What Are The Differences Between Forex and binary option
Binary options and forex trading have become incredibly popular in recent years. binary options or forex trading, is a question that has definite answer. To provide a solution to one of the most popular questions among traders: “Forex vs Binary, which is better?”, We seek to put things in perspective by taking a look at the forex options market and binaries and identifying the differences between them.
A binary option is an option with a fixed payment where you predict the outcome of two likely outcomes. If your prediction is correct, you will receive the payment originally agreed. The term “binary” comes from the possibility of two outcomes – you win or you lose.
The foreign exchange market is a global over-the-counter (OTC) market, where investors, institutions, banks and traders exchange speculation about the buying and selling of global commodities. This trading is done on the interbank market (a channel where currencies are traded 24 hours a day, 5 days a week, excluding weekends).
Forex vs Binary – the differences
- Commercial error
In binary options trading, there are only two actions to take, which means that the margin of error when entering a trade is small.
In forex, however, there are no limit orders to close, adjust or follow. A trader who is not careful when trading may forget to place exit or change orders, resulting in a larger loss than he could imagine.
- Risk of volatility
Volatility is generally not a problem when trading binary options. Any trade you make can, in most cases, deal with the volatility caused by any news or event. Once your prediction has proven to be correct, you don’t have to worry about sudden reactions and market changes.
In forex, however, volatility can have a significant effect on the value of a position, which means that you have a responsibility to put in place a reliable risk management process to avoid big losses.
- Commercial choices
One of the best things about binary options trading is that you are not limited to currency pairs only, like most retail forex brokers today. Although the most common assets you can trade are currency pairs, you also have the option of trading stocks, commodities, and stock indexes.
- Maximum risk
When you trade with binary options, you know how much your maximum and minimum gain is even before placing a trade. You control the risk premium for entering a binary transaction, and this is the only amount that can be lost.
When we talk about maximum risk in forex, you cannot be sure that you will only lose the pre-calculated amount you have placed, even if you set a stop-loss order. Even if this is not always the case, there is always a chance that certain factors such as the lack of liquidity, the slippage, and the downtime of the broker’s platform, affect the final maximum risk.
- Transaction costs
When trading binary options, there are no extra costs on the transaction except for the average amount factored into the final payment.
In forex trading, the cost of the transaction comes in the form of a commission, the spread, or both factors.
As highlighted earlier, the debate on forex vs binary, with different individuals having different opinions, is one that cannot be given a final answer. We have covered every aspect of both trading options.
Forex vs binary has been looming for a very long time now, and we hope we have been able to provide you with an answer, based on your personal preferences.