Forex vs Binary Options

forex_platformsBinary Options and Forex trading have six main differences that should be considered when deciding which market would be a better fit for you.

1.     Payouts and Losses

Binary Options—with this kind of trade you will always know upfront what are the odds of the trade, i.e. how much you will get if you win and how much you might lose. Some brokers do not offer a “safeguard” which means if you make the wrong investment, you will end up losing the amount you have put down, but not more. The payouts percentage ranges from 80% to, sometimes a triple digit number, depending on the broker and the type of option.

Forex—the outcomes with Forex are less defined. If you are not an experienced trader you might end up losing all the money in your account. On the upside, the maximum profit you can make is also not limited. To manage your risk better, you can set up a limit or stop order to play it safer. This will guarantee you a given percentage profit if the limit is executed, while the stop order will help cut your losses.

2.     Closing a Position

Binary Options—before you invest money on a binary option you will be given the chance to personally chose when you want it to expire. Sometimes you will be given a range of pre-defined expiry times (1 hour, 1 week, etc.) you can take your pick from or, depending on the option type, you might be given the opportunity to set it yourself. Occasionally, some brokers would allow you to pull out of a trade before its expiration time (“early closure”) for a percentage of the expected return. Other brokers, might even give you the opportunity to delay the expiry time to the consecutive one (“rollover”) with the condition of you increasing the investment sum.

Forex—With Forex you have complete control over when you want your position to close.

3.     Order Types

Binary Options—there are five main different Binary options that most brokers offer. The High/Low (Call/Put, Up/Down), 60 seconds, Touch/No Touch, Boundary Options, and Option Builder.

Forex—the Forex market has an abundance of order types, some more complicated and suitable for more experienced traders, such as Limit, Stop, OCO (One Cancels the other), Trailing Stop, Hedge Orders, etc. The most popular ones are the market or Buy/Sell orders.

4.     Trade Size

Binary Options—when trading Binary options, the broker determines the minimum and maximum money you can invest on a single trade. It can go from as low as $5 to as high as tens of thousands of dollars.

Forex—In Forex trading you have mini, micro, and standard lots. A standard lot is 100,000 units and it is mainly for institutional sized accounts (firms, corporations, banks, etc.) Most traders trade in mini or micro lots. Micro lots are the smallest possible investment you can make. It is worth 1000 units of your accounting funding currency and it is not allowed by all brokers, who, in the end, have the say as to how big or small the trade size could be.

5.     Trading Costs

Binary Options—there are no commissions, fees or spreads with Binary Trading. Setting up an account and investing is fairly straightforward.

Forex—when trading Forex you have to pay attention what are the spreads and swaps/rollovers, and if there are any commissions.

6.     Margin

Binary Options—with binary trading margin and leverage are not used, which is good because you can never get a margin call.  Although you can’t use margin, you can still make a good profit from a winning trade because the payouts are usually 80% or higher.

Forex— the margin level is determined by the broker and can sometimes be considerably high (up to 200% or 500%). What it does is, it allows you to increase the amount invested, so if the market goes in your direction you can make a higher profit, but if it goes against you, the margin increases your losses as well.