Differences between Forex and Options Trading

Traders will always argue which type of trading is better – Forex or binary options. Each one of these financial instruments is used by millions of people and each person who trades them, knows that they have certain advantages and disadvantages. If you haven’t taken a closer look at the specifics of Forex trading and binary option trading, then you are probably not aware of the major differences between these two types of trading. Don’t worry if you don’t have any knowledge in this topic, because this tutorial part’s goal is to make you familiar with the differences between Forex and options trading, and help you decide which type of trading is the right choice for you.

Risk Factor

Every trader knows that both Forex and binary option trading are risky, especially if you are inexperienced. However, if we take a closer look at both types of trading, we’ll see that binary option trading is less risky due to the fact that the trader knows how much money they’ll win or lose before they place the trade. This may not seem like a big deal to you, but in fact it gives you a huge advantage over Forex trading. This way you have better control over your money and you can limit your losses.

Another great advantage of trading binary options is that you won’t be so dependent on leverage. Every Forex trader knows that you must take advantage of the leverage offered by your broker in order to be able to trade with decent amounts of the asset you’ve chosen. Although leveraged trades will bring you a larger profit, they’ll also multiply your losses in case your trade goes the wrong way, so there is greater possibility for the novice traders to lose their money quicker while working with the Forex market.

Trading binary options has another advantage– you have the opportunity to refund a portion of your traders if you feel that your prediction won’t turn out to be accurate. However, this option isn't offered by all brokers, so don’t expect to see it from every broker.

Easiness

Participating in the binary options market is fairly simple, because the trading operations aren't as complex as they are in the Forex market. Of course, you may need to set several parameters of the trade, but in most cases you’ll be able to place a trade in just 3-4 simple steps. On the other hand, executing a trade on the Forex market is a bit more complicated, because you have to add several parameters of the trade in order to limit your losses, manage risk levels, etc. The reason why trading binary options is so easy is that the trader can only make their choice between two types of order – Call or Put. In the meantime, Forex traders face a more difficult and a riskier choice.

Profitability Factor

Simple logic leads us to the conclusion that the less riskier the market is, the more profitable it could be. So, it is safe to say that you are more likely to make money by trading binary options than by trading the Forex market. Naturally, the amount of money you make will depend on your investment, knowledge, experience and mainly – on the profit percentages offered by your broker.

In most cases the profit percentage your broker offers will vary between 60-80%. Of course, the percentage entirely depends on the type of options you are trading, because the payout for certain types of options can be up to 300-400%. The fixed payout percentage gives you accurate information on how much money you’ll make from the trade; so, as a binary option trader you can control your money better and quickly calculate how much money you are going to win, and how much you are ready to lose.

Binary traders are more active on the market and they often make over 10 deals a day. If you are one of the traders who deal with 60-second binaries, then it is very likely that you’ll make over 40 trades on a daily basis. In the meantime, Forex traders have to be more careful while placing trades and they often end up making just 2-3 trades in a single day.

Accessibility

Binary options have quickly gained popularity among retail traders, because they don’t require huge investments and are a great way of generating a decent amount of passive income. On the other hand, Forex traders need to invest larger amounts of money, especially if the leverage offered by their broker is lower. Don’t forget that leverage is a great way to multiply your profits, but it is also the quickest way to lose all your money; so, don’t be tempted by the opportunity to quickly make large amounts of money.

Conclusion

As you can see, both markets have their pros and cons, so is up to every trader to determine which market best suits best their needs. In our opinion, each one of these markets is meant for different types of traders – on one hand, there is the Forex market, which is a dominant market at the moment and it is the full-time job of millions of people. On the other hand, you are provided with binary options, which are a relatively new trend among the Internet users and at the moment there aren't so many people that make a living by trading binaries. Of course, many people quickly multiply their investments thanks to binary options, so you should certainly give this type of trading a try if you want to make some money on the side and have an option to turn binary trading into your full-time job someday.