Binary Options vs Forex Which One Is Better

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What is the difference between Forex and binary options?

Difference between binary options and Forex

Today I will answer one of the most frequently asked questions in the world of trading: what is the difference between Forex and binary options ? In my article you will find detailed answers to the questions «What are binary options?», «How do binary options work?», and «Can I make money on binary options?» I will also share my opinion on which of those is better and more profitable.

New option for instant profit

About 10 years ago, most brokerage companies specializing in exchange markets suddenly started promoting a new «super service» – binary options. At that time, few people understood what they were, but the thirst for instant profit made this tool very attractive. It was an exclusive offer for that time, because it was basically a pocket casino, but with constant online access and a low starting amount. Enough time has passed now for the consumers to start realizing that binary options is not such a brilliant tool, and that you lose more often than win. In order to assess this tool, you need to understand what it is.

What is a binary option?

So what is a binary option? To answer this question, let’s look at its structure. The name itself consists of two words – binary and option. The word binary is a derivative of the concept of “binary model” – a model that has only two options for the occurrence of an event: either “yes” or “no”. This model is one of the foundations of the tool: you either win or lose, there are no other options. The word option however derives from real stock options. Stock option is a derivative financial instrument, which is based on the rule that the contract is executed in the future in case some pre-agreed condition is fulfilled.

By combining these two concepts we get a tool that works according to the rules of the stock contract and has only two options for the occurrence of the event. In other words, if you conclude such a contract, you either win or lose.

Let us consider the operation of binary options based on the most popular contract parameter – Higher/Lower. This type of contract means that you choose the target price level and direction of the trade. For example, you believe that the EUR/USD currency pair will decline over the next 5 minutes. You select the reference level and buy a put option. Therefore, if the price is below this level in 5 minutes, you make a profit, and if higher – you lose. All you need to do is choose a bet size, for example, $50, and you are ready to go.

Our option position will look like in the chart above. Everything below the red line is our profit, and everything above is loss. The main distinguishing feature of such a contract is the fact that it does not matter how many points the price goes up or down – our profit or loss is always fixed.

So, 2 minutes passed after the conclusion of the option contract, and during this time the price went below our reference level. Therefore, if our option expired now, we would receive a profit of 80-85% of the bet.

Another three minutes later, our option has expired. But alas, the price soared at the very last moment and went above our reference point, thereby bringing us a loss in the amount of our $50 bet. It is quite simple.

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Of course, there are many variations of binary options, but we will talk about them more when comparing them with the Forex market.

What is the difference between Forex trading and binary options?

We will compare these two types of trading based on the most important parameters:

1) Range of contract types

There is only one type of contract on Forex. Of course, you can trade in currency pairs, CFDs, commodities, or securities, but all these are just variants of the same type of contract – a contract for difference (CFD). If you buy a currency pair and its price increases, you will receive the difference between the purchase price and the subsequent sale price.

There are several types of contracts on binary options: the most populat Higher/Lower that we have already examined, One-Touch option where you need to wait until a certain level is reached, Range option where you need to specify the target price range, and the most profitable Ladder option.

2) Amount of potential profit

On Forex, your profitability is unlimited. Of course, you can limit it by placing orders, but if we talk about a simple directional position, it can generate profit until you close it yourself at the price level of your choosing. Quite often you open a position, and in just a few minutes the price rushes a lot of points, bringing you much more profit than you expected.

When trading binary options, your profit is always limited by the type of contract selected. And, most importantly, your profit can never be greater than your bet. If you bet $100, you will get $90 in the best case. If you lose, you lose all $100. Of course, there are options for other types of contracts, but in any case, the proportion of success will always aim for unprofitability. However, the dealers of these options are always in profit.

Example of the sly operation of binary options:

I’ll make a bet, for example, in the AUD/USD at $1,000. The moment I click the “buy” or “sell” button, the bid amount – $1,000 – will immediately be deducted from my balance.

– If I guess the bet right, I’ll see that “the profit is $1,710”, while in fact it is only $710 (as we remember, $1,000 were deducted from me when I made the bet was opened and returned when I won).

– If I guess the bet wrong, I’ll see that “the profit was $0”, but I already lost $1,000, and in the case of loss, these funds will not be returned to me.

It looks fine, but in fact the loss is always greater than profit in the same option.

On Forex, with the same position and equivalent price movement up or down, profit/loss will also be the same.

3) Margin trading opportunity

On Forex, margin trading has perhaps reached the highest degree of development. Forex brokers give you leverage in almost any range, from 1:2 to 1:1000, and even more. Of course, such a colossal amount of credit capital provides us with virtually unlimited opportunities for profit, which sometimes is 1,000 times higher than our invested capital.

There is no such thing as margin trading in binary options, only bets. If you have $100, then you can only make operations with these $100. This is definitely a disadvantage in the modern trading.

4) Easy conclusion of trades

It is universally agreed that Forex has the simplest and most modern trade conclusion system among all exchange markets. A trade conclusion system is defined as the process from the analysis to the moment your order is placed on the market. There are various trading platforms, some with advanced functionality, however, mastering them is not that difficult.

In binary options, the trade conclusion system is even simpler than on Forex. In essence, the whole trade comes down to choosing a trading instrument, option type, execution time and pressing the “buy” or “sell” button. We will not talk about the effectiveness of this operation, but the chances are about 50/50.

5) Duration of the trade

On Forex, all contracts are unlimited in time, and therefore, they do not have expiration. This means that when you enter into a position, you can wait out the period when the price is not where you expected it to be. Yes, there are commissions that can harm your deposit, but this is another topic.

In binary options, all contracts have expiration time. All types of options have a limited lifespan, so you cannot “wait out the storm” like on Forex. This type of contract completely eliminated the investment component, leaving only pure speculation.

6) Minimum starting capital

On Forex, this line is almost erased now, and you can start trading even with only $10. But you should understand that the smaller your initial investment, the greater leverage you need from your broker, and this increases the risks greatly.

In binary options, the minimum starting capital can be even $1. But in this case, your income will be just as low. Perhaps this can be quite enough for someone who wants to just get acquainted with these contracts,.

Conclusion

Taking into account the above, we can conclude the following:

This is a market in which, like on the stock market, laws of supply and demand apply. Trades are concluded at various time intervals, however, as statistics show, trades over long time periods are most effective and more often profitable. On Forex, much attention is paid to technical and fundamental analysis. There are a huge number of different systems for managing active positions, which allows you to profit even from completely hopeless trades. The proper use of margin trading can greatly increase your investment capital, which will allow you to get much more profit. Naturally, success on Forex requires market analysis, a trading strategy, experience and use of informational materials. This market cannot be conquered abruptly. In order for a Forex trader to start earning from each trade, they need to undergo training and gain experience.

The binary options market is an OTC market, or rather, it is not a market at all, since binary options brokers are simultaneously liquidity providers, market makers, and in fact anyone else they wish to be. In most cases, the quote is just a projection and has nothing to do with the real price of the asset. And in the case of turbo options, brokers simply invent the quote that is profitable for them against the pool of their players. In reality, a binary options broker is a bookmaker that broadcasts whatever it wants to its customers. A high commission for a profitable trade makes the popular 50/50 exchange ratio completely unprofitable, since you will never earn as much as you invested. The profit on the same option will always be less than the loss. In general, binary options are a casino or an addictive game that has nothing to do with real trading on the financial markets. Options are a game played according to the rules of the owner. You can test this on a demo account of any binary options broker.

In this article, I have provided my personal opinion, which is supported by practical experience in the development and implementation of various exchange contracts. I really like the model of “real exchange options”, which I consider to be the best of all exchange contracts, only it has nothing to do with binary options. In the end, choosing the market is entirely up to you. I can just wish you good luck.

P.S. Did you like my article? Share it in social networks: it will be the best “thank you” :)

Ask me questions and comment below. I’ll be glad to answer your questions and give necessary explanations.

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Price chart of EURUSD in real time mode

The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.

FXDailyReport.Com

This article does not present an absolute declaration of one market being better than another. It simply represents the views of someone who has traded both markets and is therefore a reflection of experiences in the context of what is obtainable in these markets today.

What is Forex Trading?

Forex trading is the practice of buying and selling currencies with the expectation of making a profit from the change in the rates of exchange between the point of first exchange and the point of re-exchange. Currency changes are forever changing on a second-by-second basis, especially during periods when the major trading hubs have a time overlap. Therefore, it is possible to make money from the exchange rate differential which occurs.

What Are Binary Options?

Binary options trading is a form of investment where the trader is presented with two possible options or outcomes for an asset, of which only one can be correct within the allocated time for the trade. If the asset behaves according to the choice made by the trader, a profit is made. If not, the investment is lost.

What are the Differences Between Forex and Binary Options?

There are many online resources out there which will try to get into an argument over which of the two forms of trading is better than the other. Without trying to join this argument, here are the facts about both markets.

Forex is a market with variable returns; the more pips in profit territory your trade is, the more profit you make. The reverse is also true; the more pips in loss territory your trade is, the more losses you make.

In contrast, binary options present fixed returns; your payout for a profitable trade is fixed irrespective of how many pips the trade has moved in the trader’s favour. However, losses are capped to whatever was invested in the trade; nothing more. This can also be an advantage for the trader, as only one pip in the right direction is required to get a full payout.

It is a well-recognized fact in forex that being able to search out trades where the reward far outweighs the risk is the secret of market longevity. This is where forex trumps binary options. In forex, it is possible to get trades that provide a return of 3 pips for every 1 pip risked. Assuming the risk levels used in all trades are the same, it would take three losing trades of the same magnitude to wipe out gains made from a trade with a reward-risk ratio of 3:1.

In binary options, returns are fixed. Profitable trades only pay out 65% to 80% profit. Losing trades result in 100% loss of the invested amount. So one winning trade and one losing trade will not only erode the profit from the winning trade, but also leave the trader with less money than before.

So when it comes to making money from trading, fixed returns may not actually be the best way to go about it.

Forex is a leveraged market. The movement of currency pairs is so small that the trader needs to borrow from the broker to be able to control the large positions required to make reasonable returns.

With binary options, this is not the case. Binary options are unleveraged instruments. A trader must invest the full amount required for the trade whenever this is carried out. This provides greater financial burden on the trader if financial goals from trading are to be achieved.

The forex market is a well-regulated market with lots of brokers who stick to the rules most of the time. The rules defining forex are well defined in jurisdictions where currency trading is regulated. Binary options are still for the most part, not properly regulated. This has opened the door to many brokers who perpetrate dodgy practices in the market. You are therefore more likely to find shady brokers in the binary options market than in the forex market. Extra vigilance is needed when looking for a binary option broker.

Both markets now boast of the presence of automated trading software or trading robots. Forex traders have the advantage of being able to host their expert advisors on remote servers (forex VPS). Binary options software are mostly web-based and cannot be hosted on VPS. This means that binary options traders must depend on their local computers being connected to the internet without downtimes to be able to trade effectively.

The binary options market is a one-stop shop for trading all asset categories. This is an advantage for traders who know how to trade correlated assets. This is where binary options trump the forex market.

Trading forex can only be done by buying or selling a currency pair; your profits depend on whether the movement of the currency pair are in your chosen direction. In binary options, you can make money from other ways apart from just buying and selling an asset. For those who do not like to be constrained to doing the same thing over and over again, the other trade types found in binary options provide an alternative way of going about trading business.

Conclusion

As mentioned earlier, this article is not about trying to prove that one investment vehicle is superior to the other one. It is about presenting the facts of the two markets as they are, so that traders will be better informed about the structure of both markets and make a choice of which market will suit them better.

Binary Options Indicators: Which ones to use?

A website called best meta trader indicators has published the results of a public poll. This poll’s question was: „What’s your favorite forex indicator?“ and it’s had more than a few thousand replies! That is quite a big number!

The results are pretty interesting and surprising (for me at least) and we will talk about it in today’s article. So get ready and let’s get straight into it.

Forex OR Binary Options indicators?

This website is mainly about binary options and their strategies, and this article and poll are about forex – that’s true. Both are two different things, however they follow the same principles.

Is the price going to go UP or DOWN?

That’s why we can use the same indicators in forex and binary options.

Download these binary options indicators for MT4

Most of these indicators are already installed in MT4 by default. But just to make sure, I have uploaded them for you. You can download them from the link below.

The most favorite binary options indicators.rar ►Download

The most favorite binary options indicator

According to the result’s of the poll, the most favorite binary options indicator is, with 5385 votes, the MACD (Moving Average Convergence Divergence.) This comes as a little surprise, as my personal guess was the the most favorite would be Moving Average or Bollinger Bands.

The full results can be found below. First comes the indicator’s name, the number in the brackets is the amount of votes received in the poll:

  • MACD (5,385)
  • RSI (4,310)
  • Bollinger Bands (4,126)
  • Moving Average (3,967)
  • Stochastic Oscillator (3,523)
  • Fibonacci Retracements (3,348)
  • Other (2,574)
  • Supertrend (2,487)
  • Ichimoku Kinko Hyo (2,484)
  • CCI (1,988)
  • Parabolic SAR (1,393)
  • Trix (1,065)
  • Donchian Channel (969)
  • Williams %R (920)
  • Keltner Channel (895)
  • Momentum (772)
  • On-balance volume (568)
  • Envelopes (500)

Strategies with these indicators

Many strategies published on this website are using one or more of these favorite indicators. You can find a few of them below.

Binary Options Fibonacci Strategy

The fibonacci retracement tool is probably the least understood, especially among the new traders. They hardly realize about the importance of having this tool by their side in order to take their trading to the next level. Retracements are one of the most prominent elements of any uptrend; therefore developing a trading strategy around this phenomenon

Binary Options ‘3’ Strategy That Works + Video

While we go haywire finding a reliable trading system, we tend to miss out on the obvious. Three indicators strategy ensures high potential profits as it produces exact entry signals confirmed by 3 indicators. Moreover, it can be used with all sorts of currency pairs. This strategy that works is based on three of the most popular indicators – RSI, MA, Stochastic

BBand Stop binary option strategy

BBand Stop Strategy is a 5 minute binary option trade strategy which uses BBand Stop alert indicator in MT4 to define ideal position to enter the trade. This indicator is used along with the Bollinger Bands. How to setup the chart Timeframe: M5 Template: BBand Stop Strategy (Download here: eDisk or UlozTo.Net) How does this strategy work Arrows (pointing up and down) will be displayed over/under

Golden Eye – Trading strategy with 80 % success rate

Golden Eye is a strategy based on the ADX indicator (what is an ADX indicator?) which is used for confirming rebounds. This strategy works well with with M15 timeframe and the trades which are opened for 60 minutes (in direction of longterm trend) or for 30 minutes (against the trend).

I have had a pretty nice profit with this strategy.

I hope I have helped you, good luck with trading!

Best Binary Options Brokers 2020:
  • Binarium
    Binarium

    Best Binary Options Broker!
    Perfect For Beginners!
    Free Trading Education!
    Free Demo Account!
    Sign-up Bonus:

  • Binomo
    Binomo

    Good Choice For Experienced Traders!

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