Binary options trading seems relatively simple and straightforward, but to most people who are just entering this fast-paced market, it might appear puzzling at first. A common cause for confusion is the fact that most newbies have a hard time distinguishing binary options trading from Forex. Admittedly, they do have some similarity in the sense that you can trade currencies via both.
Essentially, Forex is the market in which all currencies are traded and it is the biggest in the world, in terms of total cash value traded. It is open 24/5 and every person, firm, bank or country can enter it, as long as it has the means necessary.
Example of Forex trade:
When trading Forex, you have to make a speculation whether the value of a chosen currency is going to appreciate or depreciate, compared to another. If you turn out to be right, you will realize a profit. If, for example, you have speculated that the price of the GBP/USD, which is 1.58911 at this instant, will grow in the future, you purchase one lot of it and wait for the price to increase. When the point comes when you are happy with the trade’s outcome, you close it and collect your profit.
Example of Binary Options trade:
Binary Options trading, on the other hand, is structured on the basic model of a fixed cash-or-nothing or asset-or-nothing binary option. Simply put, when trading binary options you have to predict whether at a specified point in time, the price of an asset (a currency pair, a stock or whatever you are trading) will increase or decrease, compared to its current price. For example, suppose you were interested in trading some Facebook, Inc. common shares, which at the moment cost $200. Let’s say that this trade has a fixed payoff of 80%. You think that by the same time tomorrow the share price would have increased. If that turns out to be true, you will get $360 debited to your account. However, if your prediction is wrong, you will lose the money you’ve invested.