Forex vs Binary Options

The binary options industry is relatively new to the trading world, and it gained popularity in recent years. Brokers dealing with binary options advertise that the product is extremely easy to trade, and that making a profit is simple. This cannot be further from the truth. Trading binary options is even more difficult than trading the Forex market, as there is one component that needs to be considered, and that is time. To put time alongside price when making a forecast is everything a trader wishes for. It is one thing to say where the price might go, and it is a totally different thing to say where price is going, and when. The time horizon is the one that makes a difference when trading binary options. Not only do traders need to be right on the direction the market is going, but also, they need to be right on the time element. One should wonder why binary options brokers offer up to a 90% rate of return on any one trade! If trading was so easy, everyone would do it! The right answer is that trading is not easy; in fact it is perhaps the most difficult job in the world. However, it is not impossible to be successful when trading; just that people have wrong expectations, when it comes to both the effort that needs to be put in and the profit to be made.

Explaining Binary Trading

Binary options trading is based mostly on currency pairs. This means that the underlying product is nothing but a currency pair. So far, then, trading binary options and Forex are basically the same thing: One needs only to know the direction a currency pair is moving in. However, things are not that simple in the case of binary trading. Not only does price matter, but time has a crucial role, as explained earlier in this article. There are various expiration dates to choose from for a binary option, but, not surprisingly, brokers tend to pick the most difficult ones. After all, who’s willing to pay you 90% rate of return on any trade if conditions are so easy to meet? Again, as it is with trading in general, expectations need to be kept real. Before moving forward, there is something that needs to be explained here, as it is the main difference between Forex and binary options trading. On the Forex market, one can either buy or sell a currency pair; but when trading binary options, one can only buy an option. The difference is only a semantic one, though. Choosing the direction is the same thing as trading the Forex market. In the binary options market, an option can only be bought, while on the Forex market, one can go short or sell a currency pair. But buying a put option is the same as going short on the Forex market, and buying a call option is identical to going long on the Forex market. So in reality only the industries and their methods are different.

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Advantages of Binary Options Trading

forex vs binary optionsUnfortunately, there are only a few things that can be included in this list. The holy grail in trading is to match price and time, and if a trader can do that (and this is unlikely as there are few trading theories that allow this, and even the ones that exist are pretty much misunderstood by most people) then there are other products bearing less risk that can be traded. There are some things to be mentioned here, though. Binary options brokers do not always provide the conditions for traders to benefit from them. For example, some binary options brokers offer the possibility of building your own option. In other words, one can choose the underlying product the option is based on, the expiration date, and even the type of the option. This gives a lot of flexibility for the experienced trader, and profits can indeed be made. However, this is something that only a few brokers offer, and even the ones that did offer such an option builder are now having second thoughts and are withdrawing this possibility. Matching price and time for a financial product is extremely difficult to do, and brokers know that. The binary trading industry has therefore benefited from advertising the product as being extremely easy to the make a profit from, only for traders to find out that this is not the case.

Disadvantages of Binary Options Trading

The first thing to mention here is the fact that binary options trading platforms are Web-based. This is a tremendous disadvantage in the sense that, depending on the Internet connection one has, execution is full of flaws. The explanation for offering such trading platforms is quite simple: It is the cheaper way to solve problems. To develop a platform on its own is an expensive process, and not many brokers can do that. There are a few successful Forex brokers that offerbinary options trading as well, and this should be viewed as only an extension of their business. For the broker, it is clearly a new business opportunity, but for the trader, it is a liability. Brokers limit the binary options trading to only a few binary options types, such as high/low and boundary, without giving access to one-touch options, for example, on all currency pairs, and on all expiration dates. These are tips and tricks brokers are using to swing chances in their favour.

These are not the major drawbacks of binary options trading, however. The big one is that regulation is missing! In many regions of the world, binary options trading is simply forbidden, as there is no authority to regulate the business. There is a thin line between gambling and trading binary options, and no one wants to take responsibility for it in an unregulated environment. This is what a trader should keep in mind as the main difference between the Forex market and the binary options market.

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