Understanding the differences between binary options and forex is important so you can decide what might be right for you. As I have stated in about me I have been trading forex spot for many years and now changed to options, and I will try to point out the differences for you.
are option contracts with fixed risks and fixed rewards. In binary options trading, the trader must decide whether an underlying asset, such as a stock, a commodity, or a currency, will go up or down during a fixed period of time (expiration time). Traders are shown up front the value of their earnings (up to 92% at iq option) if their predictions are right. For example, if a trader puts $10 dollars on the value of the EUR/USD going up, and the guess is correct, he would receive $9.20 dollars (92% in this example) plus his initial investment. If the value of the same currency goes down, however, the trader loses 100% of the money that they put in. (note: the % potential return will vary with time of the day and volatility).
In a binary market, traders would decide whether an asset, such as a foreign currency, will go up or down in value over a fixed period of time. In this sense, there is no variability in the risk or in the profit potential. The binary market is named after the binary system, in which the only two input options are 1 or 0. Similarly, in binary trading, the only two options are up and down.
Binary trades operate on specific timelines. The trader must choose when to initiate a trade and choose an expiry time, this can be anything from 60 seconds to “end of month” depending on the broker and what underlaying instrument you are trading. Some brokers allow you to close early but you will exit your option at a percentage of the expected return. (Not all brokers offer this option).
There are of course some similarities between binary trading and forex trading. Both financial trading markets are tradable online, and they both allow users to start trading with small amounts of capital. In both types of markets, users are speculating on which direction an asset moves in. In the case of guessing correctly, both trading options provide strong profit potential.
In forex, there are no limits to how much money a trader can make or lose, unless they use certain tools to control trading. One tool is a stop loss, which prevents traders from losing more than a certain amount. In other words, once the trader has lost a certain amount, the trade automatically closes. (One exception to this would be if the price “gaps”, if that is the case you would lose more than you set your stop loss to). Similarly, the potential reward may also be fixed beforehand. The trader can set a profit target where he wants the trade to close once price has reached that value.
In forex trading, users can take trades lasting from one second to many months, since they can open and close the trade whenever they feel like it. This flexibility has both advantages and disadvantages.
Forex also has a tool called margins. Each broker determines the maximum margin. Margins allow traders to increase their investment capital so that they can make a larger profit if the trade is a winning one. Margin is not a tool available for binary options.
So, now you might have a better understanding of some of the main differences between binary options and forex. I have been trading forex for 6 years, but this year I started with binary options. Why did I change you might ask, one of the main reasons is that I always know my potential risk/reward, no calculations in pips or 4digit prices and 5 digit prices. And also the expiration time factor, you will know within seconds, minutes or days if you are ITM (in the money (winning)) or OTM(out of the money (losing))