Despite Binary Options is quite new financial instrument comparing with FOREX trading, it have become widely popular during the last few years. The main reasons for this, is that Binary Options offer high profit returns and they are easy to trade.
In this article we will show the main differences between FOREX and Binary Options, so that you can evaluate which one is the better trading method for you. We will start with a short definitions of them, so everyone able to have a general understanding of these financial instruments.
Binary Options description: Trading Binary Options you only have to predict if the price of an asset (for example currency pair or stock) will increase or decrease from its current price over a certain period of time. For example: The current price of EUR/USD is 1.1185 and you think the price will be higher in the next hour. So you buy a “Call” option on EUR/USD and wait 1 hour to see its price. If your prediction is correct, you can make a profit of 80% of your investment (more you can find here).
FOREX description: Trading at FOREX you are speculating that the value of specific currency will increase or decrease comparing to another, so to receive a profit. For example: The current price of EUR/USD is 1.1185 and you think the price will go up in future. You can buy 1 lot of EURO and wait for the price to increase to the point where you can close the trade and receive the profit you expect.
Binary Options: The main advantage of Binary Options is that you will know exactly what is the payout and loss that you will get for the particular option before you make your trade. Some brokers offer payouts up to 85% for standard options and many more for some specific Binary Options (like “One touch”). It means that investing a sum $1000 to an particular option with payout of 85%, you will get $850 profit in case of correct prediction. In case of incorrect prediction you will loss your investment into this option. Some of the brokers will return 15% of your investment to your account.
FOREX: With FOREX trading you never know what is the maximum profit you can make on a trade. You can set a specific orders (Take Profit or Stop Loss) so that you can be guaranteed that a trade will be closed with a certain percentage of profit or if the losses reach a specified point. In case you will not set a Stop Loss order, you can lost all money in your trading account.
Binary Options: Margin is not used when trading Binary Options. You can still make a large return on your investment (up to 85% for standard Binary Options types or 600% or even more for some specific Binary Options types). Due to this Binary Options are quite attractive for the traders. One of the best news for Binary Options is that you never get a margin call.
FOREX: You can use margin to trade FOREX. The maximum margin is determined by each broker, and sometimes can be up to 1:500. Margin allows you to use leverage during trading. It gives you possibility to increase your investment capital so you can trade with larger sums and have a larger profit if your trade is a winning one.
Open/Close a position
Binary Options: At Binary Options trading platform you choose not only active and direction, but expiry time also. There are exist a lot of various predetermined expiry times. It depends on broker and trading platform. It could be 1 minute, 5, 15 minutes, 1 hour, 1 week and many other different variations. Before you make your trade you have to select expiry time and at this time your trade will close automatically. Some brokers allow you to close your trade before expiry time, but you will receive only part of the expected return. If you want to close the trade before expiry time, trading platform will inform you about the return you will receive closing the trade right now. Not all brokers offer possibility to close the trade before expiry time. And it might be not available during the whole time the trade is active. It should be noted here that some brokers allow traders to delay the expiry time, to the next expiry time. This options called “Rollover”. To do this, the traders need to increase their investment into this particular option by a certain sum.
FOREX: At FOREX market you can choose when the position should be closed. You can set the delayed orders (Take Profit or Stop Loss) or you can close the it from the trading platform at any time the market is open.
Binary Options: One of the main Binary Options advantage is spreads and commissions absence. All additional costs are clearly visible (for example “Rollover” cost)
FOREX: Trading at the FOREX market you shouldn’t forget about the spreads, overnight swaps and other commissions.
Types of the orders
Binary Options: There are plenty of Binary Options which you can trade. Usually they are dividing into groups on the trading platform. They include: Regular Options (also referred to as: High/Low, Call/Put or Up/Down), Turbo Options (1, 2, 3 and 5 minutes), Long-term options, Touch/No Touch Options and Pairs Options.
FOREX: There are some order types in FOREX market. The most important types are “Buy” and “Sell” orders. Many more advanced orders also exist on the FOREX market. Such as: Take Profit, Stop Loss, Trailing Stop, and others.
Binary Options: Each broker determines the minimum and maximum trading size for its clients. For some brokers the minimum trading amount can be as low as $1 per trade (for example IQ Option), and the maximum can be up to $10,000 or more.
FOREX: Standard trade size is one standards lot. But some brokers allow you to trade with mini or micro lots. A standard lot represents 100,000 units of any currency, whereas a mini-lot represents 10,000 and a micro-lot represents 1,000 units of any currency. The maximum trading amount is determined by each broker, and can be up as high as 100 standard lots or $10,000,000.