first fully.
Once that is done, now you can get ahead and look, which is the best for you between binary options and forex trading.
What are Binary Options?
This is a form of investment whereby a trader has at least two options or outcomes for a particular asset.
Of the possible options, only one is able to be corrected within a specific time for the trade.
It works in a manner that if the asset behaves as per the trader’s choice, a profit is then made; however, if it doesn’t, the investment is lost.
What’s Forex Trading?
Forex trading is widely known across the world, and it’s the buying and selling of currencies to make profits.
Profits are made as change occurs in the rates of the exchange between the first exchange point and the re-exchange point.
The changes in currency usually happen daily, almost on a second-by-second interval. The most periods for the changes occur when there’re overlaps of major trading hubs.
What Sets Forex and Binary Options Apart
This is an argument that most probably will not end soon with various folks holding their ground defending their side, depending on their understanding. However, here’s all that you have to know about the two.
Risk vs. Reward
In the forex market, the secret of staying in the market for an extended period while making profits is searching for those trades with a greater reward than the risk. In that section, the forex market is incomparable with binary hands down.
For example, a reward/risk ratio of 3:1 means that with the same risk levels for all trades, it takes three consecutive losing trades to wipe the gains.
However, in binary, the returns are fixed with profitable trades paying a profit of around 70%. In this case, the losing trade brings a 100% loss of investment amount.
Therefore, it means that one loss and one winning trade can result in less money than the previous making fixed returns, not the best option for trading.
Brokers and the general forex market are well-regulated, and rules are well defined in the jurisdictions where trading is regulated, and well-followed.
On the other hand, binary options are not well-regulated, opening doors for dodgy practices by most brokers.
The forex market has variable returns whereby with more pips in your trades’ profit territory results in more profit.
In binary options, the returns are fixed, meaning the payout of a profitable trade is fixed despite the number of pips moving in your favor.
However, the losses are tied to what was invested in that trade, which can be advantageous.
Choice of the Assets
One area that binary option trumps the forex market is in the selection of assets. In binary options, the market is basically a one-stop-shop for all asset categories.
Therefore, for those traders with a master in trading correlated assets, it’s a great advantage.
Most folks like forex because it’s a leveraged market. A trader can borrow from the broker to control significant positions required in making reasonable returns.
Binary options are merely unleveraged instruments, and a trader has to invest a full amount that is required for trades.
Both markets share the presence of automated trading software. The only advantage with forex traders is that they are able to host the EA on remote servers while the binary options software is web-based and can’t be VPS-hosted.
In determining which investment vehicle to choose, it’s all down to your needs and what can suit you the most.
Each of them has its advantages and disadvantages hence require a clear understanding of the two before making any choice. Nevertheless, there’s always one best for each trader.