Binary options and foreign exchange are two investment methods in the financial industry, so what is the difference between binary options and foreign exchange?
In this article, we answer this question for everyone today. If you are interested, read along.
Binary options, also known as digital options and fixed income options are one of the simplest financial trading tools. Since 2008, for investment in shares, stocks, currencies and commodities investors and individuals, investment capital, binary options became extremely attractive.
There are only two options in binary trading, so the term “binary” is used. It’s very similar to betting, you only need to bet on whether an asset will increase or decrease in value over a certain period of time. They provide the market with automatic adjustment options. By predicting whether a company’s stock is depreciating, it is also a way to control high-valued stocks.
In binary options trading, you will bet on whether the price of a particular asset will rise or fall during a certain period of time. Before each bet, they tell you a lot about your risks and rewards. Binary trading is an excellent way to enter the market without the need for large asset expenditures or asset reserves.
Advantages of binary options
- Fixed risk – Predictable rate of return and loss before trading.
- Simplicity – You just need to have the concept of a trading direction, that is, “Does Google’s stock goes up or down before it expires?”
- Attraction – As long as the option is in the price at the close, trading will be profitable. Profitable trading will get all the profits, even if it is slightly super, more than one point can be profitable.
- Hedging opportunities – safe option for a trader is able to invest in such other currency has on stocks and other open positions. The use of binary options can eliminate further losses on other investments.
- Immediateness – The binary contract can take effect at any time, allowing traders to trade in multiple time periods. When an option expires, it often brings new investment opportunities for binary traders.
Binary Options vs. Forex Trade — Facts You Ought to Know to Earn Money
Transaction scale: The trading size of binary options is directly based on your investment. It does not have the concept of trading hands, margin and leverage. The amount you deposit is the actual transaction size of the binary option. For example, if you deposit $ 100 in a binary options account, if the minimum investment amount for each binary options transaction is $ 10, then you can make 10 transactions. The size of foreign exchange transactions is measured in lots.
Take the US dollar as an example; a standard lot is usually US $ 100,000. In order to accommodate novice or small investors, the scale of foreign exchange transactions has developed new lots, including mini ($ 10,000), micro ($ 1,000), and even nano ($ 100 or less).
Forex is actually very easy to understand, but it becomes a little more complicated if you add leverage and margin calculations.
Order Type: Generally speaking, binary options are classified as “call” and “put”. Some binary options brokers offer only these two order types, and they are sometimes called “long options” and “short options.” Binary options actually predict whether prices will rise or fall. However, the types of binary options have also diversified, and brokers use them to attract customers.
New order types, including touch-trading options, have begun to gain favor from investors and become mainstream services for binary options brokers. The type of direct orders for foreign exchange is also very simple, that is, buy and sell.
However, Forex trading now also has multiple order types, including stop-loss sell orders, stop-loss buy orders, limit sell orders, and limit buy orders, etc., which gives traders more options to execute orders.
Profit and loss: Before placing an order, the profit and loss of binary options is public. There is a function on the platform called “Yield”, which will let us see in advance how much profit an in-the-money option will make. If the EUR / USD are bullish, the return shown on the platform is normal. Assuming that the option yield is 81%, and then your profit is 81% of the investment amount.
The calculation of losses is simpler; the key is to see how much you invest. If you put $ 25 into an option order, you end up losing $ 25. In foreign exchange, we can never determine how much profit or loss, as long as the order has not been closed, the result of the transaction is also unknown.
The profit and loss of foreign exchange orders are linked to price fluctuations. Regardless of the type of your order (buy or sell), the price always changes at any time, and it may be good or bad for you. Price fluctuations are not the only ones related to profit and loss. In fact, the range of price fluctuations also affects profit and loss.
Fortunately, there are stop loss and take profit functions in Forex trading, which allows you to have more control over trading positions and profit and loss results.
Transaction costs: Binary options have no spreads or commissions. If it’s an in-the-money option, you’re profitable, and if it’s an out-of-the-money option, you’re losing money. It’s that simple. Foreign exchange orders are executed based on the bid and ask prices. The bid-ask spread is the spread, which is also the way that foreign exchange brokers charge.
Spreads are automatically added to your new position and reflected in points. Therefore, to calculate transaction costs, you need to know the value of each point in the position being traded. In addition to spreads, some brokers also charge commissions.
Accounts that brokers typically charge for commissions include fixed spread accounts, zero spread accounts, etc.
Closing positions: Binary options orders have expiration time. Determining the expiration time is a technical task because you have to decide on the expiration time before placing an order. On the surface, this seems to require you to have the ability to predict all unknowns.
You have to predict when the price will rise or fall, or how long it will take before the price will rise or fall. But this is not the case. Deciding on the expiration time is actually like choosing a trading time period or length (short, medium or long). If you are good at scalping and analyzing price movements in the short term, then you can choose a shorter expiration time.
Conversely, if you are a long-term trader and are more comfortable with long-term market analysis, it is more advantageous to choose a longer expiration time. Binary options can choose from a wide range of expiration times, such as 60 seconds or months.
So you have many choices. Forex traders have more options for closing positions. If the position is closed manually, there is no time limit for foreign exchange transactions. Forex orders have stop loss and take profit functions, so traders have full freedom to decide when to close positions.
Trading platform: Almost all binary options brokers use a web version of the platform. Interestingly, many are proprietary trading platforms with different styles. Only a few brokers will choose the trading platform of the platform provider. SpotOption is the most successful binary options platform provider and it holds the largest market share. Therefore, when binary options traders change brokers, they need to spend more time and energy to adapt to the new platform.
When it comes to foreign exchange trading platforms, the first thing that most traders think of is the MT4 platform provided by MetaQuotes. Midak’s influence in the foreign exchange market far exceeds SpotOption’s influence in the binary options market. The MT4 platform has a very high utilization rate in foreign exchange transactions, so the platform adaptability of traders when changing brokers is higher than that of binary options. In addition, the MT4 platform provides far more indicators and functions than the binary options platform.