Forex and binary options - which is better?
Recently, I see that more and more traders are starting to switch from Forex to binary options. This is understandable, because trading on binary options is easier, and profitability, of course, is also higher. In general, I myself refused Forex in favor of binary options 6 years ago. But since the topic is now so relevant, let's figure out which is better - Forex or binary options, comparing the pros and cons of both types of earnings.
Forex and Binary Options: A Short Comparison
Receive and Sign: Profitability
So, let's start our comparison with such an important point as profitability. When trading binary options, profit ranges from 75 to 95% of the investment. On Forex, profit is unlimited. However, in order to get a high percentage of earnings on Forex, you will have to correctly predict large price fluctuations, while on binary options only 1 point is enough. I think there is no need to explain that in the long run, trading on binary options is more profitable.
Is risk a noble cause? What is the difference between Forex and binary options?
The next difference between binary options and forex is the risks themselves. Forex trading involves constant manual work with risks due to the correct placement of orders to open and close transactions (stop loss and take profit). On the one hand, this is convenient, since there is always the opportunity to rearrange orders and wait for the moment when it will be possible to make a profit or breakeven ... But on the other hand, as a rule, a Forex trader needs to have an impressive deposit in order to withstand long-term drawdowns . In addition, the trader is constantly undergoing psychological pressure (whether he closed the deal on time, placed orders correctly, etc.). It is important to say that traders who do not have large deposits are forced to use the leverage of the broker, which increases not only the profit, but, of course, the losses.
Binary options brokers relieve traders of psychological responsibility for placing orders. It is enough for a trader to decide on:
- the size of the bet (as a rule, its size ranges from 5 to 25 dollars),
- transaction end time.
Thus, all work with risks is to trade a minimum percentage of the deposit. So, in fact, Forex differs from binary options only in a risk management system. It is not enough for a Forex trader to open a deal in the right direction, he also needs to calculate how many points the chart will go through and where to set the stop loss / take profit correctly.
Analysis around the head
Both types of trading use the same tools for analysis and forecasting: indicators, news, volumes, price patterns, etc. It turns out that, ceteris paribus, it is easier to do the analysis for binary options, since here it is enough to correctly predict only the direction of the price. On Forex, in addition to the direction, as I wrote above, you need to determine the approximate number of points in order to correctly place orders to close deals.
Time is money
This item can be interpreted in two ways. For someone it is important how much time the trade takes in total, for someone this moment is not important. In any case, it is clear that Forex takes much more time than binary options. After all, you need to constantly work with orders to influence the outcome of the transaction.
Number of assets
The most popular assets on binary options and Forex are currency pairs and precious metals (in particular, EUR / USD and gold). However, if the choice is limited for the Forex trader, then the binary options trader has alternatives. It:
- the so-called "pairs" (the ratio of shares of one company to shares of another, for example: google / apple).
Thus, on binary options you will have access to a larger number of potentially profitable transactions.
Once again about money: commissions and spreads
Actually, the difference between Forex and binary options is also the trading conditions themselves. Forex traders must pay the broker a spread on every open transaction. What is a spread? A spread is the difference between the purchase price of an asset (bid) and the sale price of an asset (ask) (roughly speaking, the same difference can be seen at any currency exchange office). At the same time, traders do not pay any binary options broker commissions on either investments or profits.
Swap your shoulder: Leverage
A very important point, in my opinion. It applies only to Forex, but nevertheless it is important to speak it. The minimum lot (financial contract) on Forex is $ 100,000. Naturally, an ordinary person cannot start trading with such amounts. In this regard, the Forex broker is ready to provide its clients with leverage. For example, with a deposit of $ 1,000, the broker is ready to "add" to the trader $ 99,000 so that he can enter the market. However, the broker will not risk his money, instead he will limit the maximum amount of losses on the account to 1% (the very same $ 1000). What does this lead to? In addition, traders often start trading in large lots and quickly lose money.
What to choose, forex or binary options?
So, binary options or Forex? My answer to this question will not be objective, because I have made my choice a long time ago. For those who have not decided yet, I can give one piece of advice - decide for yourself which type of trading suits you best. It is difficult to predict in advance which method or strategy will bring the greatest profit, but one thing I can say for sure - binary options today provide the lowest entry barriers to the world of trading, making it simple and affordable for everyone. A large number of binary options brokers allows you to find the most convenient platform for everyone. By the way, some brokers have Forex simulators built into the platform (for example, P-options). Of the Forex brokers, at the moment I most trust Alpari.
Well, for all novice traders, I suggest that you read the article about the main mistakes made by beginners in trading. And about the results of 2015 in the field of binary options, you can see here. Also, the results of next year are not far off.