Forex trading and binary options both are good for traders as they have the potential to earn high profits. There are many key differences between FX trading and binary options trading. Traders should know differences and similarities, to decide which one is better for them. Both binary options and forex trading are discussed in detail to assist traders.
What Is Forex Trading?
Forex trading or currency trading are used simultaneously. The foreign exchange market is an over-the-counter global marketplace for trading forex. Forex traders exchange currencies with the motive of earning money. For example, the US dollar with British Pound with an exchange rate determined by the currency market.
Traders trade currencies with the help of a forex broker or bank. They cannot directly deal with the foreign exchange market. This market works 24 hours and five and a half-day a week. It is the largest among all the financial markets across the globe.
People who trade forex need to study pricing factors and relations of an economy with another. Therefore, it needs vast study of the international and national factors of an economy.
What Are Binary Options?
A binary option is a financial product where a trader has two options, a call or put option. Binary options trading depends upon the “yes” or “no” factor. Whether a trader will win or lose, it does not have a low loss or no profit option.
Options trading depends on the price movement of a financial asset. To set up a trade, a trader needs to predict whether the price will go up or down for a specific time period. The duration of trade is usually low with binary options because traders want to earn quick money.
It is possible to trade binary options without any study or analysis as it is purely speculation. The main reason for the shorter duration of trade is to avoid risk and reduce the probability of loss.
Pros & Cons of Binary Options Vs Forex Trading
Traders should enter the market after determining their trading style and goal. These pros and cons of trading forex and binary options will assist them in deciding which one is better for them. Both markets are having the potential of profit earning for traders. But before investing, they should know the advantages and disadvantages of the markets.
- Forex Trading – The forex market is accessible for 24 hours a day and 5 and a half-day a week. A trader can start a trade at any convenient time according to the schedule. This is because the FX market is not centralised.
- Binary Options – Traders can trade in between the market hours of a respective trading asset. This means binary trading has limited access to the market as compared to the foreign exchange market.
- Forex Trading – Brokers are offering the highest amount of leverage with forex trading as compared to all other tradings. A trader can increase the trading amount with the use of leverage and the profits earning as well.
- Binary Options – No amount of leverage is offered by brokers in binary options trading. Traders have to use their own funds for trading instead of the leverage amount that is available in forex trading.
Entry and Exit
- Forex Trading – A forex trader has complete control over his holdings. In short, this market has the ease of entry and exit any trading positions. Traders can sell their holdings whenever they find enough profit with the deal. This type of investment is good to avoid trading risk.
- Binary Options – In binary trading, users can choose their entry time but the exit time is predetermined. It cannot be expanded to earn profit or to avoid the situation of loss. Therefore, it is recommended that a novice trader should not trade binary options.
- Forex Trading – The forex market is having overnight risk. As traders cannot keep an eye on the overnight events and news that can affect the exchange rate of a currency. Hence, risks are always higher with FX or forex trading.
- Binary Options – The risk is lower with binary options trading. One and only risk associated with it is a sudden inverse price movement according to a trader’s prediction. Factors like news and events cannot force a sudden price movement.
- Forex Trading – The forex market is highly volatile but traders make huge profits due to this volatility factor. Trading types or strategies vary from trader to trader. A stop-loss order is also used by a trader to reduce the risk of losing money.
- Binary Options – In options trading, it has low volatility as compared to forex trades. Because the amount of volatility depends upon the type of asset being traded. A trader makes trade using price speculation and no content helps in studying the market as the duration is too short.
- Forex Trading – The profit can be really higher with forex trades. The reasons behind this are that the market is highly volatile and high leverage is also offered by brokers. Your profits can also go beyond your investment with forex trading but traders should invest their money wisely.
- Binary Options – Profits earning capacity are lower with the binary options market but the risk is also lower. Money invested with binary options fetches limited return as leverage is not available for trading.
- Forex Trading – Brokers are charging fees in the form of speeds instead of commission. Spread charges may vary according to the currency pair used for trading. Traders can enjoy high profits even with low spreads from the currency markets.
- Binary Options – The trading fees depends on the binary options brokers. Some brokers charge higher fees whereas other charges lower fees. Fees are charged at the time of final payout. To increase the money earned by users fees are usually low with options trading.
- Forex Trading – A trading platform for forex trading comes with multiple market or trade analyses tools. Traders can utilise a tool for making better investment decisions. These tools make FX or forex trade easy and reduce trading risks.
- Binary Options – Traders can only view the price chart for investment decision making. They do not need to study the markets deeply as the binary options trade only vary from 30 seconds to a few minutes or a few hours that is a rare case.
Key Difference Between Forex Trading & Binary Options
Some of the key factors that are dissimilar in forex trading & binary options are mentioned below. These markets are way different but both of them are generating good returns on investment of people. Here are a few differences:
Traders can trade binary options only at the time when the market is open for that instrument. The forex market can be accessed by traders 24 hours and 5 and a half-day a week. That means it allows weekend trading also.
Trading duration is the major difference between forex and binary trading. Trade duration with forex trading can vary according to traders. When they see an opportunity they can enter and hold for as long as they want.
Trading binary options have usually a low duration of trading such as 30 seconds, 1 minute, 2 minutes, or 5 minutes. This duration is decided before entering into the trade.
Forex traders can put limit stop orders to get a risk warning and avoid losses on their investment. Binary options trading does not have any feature like this to reduce the risks on earnings.
The currency market only has the option of trading currencies. On the other hand, options trading have options such as commodities, stock, cryptocurrencies and several others. So, the availability of trading assets is higher with binary options trading.
Leading Online Brokers
Traders need a broker to start online trading because they cannot deal directly with an exchange. Several online brokers are operating globally. Traders can open a trading account with them and start trading. Some of the best brokers are:
These are some of the leading online brokers. Advantages of trading whit these brokers are:
- High Leverage – Traders can enjoy trading with a high rate of leverage. You can even get leverage up to 1:500, which means you can increase your profits to 500 times.
- Demo Account – Start trading with a demo account to avoid the risks of losing funds. You will get a trading situation similar to the original one but the funds are fake in a demo trading account.
- Educational Resources – Brokers are offering a huge variety of educational material that is accessible by traders free of cost. You can increase your trading knowledge with its help.
- Research Tools – Several types of research tools are available online with a broker to enhance your trades and get better trade results.
- Trading Fees – These brokers are charging zero commission on trading activities but spread and swap chargers depend upon the trading assets. Trades with lower fees can fetch higher returns.
- Trading Platforms – Traders get a friendly trading platform that makes access to the markets easy and enhances their trading opportunities.
- Customer Support – Customers or investors get dedicated support that is even available in multiple languages to make it easy to solve the various kinds of trading problem.
- Trading Instruments – A wide range of trading assets are available with an online broker such as stocks, cryptocurrencies, commodities, indices and many more.
Traders should collect news and information related to events that can change the price of trading assets.
The Bottom Line
Every type of investments among forex trading and binary options are good for earning profits. Your investment can also bring higher returns if placed at the correct place at the correct time. Trading advantages of both the trading styles are discussed above and traders should analyse properly according to their investment or trading goals.
Make trades with binary options if you want fast profits or if you want to trade for a longer duration, you can also go with forex trading. One thing that is common with forex and binary trading is that you should start trading with a reliable and trusted broker. Many companies are running brokerage firms but choose among the top companies that are offering the best services.
Hence, both options are profitable, traders should make a decision on which one fits best according to their requirement.