Principal difference: Binary Options vs Forex

Binary trading is becoming widely popular nowadays. The main reason is that this type of trading offers high profits and is very simple to trade. This lesson outlines the principal differences between the marginal trade, also known as Forex, and binary option trade. This will help you to evaluate which method is better for you.

Definitions

When trading binary you have to forecast if the asset’s price will decrease or increase from the current price after a particular period. For instance: The price of EUR/USD currently is 1.50850 but you predict that the price can be higher after of expiry period of one hour. Thus, you place an option “Call” on EUR/USD. After 1 hour the traders can see what the price has become after the expiry period. If the forecast is right person can earn 80% of the investment.

While performing forex you’re speculating on the one currency value decrease or increase if compared to the other one. For instance: The price of EUR/USD currently is 1.50850 but you think that the price can increase in future. You purchase 1 lot and wait when the price increases to the level where you decide to close the trades and get known the profit you have.

difference between Binary Options and Forex

Margin

It isn’t used when trading on binary options. Still you can get the greater returns on the investment (sometimes up to 400%), so binaries are attractive for the traders. Thus, you are able to get the margin call.

Dealing with forex you can opt for margin to trade. Its maximum is set by brokers, and sometimes goes up to 1:500. Margin enables you to grow your capital of investment so you are able to make a bigger trade to make a larger gain if the trade is winning.

Losses and Payouts

Before the trades on digital options you will realize exactly what the payouts and losses returns percentage are. Some providers offer payout up to 80%. Actually it depends on the option. For instance: investing $500 on one option and having the payout of 80%, you get $400 to your deposit if the deal is winning. Some provides don’t offer a “loss back”. This means that in case the option trade fails, you’ll lose all amount invested in this trade.

With forex you never realize what can be your maximum profit after a trade. So, person can stop order or establish a limit to be guaranteed to get a particular percentage profit when the stop or limit is executed. These are the profits and losses in marginal trade with stop/limit orders.

Closing the position

Before your binary option trades you should select the time when your options expire (for instance: 1 week or 1 hour from this moment) – after the “expiration time” your trades will be closed automatically.

Forex trade enables you to choose the time when your position can be closed. You are able to close a position at any time when a broker can execute and accept the order.

Orders Types

Main orders types of digital options include: Call/Put, 60 Seconds, Touch/No Touch, Option Builder, and Boundary Options.

Forex provides various order types. Buy/Sell orders are the most important. Advanced orders are Stop, Limit, Trailing Stop, OCO, Hedge orders etc.

Trading costs

There are no commissions, rollover/swap or spreads during trading binary options.

When performing marginal trade you should consider the rollover/swap and spreads as well as if there are some commissions.

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