Calculated returns on investment potential is usually an idea that drives many traders to binary options. The way binary options works is straightforward and better suited for traders who prefer to adopt a “less rigorous” trading approach.
Forex options present a little bit more proactive approach than binary options. As one of the largest markets with a daily transaction volume of about $6.6 Trillion, forex options involve trading one currency for another in a foreign exchange spot transaction.
When you invest in an asset such as a commodity, stock or currency, the price will increase or decrease in a given time frame depending on the asset’s liquidity and market volatility. Perhaps the top reason for significant growth that has been witnessed in binary options the past few years, the elimination of psychological elements in this trading makes it easier for traders prone to straying away from their initial trading strategy.
Often termed as “exotic options,” binary options are comparatively straightforward to understand and technically easier to use. A fixed return option makes it possible to predict the potential loss or return for a fixed strike price. If a trader predicts the trade correctly about the market’s direction in a given period, they get paid a fixed amount based on how much the instrument has moved. On the other hand, if the trader predicts the market direction wrongly, they will lose all of their investment.
Profit or losses are established upfront in addition to the expiry time for the selected trade. With no potential for leverage, the amount traded varies depending on the trader’s financial ability. At a glance, binary options are a type in which the outcome entirely depends on the outcome of a “True or False” proposition.
Forex options present a bit more proactive approach compared to binary options. In simplest terms, forex options involve buying one currency and selling another in a foreign exchange spot transaction. As one of the biggest marketplace on the planet, slightly over $5 trillion is being traded regularly.
A forex trader or investor typically uses the Meta Trader software to evaluate one trading asset choice like the US Dollar against the British Pound. In addition to predicting which direction the currency will move, traders should also determine how high or low the currency will be.
It is possible to trade seamlessly for five days a week along with a potential for high leverage. Although it is possible to increase profit with leverage, improper use can risk the invested amount. Depending on the trading strategy, a trader is subject to overnight rollovers and has the freedom to choose the time they’ll close the trade. In addition to the stop loss determining a trader’s risk for a particular position, risks and rewards can increase or decrease.
While both markets have their distinct elements, there is no definitive advantage of one over the other. A beginner might find binary options easier to trade than forex, while a dexterous one would prefer the flexibility of forex options. Here, we’ll examine the divide between these financial instruments and find critical elements of each.
One key difference between binary options and forex options lies in the level of risk involved. As an instrument with which you enter a trade based on a predetermined “Yes or No,” position, you either win or lose with binary options. Binary options enable traders to get up to 80% or 90% of profit if their prediction is correct. On the flip side, making the wrong prediction means you are going to lose your initial investment.
Forex options, on the other hand, present a more variable risk. A stop-loss can be used to control the level of risk involved. With a broad range of elements dictating the market’s volatility, profit can either propagate or losses magnified. In other words, forex options have a higher potential for profit per trade limits and the liquidity is much higher.
Several psychological elements are eliminated when it comes to binary options. Once you enter a trade, the limitation to exit before the time elapses prevents the impulsiveness triggered by greed to make more profits.
While forex options are often characterized by this psychological element, the ability to quickly change position based on market swings makes it straightforward to profit from the numerous assets to trade with. While the automation provided by the forex options robot partly offsets the psychological engagement, forex trading still comes with a considerable responsibility in decision making.
There is a misconception most people have that forex trading is all about trading currencies. At present, Trusted Forex Brokers provide a platform with a vast range of options – ranging from currencies, futures, stocks and precious metals. Perhaps the top advantage of forex over binary options, viable trading platforms work with all brokers with virtual private servers, more competition and strict regulation that eliminates conflict of interest.
Like in forex, the most traded binary options asset is currencies. At the same time, you can trade in stock indices, individual stocks and commodities.
Although considered a tool to propagate profits, improper use of leverage to buy an otherwise expensive trading instrument can magnify losses.
In binary options, however, traders take a slightly more cautious approach as they cannot utilize the concept of leverage.
Profitability factor refers to the enormity of profits that can be made regardless of how much the risk was. The debate on whether forex options are more profitable than binary options remains a contentious issue.
To better understand how profitability works, the metric used to gauge it is the number of pips the trade moves in a trader’s favor. A $300 investment with a 1.0 lot size and a stop loss risk of 50 points will give a potential Take Profit of 40 points. With the same amount of risk, however, the trader could increase take profit points spread to 80 and gain $80 profit. In other words, the “win rate” of the latter would be lower than that of the smaller spread.
In binary options, the value of a single pip is quantified by the total payout. Assuming the trader stakes $50 with a payout of 80%, a single pip would result in $40
Binary options and forex options are closely similar but also come with vast differences. Both be automated using The Meta Trader social trading and trade indicators for a completely hands-off approach. Through signal sharing, expert traders of forex and binary options can make more profits.
At the same time, forex options can be suitable for traders who prefer to analyze chart data, understand financial news, and monitor market trends.