The Main Differences Between FOREX And Binary Options

The Main Differences Between FOREX And Binary Options

While experienced traders view binary options as relatively simple and straightforward, for newcomers who are just entering the fast-paced market, things are often confusing. Perhaps the biggest issue you can encounter as a new trader is differentiating between binary options and FOREX.

Even though they share a few similarities, FOREX trading implies making a speculation on whether the value of a given currency appreciates or devaluates, whereas binary options are structured on a fixed model and work on an all-or-nothing principle. However, this is not the only difference between the two popular trading solutions, as you are about to find out.

The payouts and losses

If you opt for binary options trading, then you will always know the odds of the transaction, meaning you will be aware from the very beginning with respect how much you stand to win or lose. Because few brokers provide a safeguard, making a wrong investment means that you will lose the exact amount of cash you put down. Because you know precisely what to expect, binary options trading is less risky than FOREX, where the outcomes are not clearly defined and hence, you might end up losing all the cash in your account.

As far as the payouts are concerned, binary options trading offers 80% or more, depending from broker to broker, whereas with FOREX there’s no limit to the maximum profit you can make.

The trading costs

As previously mentioned, binary options trading is as simple as it gets: you set up an account and start investing without having to worry about commissions. On the other hand, when trading with FOREX you need to check the swaps, rollers and spreads for trading costs.

The margin level

Binary options trading doesn’t use leverage or margin, so you don’t have to concern yourself with getting a margin call when you least expect it. For FOREX trading, the margin is typically established by the broker and can range between 200% and 500%. Without denying that the FOREX margin level is rather high, don’t forget that it permits you to increase the amount invested and earn a higher profit when the market is going in your direction.

The order types

With binary options, you will only have to learn five major types of orders. FOREX trading, on the other hand, has a plethora of order types, most of which are designed for more experienced traders.

The trade’s size

With binary options trading you don’t have to assume big decisions; you simply decide whether or not to invest and deposit the cash. The amount you can invest depends on the minimum and maximum pre-established by the broker and can range between $5 and thousands of dollars. If you want to make a profit from FOREX trading, then you will need to get accustomed with the concepts of mini, macro and standard lots. A micro lot is worth around 1,000 units and is not allowed by all brokers, while a standard lot means over 100,000 units and addresses big companies mostly.

Closing a position

While FOREX allows you to close a position anytime you choose, binary options trading means dealing with pre-defined expiry times. For a percentage of the expected return, a broker can allow you to close a position before the expiration date on binary options.

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