Surely, this might be another question that many traders have thought about it: Forex or Binary Options? Is better the Forex Trading or the Binary Options? It’s more profitable the Forex Trading or the binary options? And which of the two is the more risky?
We will try to answer all these questions in this article, but we can already say that the two markets (Forex and Binary options) are quite different and each of them has its pros and cons.
The Risk Factor
Let’s answer at the question: Is more risky the Forex or the Binary Options? Both are highly speculative markets. However the Forex Trading can be more risky due to the leverage that is present. For those who do not know the concept of leverage in the world of Forex, just think to a normal lever: through a lever we can lift heavier weights than usual. Same behavior has the leverage in the Forex Market: leverage allows you to move great amount of money using a small amount of money.
Do you want an example? Remember that the value of the leverage varies from Broker to Broker, the value can be “low”, as for example the 1:10 or 1:50 leverage or can be “high” as for example the 1: 100 or 1: 200 leverage (The value of the leverage can also reach the 1: 500 in some cases). What does it mean? Using the example of the 1:10 leverage, it means that by investing $ 10, I could manage $ 100 dollars because for every $ 1 i can “move” $ 10; just think about a 1: 100 leverage: using $ 100 you would be able to “move” $ 10,000 or using $ 1000 you could “move” $ 100,000! Thus the earnings on the investment done will be calculated not on the money that you have actually invested, but on the amount of money that you are “moving” thanks to leverage.
That was the positive side of the leverage; but thanks to the leverage will grow not only the possible earnings but also the potential losses. Using the above example of 1: 100 leverage and investing $ 1000, so “moving” $ 100,000 on the Markets: If there is a positive variation in prices of even 1% there will be an earning of $ 1000, whereas if the variation was negative, there will be a loss of $1000 (That is the amount of money that we have invested!). You should also take into account the operating margin (Margin call), which is set by the Broker to ensure that you would not lose more money than the money that you have in your “account” (Due to the leverage): this margin is fixed for each trade, and due to the price movements, it can occur that this fixed margin of loss is reached by the Prices and so your trade would be closed immediately and you will lose the money invested.
Whereas in the Binary options, the risk is already fixed: If you invest $ 100, you will invest only $ 100 and you also know in advance how much will be your PayOut (The amount of money that you will earn from the Binary Option). in the event of a loss, so you will lose “only” the $ 100 that you’ve invested. In addition, many of the best Brokers also offer the possibility to balance the risk with the PayOut: you can set a return from 10% up to 20% of the invested capital in case of loss (Thing that will decrease the PayOut). This means that with a 20% return, investing $ 100 and losing your Binary options transaction, you would have back $ 20: not bad, counting that otherwise you would have lost everything.
Simplicity of Trading
Without a doubt, binary options are easier to use and understand than Trading with the Forex market. In fact, in binary options you have just to choose the option type, how much money to invest, select the asset on which to invest, and the expiration of the option, choosing your prediction: things that can be done in a few minutes. Instead, in the Forex market you have to take into account other factors, remembering first of the leverage and its risk, choosing the Stop Loss, remembering the Broker’s Margin Call, then select the Asset, how many “Lots” you want to choose etc. … . So for the Forex Trading you should take into consideration more aspects than the ones to be taken into account with binary options.
There is a substantial difference between Forex and binary options. Through Forex, our earnings may be very high due to the leverage effect and in the event of a strong price deviation (increase or decrease); as, however, can also be our losses. In the case of binary options, the Payout is always fixed at the beginning of the operation, before you invest any money. This means that is not necessary that there must be strong movements in Prices to earn considerable amount of money (Remember that the PayOut starts from a minimum of 70% up to 500% or more in some cases and it varies from Broker to Broker). So, in case of strong movements in Prices you would earn more with the Forex (but you would loss more too); whereas with the binary options the earnings are always fixed and you can earn also with weak movements in Prices (Moreover you already know also your potential losses).
Stress is something that should not be underestimated in the Trading, as well as our emotions. If we would trade according to our emotions, we will risk to suffer big losses: you should always operate with a strategy. In this case we could say that working with binary options is less “stressful” than working with Forex: using binary options, you already know in advance the probable gain or loss and especially you know even when the option expires. In the case of Forex, this is not possible. You should also add the fact that you’re using the leverage and you are moving a great amount of money, much higher than those invested and that the gain/loss calculation will be done on the amount of money that you are moving through the leverage: a factor that could create very stressful situations especially to novice Traders.
Now that you have an overview of the Forex market and of the binary options, we can conclude that as you have seen, they are two different things. We can not say with certainty which is better from the two, as each has its Pros and its Cons. From a first analysis you could be in favor of binary options, but some people could tell you that it is not worth it, because in case of gain, you would earn less than the amount of money that you have invested (in some cases). Whereas, in the Forex market investing $100 and thanks to the leverage, you could even gain the triple, quadruple or more of the initial investment (depending on the strength of prices movement); but you would have the same percentages applied to losses. Honestly you should not ignore either of the two forms of investment, but certainly the binary options are easier and less risky, specially for a novice Trader, than the Forex Trading.