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Binary Options Vs. Forex Trading

What you should know about binary options and forex trading

There are several aspects about binary options vs forex trading that those who trade need to understand. Foreign exchange trading by definition refers to selling and buying of currencies from different countries. Trading is usually conducted by dealing with a pair of currencies. In essence it involves selling a particular currency and buying another at the same time. Currently the forex market is considered as one of the largest and profitable markets worldwide in terms of daily turnover. This market helps international businesspeople make investments by enabling them convert currency. Today online forex trading has taken an important portion of the total turnover which has been gradually increasing due to technological advancement.

Binary Options Trading is a new form of market trading that is considered simpler compared to traditional forex trading. Previously binary options were considered as exotic since there was no liquid market for trading such instruments between issuance and expiration. From 2008 binary options websites began offering a simple version of exchange-traded alternatives. At present the numbers of binary traders are fewer unlike their forex counterparts. Trading gurus are optimistic that with time the numbers of both binary option traders and brokers will increase.

Comparing binary options vs forex trading

Comparing binary options vs forex trading is not very easy since each have their own advantages over the other. Among the major differences is that forex trading need traders with a lot of experience in foreign currency unlike binary options which have easy and simple rules that enable even novices to trade comfortably. It is also important to note that binary trading offers higher profitability compared to forex trading. The rates of this type of trading often range between 85-60 percent. In forex trading the returns are usually unpredictable and can only be determined after closing of a position.

Traders who engage in forex trading have the freedom to trade continuously throughout weekdays unlike binary trading which can only be conducted at predetermined intervals. Binary trading option is usually dependent on local financial markets and commodity exchange. Forex trading is considered quite risky than binary options. Forex trading utilizes the margin provided by brokers to leverage investment capital so as to maximize profit potential. The risk posed by this form of trading is usually magnified by many folds such that traders can lose their entire trading capital when market forces moves against them.

Binary trading lowers the risk significantly such that the loss is reduced to traders’ investment but not to the level of losing all their capital in the account. Brokers who engage in binary options offer up to 15 percent refund in case of losses which acts as a cushion to the trader. Apart from being low risk a traders have greater control over the level of risk they intend to undertake. Forex trading on the other hand has no safety precautions in place to manage losses when investment decision leads to losses of the money invested.

When comparing binary options vs forex trading it is important to note that binary options allow trading in more assets unlike its counterpart. This not only applies to currencies but also in commodities and indices. An example would suffice to illustrate this; if the market is ranging at ordinary foreign exchange trading the trader is likely to incur substantial losses due to stop loss orders catching. A trader involved in binary option has the ability to use a range of binary option so as to reap maximum benefits from the market when market is within or outside the range.

Binary trading makes it possible to trade in touch binary options unlike ordinary forex trading. This type of trading allow traders to profit from a condition where the market is testing resistance and support line without breaching them. In forex trading you can only engage in a single direction especially when the market is getting volatile with strong fluctuations thus making room for forex traders to suffer loss making binary options reign supreme.

A trading pattern is another issue that determines differences between binary options vs forex. Binary options can be conducted on inflation figures especially in the US. The trade includes consumer and producer price indices. This trading pattern is not as common as with normal trading options. Binary options offer traders the alternative to conduct out-of- money-purchases which is just like seeking cheaper forex options. The main issue assumed here is that at expiry time the strike price will be the equal. In the case of binary trade payout will be fixed while in forex trading the payout is infinite.

One of the basic differences between binary options vs forex is usually defined by movement of underlying financial instruments. In binary trading movement between being in money and out of money option is typically highly paced unlike forex trading which is much slower. The payout of traditional stock is hinged on the size of the price movement, on the other hand payouts for binary options are not determined by the size of the move but right or wrong call hence a trader takes all or nothing.

Basically option trading is exactly as it sounds since it offers two options, either the currency goes down or up. Traders open the position by guessing which direction it will go. Although there are major differences between binary options vs forex trading they also have a number of similarities. Both of these trading options are open to the public, they can also be operated through the online platform. All what such traders need is a reliable connection to the network and start up capital that might be as low as $100.

Binary trading has made web-based trading quite easy since all you have to do is click an up and down arrow. It allows the trader the ability to know how much profit or loss they are likely to incur without the volatility risk of regular trading thus making it ideal. Option trading has a flip side just like any other trade; one of the major issues is that there are very few credible binary trading brokers to choose from. Forex trading is patronized by hundreds if not thousands of credible brokers.

November 21, 2012: posted in Binary Options Education No Comments

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