The Forex (Foreign Exchange) market is currently one of the largest and most profitable markets in the world in terms of daily turnover. The foreign exchange market assists international traders and their investments, by enabling currency conversion. A significant part of the large turnover is contributed by online Forex trading, which has been steadily increasing over the past few years. This trend is expected to continue well into the future.
Binary Options trading is the new kid on the block. It is a new version of Forex market trading that is simple in comparison, which makes it the preferred trading method for new traders. Binary Options contracts have long been available and sold directly by the issuer to the buyer. They were generally considered “exotic” and there was no liquid market for trading these instruments between their issuance and expiration.
Since mid-2008, Binary Options websites have been offering a simplified version of exchange-traded Binary Options and people immediately embraced this new way of trading. Since then the number of traders and brokers kept going up, and now, I can safely say this industry has come a long, long way. Binary Options are now all over the internet and most online traders are using them one way or another.
In the early days, traders didn’t know what regulation was and because of that, brokers didn’t seek regulation. Now the most reputable brokers are fully regulated and traders have become more careful with their money so a regulated broker is their first choice. In the early days, the types of binaries were limited to Up/Down and maybe a few others but the choices were very few. Now brokers go out of their way to offer new and innovative types of binary options such as Ladder Options, Pair Options (Pairs existed before but now a lot of brokers are offering them), Touch, Boundary, Above/Below, etc. (some of these were available in 2012 but only a handful of brokers had them and now almost all brokers offer them). Overall the binary options industry has changed a lot and most of it is for the better. I believe we are not done yet and that we will see even better advances, more safety and a lot more professionalism from brokers in the near future.
What are the Key Differences Between Binary Options and Forex?
Making a comparison between Forex trading and binary trading is not easy as they both have their own advantages over the other but here are some of the main differences:
Binary options – Set And Forget
A Forex trade has a lot more variables than a binary options trade and this means that the trader is faced with a lot of decisions. Lots of decisions also mean that you can screw one up and one is all you need. You have Stop Loss, Take Profit, position size, etc. and as a Forex trader myself, I can tell you it can be terrible to see price one pip away from your Take Profit just to turn around and go straight to your Stop Loss. If you widen your Stop Loss, you can lose more, if you tighten your Take Profit, you can win less… but a smaller win is better than a loss, right? Or wrong…? See, lots of decisions, while on the other hand, a binary option trade is set and forget, there’s not much you can do after you open it. And on top of that, a single pip (or point) is all you need to win a trade, which brings me to the next difference:
One Pip Is All You Need
In Forex, the more price travels in your favor, the more money you make (or lose if it goes the other way). With binary options, things are different: it doesn’t matter how far away price travels because you can get the entire payout even if the price is only one pip higher or lower than it was when you opened the trade. One pip brings you 85% profit, 10 pips bring you 85% profit and 1 million pips bring you… yup: 85% profit. Of course, the payouts differ from broker to broker and this 85% was only used as an example.
Ease Of Use
Forex trading requires professionals with experience in foreign currency trading while Binary Options is quite simple and easily understandable even to novices in financial trading. This simplicity makes Binary Options more appealing but do not think you don’t need to learn anything. Education is a big part of success in trading and this applies to binaries as well. If you’re in need of education, visit our Binary Options School.
Know Your Risk And Reward In Advance
With binary options, you know right from the start how much you are going to make if your trade is successful: the payouts range between 60% and 85%. In Forex trading, the returns are uncertain and can only be determined after the closing of a position.
Binary Option trading is safer compared to Forex trading. With Binary Options, some brokers offer up to a 15% refund in case of losses, which acts as a cushion for the Binary Option trader. Forex trading has no safety precautions in place (if you don’t use a Stop Loss order or other forms of protection) and in cases of wrong investment decisions, the Forex trader may lose all money invested.
Time Is Money
Forex can be traded continually throughout the weekdays while Binary Options can only be traded if the underlying market is open. Say if you want to trade binaries on stocks, you have to wait for the stock market to open. However, it must be noted that you can trade binaries on currency pairs and that means that you can trade around the clock during weekdays.
Range Of Markets
Binary Options offer a lot more assets. Forex stands for Foreign Exchange so obviously, only currencies can be traded, but when it comes to Binary Options, the choices are wider and include stocks, indices and commodities on top of currencies. More choices, more opportunities.
Regulation: We Need It
The Forex industry has a lot more regulation compared to Binary Options. However, in the last couple of years the top Binary Options brokers started to pursue regulation and this is a major step forward for clients’ safety. Before opening a binary options account, make sure you know as much as possible about Binary Options Regulation.
Leverage: Increase Risks And Rewards
Forex is leveraged and this can be both good or bad, depending on how you look at it: you have the potential to ma more but also you risk more. Binary Options are much simpler in this regard, because they are not a leveraged product.
Binary Options VS Forex – Bottom Line
Although they are differentiated by the aforementioned features, Forex market and options trading have some similarities. Both are easily accessible to the public since they can be operated online. What is required of potential traders is simply a network connection and start-up capital that can be as little as one hundred dollars.
Overall, nearly anyone can join this revolutionary way of trading. However, some binary options brokers are not regulated, which can potentially lead to some traders being taken in by scam artists. Beware, do your research and pick the right trusted binary options broker for you.