Binary Options vs FOREX – Which to choose?
Even though they are two markets with some similarities, the Binary Options and Forex, are different markets and with different ways of operating.
To understand the differences and similarities of Binary Options vs Forex I made this article.
It is true that when binary options first appeared in 2008, they experienced fast growth, which encouraged the establishment of many brokers and companies. At the time there was no market regulation, therefore, since no one controlled this activity, brokers did as they pleased.
Until early 2013 (when binary options became regulated), there were various scams and frauds with unregulated brokers. FOREX trading on the other hand is an established market with existing controls and regulation.
Nowadays, both binary options and FOREX are regulated, and as such, both are legitimate.
However, even today, legitimacy does not prevent, companies, particularly brokers, both in binary options and FOREX, who are not regulated , and may have less serious and honest attitudes towards their customers.
Binary options vs FOREX – Similarities
- Both increased greatly along with the Internet. Their platforms are online.
- Both can be traded on Smartphone and Tablet applications.
- There is the possibility of big profits and big losses in both.
- The assets that are traded are the same.
- You can either trade manually or use signal services or automated systems (algo trading or robots).
- The strategies used for trading both are mostly the same, with some adaptations. But the main strategies can be used either in binary options or in FOREX.
Binary options vs FOREX – Differences
- In binary options, there are various types of trades that are already established. We just have to choose the underlying asset, the value of the trade and the expiration time.
- On FOREX there is one type of trade, but we have to choose the asset, the batch size, the value to close a position with profit (Take Profit Order or TP) or the value to close a position with losses (Stop Loss or SL). To do this we need to calculate the PIP value (varies with each asset), know the leverage and calculate how much we can win or lose on this trade. In practice, a badly done calculation can lead an account to lose everything or to double its worth in just one trade.
- In binary options as soon as we place the trade we know when it ends, how much we can profit and how much we can lose.
- On FOREX, even after doing all the above calculations we can lose or profit more than anticipated, because there may be a gap or something that prevents the system from respecting the closing points. In addition, an order can close in 1 second, 1 day, 1 week, or 1 month. You never know when that order will reach the intended value.
- In binary options, except in some kind of options and with some brokers, from the moment that the trade is placed it cannot be closed early, or if it can be, it is for a limited time. Time, profit and loss factors are stipulated and do not change. It may seem like a disadvantage, but it’s a huge advantage. Forex traders will understand why.
- On FOREX, we can close an operation whenever we want, whether it is at a profit or a loss. The time factor does not “exist” in FOREX. However, the ability to close at any time usually works against the trader. This happens because sometimes when you start to see some profit, for fear of losing that profit you close the trade before the set value, whereas when the trade is losing the opposite happens. We keep hoping that it will move and sometimes we end up losing more than we should. Sometimes emotions prevent larger profits and smaller losses. Those who have traded on Forex have surely had this experience.
- In binary options, risk management is simpler, because all the calculations are simple and the values are always in cash.
- On FOREX, risk management is more complicated, because the PIPs (unit of measurement) and lots have to be calculated for each asset since each one has a different value. And it is necessary to multiply this value by the SL PIPs. Then, it is necessary to convert it into our local currency to calculate the risk associated with each transaction. And I’m not even including the Spreads and Swaps (fees and commissions paid to the Broker).
Binary options vs FOREX – Conclusion
I have experience in both areas, and have the following opinion.
For beginning or inexperienced traders, binary options are easier to understand and trade. A beginning trader just has to understand one strategy and some basics, like risk management, or take advantage of a Free Training Class and he is ready to trade.
An experienced trader, who has no difficulty in mastering all the processes and calculations required, will be more interested in FOREX, because it has more freedom of choice on the values, profits, trading strategies, etc.
You can make money in both, but to do that we must learn, and for binary options the learning process is faster and simpler.
In addition to what you can profit, they are also very fun to trade.
I am of the opinion that it is worth trying either, as long as you take the time to learn.