Why are binary options better than Forex?
Online trading has been growing tremendously over the past few years, mainly because of notable technological strides which have made online trading space more appealing to investors. Unlike in traditional trading which demanded physical presence and lengthy documentation in over-the-counter exchanges, online trading has proved to be convenient since traders can trade financial securities from the comfort of their homes and even while on the go; using versatile mobile apps provided by online brokers. Binary options’ popularity has been soaring over the past few years owing to sky-high returns and simplicity of trading.
However, it may be confusing for a new financial trader whether to venture into binary options or Forex. Well, they both have their similarities but they are very different in most aspects. We have prepared an article on why binary options are superior compared to forex trading. Read on for a clear comparison between binary options and forex and reasons why you should go with the former.
In definition, binary options are fixed contracts which are characterized by fixed payouts and fixed trading durations. Trading binary options are fairly simple compared to other markets since a trader is only required to predict the direction of market price movement. On the other hand, Forex is a financial market where traders seek to leverage on distinct price changes between a currency pair. Forex and binary options have been in existence for a long time with the former outliving the latter
Upsides of trading binary options compared to Forex
No margin trading
Margin trading is common in forex trading and it is used to increase trading capital and consequently increase potential profits. Maximum margin offered varies from one forex broker to another. However, even though margin trading may translate to higher returns on investment, it is worth noting that a sharp decline in the prevailing market price of a currency pair can be disastrous to your bottom line. In binary options trading, margin trading is non-existent and hence you never get a margin call. Binary options traders can still earn up to 90% returns on a single trade. Even better, some high-yield options can have payouts of up to $1000.
Fixed Payouts and Losses
Maximum profits in forex trading are always uncertain. A trader can only use the stop order tool to set the maximum percentage return after execution of an order. Well, knowing the price level to set a limit order can be risky especially if the trader is driven by greed. Also, it is imperative to note that you can only use the stop loss trading tool to define the maximum loss you can make once an order is executed. In the event that the market price of the underlying currency pair, you can only make a loss up to the stop loss value. However, with no stop loss set, the risks are spread to the entire trading account. If the market moves negatively, your trading account can be wiped clean in a matter of hours or even minutes if the market is very volatile. It’s not a big deal in forex trading to go out for shopping to later come back to a negative trading account (if you used margin).on the bright side, a positive sharp price hike can translate to more returns. But is it really worth it?
On the flipside, a binary options trader always knows what he will get or lose from the word go. Binary options brokers offer fixed payouts which are usually a percentage of the underlying investment. High-yield options can attract payouts ranging between 400-1000 percent and normal trades’ payouts range between 65-90%. Additionally, trading risks are strictly restricted to the invested funds. Meaning, funds in a trading account are shielded from the trading risks irrespective of the magnitude of change of the underlying asset.
It’s a proven fact that monotony in financial trading can lead to recklessness when making crucial trading decisions. In forex trading, a trading portfolio is restricted to currencies and unless you are a forex enthusiast, it can be pretty boring. Forex does not offer many options to play around with. Forex traders can only use the Buy/Sell orders. Other orders available include limit, OCO, Trailing Stop, hedge and stop orders.
On the other hand, binary options are more of a hybrid financial market since traders can access a vast selection of assets derived from the four asset classes; currencies, stocks, commodities, and indices. Binary options trading offers traders an exciting trading environment since most brokers offer a variety of trading options. Options offered by most brokers include Call/Put, High/Low, Up/Down, Touch/No Touch, Ladder, Option Builder, Turbo options, Boundary Options, and Tunnel Options. The option Builder trading option allows a trader to customize his own option to fit his trading style.
Less or no hidden trading costs
Forex trading is characterized by commissions and broker fees, not to mention swap and spreads. With some brokers, commissions and fees are astronomically high which in turn “eats” into your profit margins.
Binary options trading is however very different from forex as far as costs are concerned. There are no commissions and hidden fees in binary options. Literally, what you see is what you get. If let’s say a trade attracts a 90% payout, that’s exactly what you will get at the end of a trade.
Conclusion about binary options
For the analogy above, you can clearly see why binary options are better than forex. Binary options trading attracts “lesser” risks, no hidden fees, more flexible and simpler to trade. However, binary options and forex are also similar in some aspects. For instance, both have trading risks, require a starting capital and are traded online. If you want to try binary options trading, don’t hesitate to use our broker reviews section for details on trusted binary options brokers.