In the first step, we will see in this article what is a forex and binary trading, and then we will see the difference between forex and binary trading. My personal opinion on the question “Which is better forex or binary options” is that forex is better for trading than binary options because of the better winning rate, profitability, risk and reward ratio. So the answer is: forex is better than binary options and I will represent this opinion in my case study.
So, which is better forex or binary options?
Binary options offer fixed risks and fixed rewards but they are not real financial assets such as forex, bonds, stocks, commodities, futures, etc. Forex trading is better than binary options trading because it provides higher returns and smaller drawdowns. Forex trading is more profitable than binary options.
Everything You Wanted To Know About Binary Options vs. Forex Trading
Significant growth has been witnessed by binary options trading during the past several years; however, it does not imply that it is going to be the proper investment for everybody out there. While both forex trading as well as binary options trading will be able to provide significant revenues, they are not the same by any means and might not even serve the same purpose. In this article, we will try to find out which amongst these 2 is going to be appropriate for your personal requirements. Therefore, let us not waste time and delve deeper into this article regarding Binary Options vs. Forex Trading.
By the term Binary options, we refer to option contracts that come with fixed rewards as well as fixed risks. It is the responsibility of the trader in binary options trading to make the decision whether it is possible for any underlying asset such as an item, a currency, or a stock to go up or go down during a fixed span of time. In case the traders are able to predict correctly, they will be shown the valuation of their earnings upfront.
While trading binary options, you are going to invest in an asset like a stock, a commodity, or maybe a currency that is going to increase or decrease in its value over a specific span of time. The trader will be depicted as the value of what they are generating upfront. Simply, you’ll be able to understand precisely how much profit you’ll be able to generate on the investment made by you in case your prediction is correct while making the trade.
Are binary options the same as forex? Binary options are not the same as forex because binary options are not real financial assets such as forex, bonds, stocks, commodities, futures, etc. It is used in theoretical asset pricing, and binary options are prone to fraud in their applications and hence banned by regulators in many jurisdictions as a form of gambling.
Forex vs binary options
The main differences between forex and binary options are:
- Forex is a real trading asset, binary options are a fictive asset.
- Forex can be traded with no limit on the profits or losses, binary options trading is limited by time.
- Forex offers leverage, binary options do not.
- Forex trade duration can be unlimited, binary options have expiring time.
Nevertheless, in case you are not able to predict correctly, you’ll be losing the entire amount of investment that was made by you initially. This type of trading will not come with any variability given that you will only be able to decide whether the value of an asset will increase or decrease, and not exactly by how much.
•Profits and losses will be established upfront
•The time for expiry of any trade can be selected upfront
•It is possible to trade Binary options only during the regular hours of trading
•There is no possibility for any leverage
•One will gain access to various types of Binary options for trading across a number of industries
By the term Forex trading, we refer to an international platform where the currency is going to be exchanged. This happens to be the biggest marketplace on the planet so far with over USD 5 trillion being traded on a regular basis. Trading is going to take place in pairs while a trader will be comparing the value differentials between 2 currencies like the Euro and the US dollar. There is a high variability when it comes to forex trading. Apart from deciding the direction in which a currency is going to move, it is also imperative for the traders to guess how high or low it will be going.
•There is no limit on the profits or losses
•There isn’t any specified time for expiry when it comes to the forex trades
•As compared to trading binary options, forex trading is less diverse in nature
•it is possible to do forex trading 24 hours a day, 5 days a week
•There is a potential for high levels of leverage
Case Study – Which is Better Forex or Binary Options?
In this case study, we picked 3 trend trading strategies Expert Advisors based on H1, H4, and daily chart, and 3 swing strategies based on H1, H4, Daily chart. We tested EURUSD, GBPUSD, USDJPY, and USDCAD. In this way, we had all most the same number of bullish and bearish trades (EURUSd and GBPUSD are against USD and USDJPY and USDCAD are on the USD side so it is good for testing).
After that, we set Expert Advisors to close trades based on time duration (1,2,6,12,24 hours ) based on strategy and using spreads we set fixed risk contracts for binary options. Average trade time for forex and for binary options and similar.
This methodology is not perfect but just approximately can give you insight into how a good risk-reward ratio ability to put profits to grow is better than binary options betting. Volatility is the forex trading friend and for binary options, volatility doesn’t have an impact.
Difference between forex and binary trading
Accessibility To The Market:
The forex trading marketplace will be open around-the-clock 5 days a week. As compared to other markets, forex trading provides the traders with an opportunity of reacting quickly to international news and events. Despite the fact that most of the traders do not prefer weekend trading, it stays open with restricted functionality whatsoever.
Binary options will be traded when the marketplace of any underlying asset is open. In general, this implies that it will be operating only during the regular hours of trading. Nevertheless, it is possible to make trades on currency pairs. On such occasions, it will be possible to make trades 24 hours a day, 5 days a week.
One can gain access to both these opportunities on trading platforms online.
Duration Of Trade:
The expiry time for the binary options trade can vary from 1 minute to 60 minutes. You’ll come across some brokers who enable the traders to leave the trade at a lower return before an agreement has been made. One can likewise extend binary options trade so as to attain better returns. However, it will be crucial to take note of the fact that all the brokers will not be offering these options whatsoever.
You will be in control of your trade-in in the forex trading marketplace while you can also exit at your preferred time. That being said, it will not be possible to exit any open trade on the weekends since the market will remain closed at that time.
A vast range of marketplaces will be offered by binary options trading which can include commodities, stocks, as well as currencies. On the contrary, a much smaller selection of trades will be offered by the forex market. Despite the fact that forex trading is going to happen in only the major currency pairs out there, more pairs will also be available.
Reward And Risks:
It is quite lucrative to trade in binary options given that you already comprehend how much profit or loss you will be going to make prior to entering the trade. However, the possible gains will typically be lower as compared to any successful forex trade whatsoever. While profits of as much as 200% or even higher can be expected by the competent forex traders, the profits when it comes to binary options will vary from somewhere between 50% and 80% of the investment made initially.
Much more variability, as well as risks, are being offered by the forex trading markets at present. Apart from figuring out the direction in which a particular currency is going to move, it will also be possible for the traders to ascertain to what extent it is going to go. Traders will be able to endorse a stop-loss order which will help to prevent them from losing more than a specified percentage of the investment made by them initially.
More Variability, More Risk
A higher variability is offered by FX markets at present along with enhanced risks when it comes to the traders out there. It is imperative for the traders to make the decision of not just the direction in which an asset is going to move in the forex markets (also referred to as currency markets or FX markets) but likewise make a guess how low or how high the asset moves. In this way, we are yet to be aware of the ultimate risk as well as profit.
There exists no limit to the amount of money that can be generated or lost by the trader in Forex unless and until they make use of certain tools for controlling trading out there. A stop-loss happens to be one such tool that will prevent the traders from losing in excess of a specific amount. Put simply, the trade is going to close automatically in case a specific amount has been lost by the trader out there. In the same manner, it might also be possible to fix the potential reward in advance. The trader will be capable of making a decision that he likes to close the trade as soon as he has reached a particular profit value.
The optimum loss when it comes to FX can be the entire cash on your trading account. When it comes to FX, it is feasible to manage both profits as well as a loss with the help of limit/stop orders.
Different timelines are used by binary trades at present. Once a trade commences, the trader won’t be able to control the time when that trade starts or ends. Prior to the commencement of a binary options trade, it is imperative for the users to choose when the order is going to expire. There is a starting time as well as an end time for each option.
The trade ends automatically at the time of expiry. Although you will be allowed by a few brokers to quit early, you are going to close your option at a certain percentage of the predicted return. This option is not offered by all the brokers out there.
In the same manner, several brokers enable the traders to extend the expiration period to the subsequent expiration period. It’s known as “rollover” and it is feasible only if traders are increasing their investment by a certain proportion.
Users, in FX trading, might take trades that can last from only 1 second to even several months, given that if they feel like, they can open and also shut the business. There are both benefits and drawbacks when it comes to this flexibility.
Forex has a tool known as margins, too. The highest margin is calculated by each broker. The traders will be permitted by the margins to enhance the capital which they have invested such that it will be feasible for them to make a bigger profit in case the trade happens to be a winning one. Margin is not a binary options tool whatsoever.
You can trade 5 types of binary options right now. These happen to be 60 seconds options, high/low, boundary options, touch/no-touch options, as well as option builder. In forex, you will come across different types of orders. The most essential type happens to be the buy/sell type. Nevertheless, you will find better types including OCTO (one cancels the other), limit, stop, trailing stop, as well as hedge orders, apart from others.
As a matter of fact, Forex trading is quite dissimilar to binary trading and one ought to have adequate knowledge on Forex vs binary options so as to turn out to be a trader who has been successful.
Binary options won’t be affected by volatility by any means. The option will reach the expiry time provided you have made the correct prediction and your investment won’t be affected by surprise volatility at all.
On the contrary, surprise volatility can affect forex trading to a great extent, which is usually brought on by news events. As a result, it will be vital to set up adequate procedures for managing risks while doing forex trading.
Whether you want to go for binary options or forex trading depends entirely on your personal investment objectives as well as how much risk you can afford to take. In case a trader does not like to take much risk, binary options will be the better choice for him. Although forex trading can offer higher returns at times, it is more complicated as well as risky as compared to binary options. However, forex trading can be profitable with plenty of practice as well as a bit of luck.