• Category: Beginner

What is the difference between forex trading and binary options trading?

For most people who are new to the trading scene but have not yet ventured into any platforms, there are always the questions: what is forex trading all about? What are binary options trading? What’s the difference between these two modes of trading? 

What is the difference between forex trading and binary options trading?

There are differences between these two types of trading methods and each method has its own advantages and disadvantages.

Forex trading entails predicting the price performance of an asset and the extent to which the price will increase or decrease. You can then enter a trade after thoroughly analyzing the market trends. In forex trading when you enter a trade, you are essentially buying options in anticipation that the price of the asset will reach your predicted price point after which you will end the trade by selling your options.

Trading binary options is a little bit simpler than forex trading. What’s required here is for you predict whether the price of an asset with increase or decrease from its current price. You do not need to predict by how much an asset will rise or fall. As soon as you determine the price direction, you can buy a call option or a put option. When you buy a call option, you are essentially placing a wager that the price of the asset will rise while buying a put option is betting that the price of the asset will fall. As you buy your options, you will also determine the expiry time or the period of time within which your trade will end. Your trade will end in the money if your prediction was correct and out of the money of the prediction was incorrect. 

Another major difference between forex and binary options is the degree of profits and losses. Although forex places no maximum cap on your profit, it also has no maximum limit for your losses; a trade turned sour can cost you a great amount of money which you may not be prepared to lose. Binary options, on the other hand, offered by reputable companies like Banc De Binary, offer a fixed return rate – usually between 70 and 90 percent – which you know before you place your trade, and a limited loss equal to the original amount of your trade. The limited risk inherent in trading binary options makes them much more appealing and safe to most traders.

In terms of signals that alert traders to opportunities in the forex or the binary options market, a similar pattern emerges. Forex signals notify traders of good buys to be made on an asset at a specific date and time. These signals, however, offer no closing time at which you could realize your profit; instead you need to monitor the market patiently and wait for a good closing opportunity to appear, or be alerted by another signal about a potential payoff trade. On the contrary, binary option signals alert traders to opportunities on which they can capitalize within a short period of time. With the direction of the price within a specific time frame being the only variable in binary options trading, a signal can quickly generate a profitable trade for you if the price moves in the predicted direction by your trade’s expiry.

 
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