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The difference between forex trading and binary options
Let’s explore the differences between binary options and forex trading. The way that binary options work is much easier to understand, accordingly they are better suited to traders who prefer a “light” approach to trading. But don’t make the mistake of considering binary options as a financial product for beginners. It is important to approach any type of trading in a serious manner.
Here are a few things to consider to decide whether binary options are right for you.
Psychological weaknesses. Many psychological factors are eliminated with binary options. For example, the impulsiveness and greed that cause traders to stray away from their initial trading plan. Unlike forex trading, you cannot modify a binary option trade once it is initiated. This prevents many trading errors linked to emotions.
Losing more than your investment on a single trade. A binary option has a risk and a fixed return which are known in advance. There is no leverage (a sort of credit offered by the broker), there is no margin. You cannot lose more than the amount invested on the single trade. With forex trading, you can lose more than your investment (your margin) with a single position and the loss is amplified by the leverage a broker provides you with. Options are therefore more appropriate for traders who lack the rigour needed to manage risk and exit trades. Nevertheless, the risk of losing all your money is identical with both the forex and options!
Price movements. With binary options you only speculate on the rise or fall of an asset within a specific period of time. This means that even a difference of 0.1 pip can decide the outcome, unlike forex trading where you have to anticipate a greater price change for an equivalent result. Depending on your strategy and market conditions, this can either be an advantage or a disadvantage.
Time constraints. The expiration of an option after a certain time can complicate the task. A forex trader has the advantage of being able to keep a position open as long as he wants, but on the downside, he must exercise caution in order to close the position with a profit or loss at the right time. Again, options are more suitable for traders who lack discipline or are heavily influenced by their emotions because they don’t have to make any decisions once the trade is validated. A disciplined trader who follows strict risk management rules will obtain better results with forex trading.
Choosing the best binary options broker
This is not part of the trading process, but it is an important step, because the world of binary options is plagued by dishonest brokers who use very aggressive and deceptive marketing techniques in order to lure naive customers. We suggest that you select a regulated and established broker that also provides services for forex traders (such as ETX Capital) for the following reasons:
1. Prices: You need to know where the prices that are displayed come from in order to be able to compare them, this will give you a distinct advantage in terms of price conflicts (which should be rare with a forex broker that is genuinely regulated).
2. Regulation and reputation: an established forex broker that has a good reputation provides more peace of mind and security for your money than an established binary options broker because regulation of forex brokers is stricter. Binary options are still far from being truly regulated trading instruments. Binary options brokers have a long ways to go to clean up the industry’s bad reputation, largely caused by unscrupulous participants.
This doesn’t mean that you shouldn’t open an account with a broker specialised in binary options, but if you choose this solution you will need to perform a lot more due diligence to assess the broker’s seriousness.
3. Demo accounts: this is extremely important. It is still rare to find brokers specialised in binary options that offer demo accounts. Yet it is essential that you start out with a demo account. This is an important item to consider before choosing a broker.
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4. Risk Warning: if a broker’s website doesn’t display any sort of risk warning, stay away from it! If they offer a huge bonus and say that it is easy to double your account in a very short time and without experience, stay away! If a binary broker calls you even though you haven’t asked for anything, hang up immediately because it is likely to be a scam. Salespeople who spend their time on the phone are professional liars and manipulators.
Comparing risk: forex trading vs. binary option trading
Both of these instruments cannot be fairly compared in terms of their risks, because they work differently and produce different results. The most common criticism against binary options is that you will lose your initial deposit faster than if you were trading the forex. This is false, you can also lose your money very quickly trading the forex. Both of these trading instruments are extremely risky for investors!
The biggest problem regarding binary options’ negative reputation is the lack of information that traders are provided with. Options traders have a very limited choice of demo accounts to develop their skills and binary brokers offer little to no educational materials. This is in contrast with forex trading because you can easily find books on strategies and many forex brokers invest resources to educate traders on the fundamentals.
However, forex trading offers greater flexibility in managing risk, because an option’s expiration time reduces the amount of possibilities you have to react and adapt the strategy to market conditions. With this in mind, risk in forex trading is lower for disciplined traders who understand leverage and management of positions with rules that leave no room for improvisation.
The brokers’ business model
Forex trading is advantageous in terms of the brokers’ business model, because you can open an account with an STP broker (direct market access, the broker is just an intermediary) that has no conflict of interest with its clients.
The binary options industry is still young. There are no liquidity providers or clearinghouses (except in the US where there are two regulated exchanges, the Nadex and the Cantor Exchange), brokers therefore offset trades internally with a “B-Book”. This practice also exists with some “market maker” forex brokers, and depends on customers’ profiles, trades are not always sent directly to the market, the brokers can choose to take positions that offset yours. This doesn’t necessarily mean that they are dishonest, there is nothing wrong as long as they don’t manipulate prices and traders who profit are easily able to withdraw their money.
Nevertheless, it’s not a secret, brokers who practice “B-Booking” have a conflict of interest with their clients. When clients lose, binary brokers make money and vice versa. Brokers can afford to do this as the statistics are on their side: most traders lose money.
Trading in all its forms requires great discipline. You need to develop and test a trading strategy and develop risk management rules. The risk associated with forex and binary trading is the same – you should only invest money that you can afford to lose.
Regulation of forex brokers offers better protection of your funds, unlike many offshore binary brokers that offer no guarantee on your deposits. STP forex brokers have no conflict of interest with their clients, as opposed to binary brokers who all use a B-Book to “bet” against their clients.
Both trading instruments offer a risk/reward ratio, but binary options allow you to know the potential risks and profits in advance. Binary options eliminate some of the psychological weaknesses that affect traders, but their simplicity prevents traders from using more sophisticated strategies or optimising their investments in real time.
In conclusion, contrary to popular belief, the ease of use of binary options doesn’t mean that this type of trading is for beginners, but rather for traders who – despite their previous experiences – are not able to control their emotions when managing their positions. Professional traders do not use binary options because they offer less freedom to develop multiple strategies that are more adapted to the rapidly changing conditions of the forex and stock markets.
Differences Between Forex & Options Trading
You will learn about the following concepts
- Risk Factor
- Profitability Factor
Traders will always argue which type of trading is better – trading Forex or binary options. Every person, engaged in trading either way, knows that they both have certain advantages and disadvantages. If you have not taken a closer look at the specifics of Forex trading and binary options trading, then you are probably not aware of the major differences between these two types of trading. Let us point out several differences.
Both Forex and binary options trading involve risk. However, if we take a closer look at both types of trading, we may draw the conclusion that binary options trading is a bit less risky due to the fact, that you know how much you are going to earn or lose before you place the trade. This is a huge advantage over Forex trading. This way you have better control over your money.
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Another considerable advantage of trading binary options over Forex is that you will not be that dependent on leverage. Every Forex trader knows that he/she must take advantage of the leverage offered by his/her broker, in order to be able to trade with decent amounts of the asset/s he/she has chosen. Although leveraged trades will bring you a larger profit, they will also multiply your losses in case your trade goes awry. As a result, there is a greater possibility for novice traders to lose their money quicker, while operating in the Forex market.
Trading binary options has another advantage – you have the opportunity to refund a portion of your trades, if you feel that your projections will not turn out to be accurate. However, this option is not offered by all brokers.
Participating in the binary options market is fairly simple, as trading operations lack the complexity of operations in the Forex market. You may need to set several parameters of the trade, but in most cases you will be able to place a trade in just 3-4 simple steps. On the other hand, placing a trade in the Forex market involves setting additional parameters of the trade in order to limit your losses, manage risk levels, etc. The reason why trading binary options is quite easy is that the trader can only choose between two types of orders – Call or Put. In the meantime, Forex traders are faced with a more difficult choice.
In binary trading the amount of money you make will depend on your investment, knowledge, experience and last but not least – on the profit percentages offered by your broker.
In most cases the profit percentage your broker offers will vary between 60%-80%. The percentage entirely depends on the type of options you are trading, because the payout for certain types of options can be up to 300-400%. The fixed payout percentage gives you accurate information on how much money you will make from the trade. This way, as a binary option trader, you can control your money better and quickly calculate how much money you are going to earn, and how much you feel comfortable to lose.
Binary traders are quite active in the market – they often make over 10 deals per day. If you are one of the traders who deal with 60-second binaries, then it is very likely that you will make over 40 trades on a daily basis. In the meantime, Forex traders have to be more careful, while placing trades and, in many cases, they end up placing just 3-4 trades in a single day.
Binary options have quickly gained popularity among retail traders, because they do not require huge investments and are a great way of generating a decent amount of passive income. On the other hand, Forex traders need to invest larger amounts of money, especially if the leverage offered by their broker is lower. Do not forget that leverage is a great way to multiply your profits, but it is also the quickest way to lose all the money you deposited. One should not be tempted by the prospect of making large amounts of money in no time.
Both ways of trading have their pros and cons, so it is up to every trader to determine which one suits best their preferences. Each one of these markets is meant for different types of traders. On one hand, Forex is a dominant market segment at the moment, while trading it is the full-time occupation of millions of people worldwide. On the other hand, binary options are a relatively new trend among Internet users and at the moment there are not so many people, who make a living by trading binaries. But, why not turn binary options trading into a full-time engagement?
Binary Options vs Forex
Binary Options vs Forex Which One You Should Choose?
Binary Options vs Forex | If you are just about to start investing, you may wonder which one you should choose. Or maybe you have tried other one and you are thinking if you should change to the other? Or maybe you have just another reason why you want to compare the two and to know if superior in some way. In this article I will go through pros and cons of both so that you have easier decision to choose the one that fits your personal preferences better.
Binary Options are actually a new form of investment, while foreign exchange trading has been for as long as there have been various currencies. Therefore, it is obvious that the currency markets are much bigger by turnover. In fact, they are the world’s largest market, currency trading takes place five days a week 24 hours a day averaging over $ 5 trillion per day. When you invest in currencies, you are directly competing against other top professional investors such as Warren Buffett and George Soros.
Binary options markets are hundreds of time smaller than currency markets, and there are surprisingly small number of professional investors involved. Also, investors have much more trading assets to choose from than currency traders have. In addition to that, only a few people know how to use auto traders like binary option robot, when for currency traders, highly sophisticated trading software is almost a necessity.
Binary options trading is much easier for novice investor than forex trading
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Which One Should You Choose Binary Option vs Forex? Read Out Thorough Investigation And Find Out Which One Is Better And the Reasons Why?
How to Make Money with Binary Option Robot
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Claim your free binary option robot, get started with three easy steps:
- Name of Robot
- Min. Investment
- Min. Deposit
1. Your Binary Option Robot will analyse the market and decide, which asset (currencies, indices, commodities and stocks), is right to trade at that point in time.
2. The Binary Option Robot Will Predict the Price Movement
Your robot will assess a wide-range of factors, and then make a prediction on how the assets price will move, saying: Call (up) if it believes the price will rise and Put (down), if it believes the price will fall.
3. Decide on how much you want to Invest
Then you need to decide how much you want to invest in the commodity and when that investment will expire.
4. Collect your Earnings
Finally, you collect your earnings (the good part!)
TABLE OF CONTENT
Main Reasons To Choose Binary Options
First I’ll go through the main points why you should choose binary options over forex. After that I will tell you what kind of investors should choose forex trading over binary options. Basically, by far the majority of investors binary options fit much better, while currency trading is suitable for a small minority of people who are able to specialize and possess certain characteristics.
- With binary options, you have much wider selection of different trading assets. In currency trading you trade only currencies. Binary Options allows you to trade, forex, commodities, indices, stocks and basically any investment with a variable value. This is limited only to what the broker is willing to take to the selection. Unless you only want to trade currencies, this is huge factor and main reason to choose binary options.
- In binary options trading, competition is not that fierce, at least not yet. As already mentioned, the foreign exchange market is world’s largest market by turnover, where participants are the world’s smartest and most successful investors. In foreign exchange market, you are competing directly against these investors. In binary options investing, competition is still at a very low level. The main reason is that with the really large sums, direct investment in equities is cheaper. This gives a great opportunity to investors who are investing with smaller amounts, the toughest competitors are totally absent and all the talented mid-level competitors are so far absent also. You should use this great opportunity now while you still have time.
- Binary options investor gets access to much greater bonuses. In foreign exchange market, competition is relatively stable due to its long history. Sometimes new viable comes into the market and shakes it a little bit by offering cheaper prices, but usually consumer will have to settle with what is currently offered. In binary options trading, markets are still constantly developing. New brokers appears every day, and they are trying to attract customers to themselves with large and juicy bonuses and benefits. For you as an investor this is a great thing, all freedom of choice is left to you.
- As a binary options investor, there is a number of great software available for free. Intense competition does not extend purely into brokers, also different software developers are having tough competition because of scarcity of customers. As a result, the best applications such as The Real Robot, Binary Hedge Fund, Binary Stealth, Copyop, PayDay FM and OptionBot 2.0 are all available completely free of charge for now. This may not continue for very long so I recommend you to register all of these through our links while you still can. In this way, you ensure that you will have them for free in the future also if they become chargeable. On the other hand, best forex software costs at least thousands of dollars, and if you want that you have any hope of progression as an investor, you are practically forced to use these. This will drive investors with little money into hopeless situation.
- With binary options you know exactly what your payout will be if you hit right. In forex trading, you can never know exactly how much you will earn in the best case or lose at worst case. This makes the choosing of right investment amount extremely difficult. Sometimes you will have the risk a bigger sum what was originally intended. With binary options, you know beforehand exactly what is your potential winning and what is the potential loss amount if the investment goes wrong.
- With binary options, you choose beforehand when you wanna close the position. Some investors may view this as a disadvantage, but I think this is clearly an advantage. When binary options investment has been set, you do not have to worry about or keep track of it in any way if you do not want. You can spend time with your family or even go to the beach. In forex trading, you need to follow the changes in value of the investment continuously and to consider whether now is the best time to close the position or would it be perhaps sometime in the future. At worst, you will not be able to do anything other than follow the investment.
- There is no transaction costs in binary options. Binary options investor do not pay any transaction costs. Expenses are in fact already directly tied to payout percentage. In forex trading transaction costs can be quite high and the minimum costs can make investing with small amounts unprofitable.
Candlestick chart is the most common form of forex chart
Main Reasons To Choose Forex Trading
Forex trading fits better for a small number of experienced investors who know for sure what they are doing and invest in larger sums. If you invest in currencies using mere intuition, you will only lose your money.
- If you have comprehensive expertise about the currency markets. There I mean the know-how that comes from years of studying and practical experimentation. That is, if your expertise is such a high level that the acquisition of the same skills with binary options would take you a really long time. You also have to remember that skills must be such that you can apply it directly to the practice profitably. Mere theoretical knowledge without the ability to apply does not take you very far.
- You want to invest only really large amounts of money. Most of the binary options brokers allows you to invest only up to $ 5000 at one time. Some of us this amount may be too small. In currency trading, you can set investments worth even tens of millions of investment at once. With such a large sums, transaction costs are also significantly lower proportionally what they would be in binary options.
- If you are not interested in other trading assets except currencies. If you’re absolutely sure you want to invest exclusively currencies in the future also, currency trading is probably a better option. Even in that case I recommend to starting with binary options using small amounts of money and gathering some knowledge before you decide to convert fully only in currencies.,
The Difference Between Forex and Binary Options
Though it looks similar, the binary and the forex trading is very different from each other and it is of high importance to understand the differences in order to be successful.
The binary options are contracts which have a fixed risk and reward ratio. The binary options trading requires you to predict the direction of an underlying asset within stipulated duration. The binary options are available for commodities, stocks, indices, and currency pairs. The traders are informed their reward upfront in case their prediction turns out to be correct.
Binary trading, as the name suggests and as explained earlier, requires you to predict the direction of the asset. The setup is very simple; traders get 80 percent payout in case their prediction is right. For example, if you invest $ 100 on USD/JPY and payouts is 80 percent for the winning trade, in this scenario if you predict that the USD/JPY will move higher at expiry and if that turns out to be true then you receive your investment amount ($ 100) plus the payouts (80 % of $ 100 that is $ 80), totaling to $ 180, however, if the USD/JPY moves in the opposite direction of your prediction then you will lose your investment amount of $ 100.
To be a successful binary options trader, you must win a majority of your trades. While in the case of the forex trading, you are allowed to set your profit target and stop loss for the trade, which allows you to make a profit even if the underlying does not achieve your set targets. So, in the case of the forex trading, the traders can make money even if they do not win a majority of their trades.
Both the forms of trading are tradeable online, and also you can start trading with small capital. Traders speculate on the movement of the underlying in both the markets and if the prediction is true both reward the traders with the handsome amount.
In binary options trading, the traders predict the direction of the next move within certain time period. In this way, there is no variability in the risk or the profit potential. As the name suggest, the binary market operates on only two outcomes (Up of Down).
While in the case of the forex market, the traders are required to predict the direction but also they have to estimate how high or how low the asset can go. This way there is an uncertainty in terms of the return and a higher risk.
The forex market doesn’t have a ceiling on how much money one can make or one can lose unless the trader’s use risk mitigation tools like stop-loss which limits the amount of loss one can have in a transaction. Meaning, the trade will automatically close if the stop loss has been hit. Similarly, the trader can decide how much money they want to make by deciding the value at which they want to close the trade.
So, in the case of the binary options, the maximum amount of loss could be the entire investment amount whereas in the case of the forex the risk can be mitigated by using certain tools.
The binary options trade with specific expiry durations and once the trade has been initiated, the traders have no control till the expiry over their transaction. Each and every binary option have a specific expiry attached to it and the trader needs to select the expiry before initiating the trade. Though some brokers allow closing the trade before expiry with restricted payout options, the majority of the brokers does not allow to close the trade before expiry.
However, the forex trading allows you to initiate and close the trade whenever you want. The rollover is possible in case of the forex trading while the majority of the binary broker does not offer this facility.
The forex trading allows to invest higher capital with the leverage allowed by the FX broker, but such facility is not available with the binary options trading. This allows the forex trader make higher winning with limited investment but in the case of the binary trading, the trader can only allow investing the money which is available on the account or the amount which is restricted as per the brokerage site.
The binary trading offers 5 variants of the trading types. These options are high or low, 60 seconds, one touch, boundary, and option builder. Whereas, the forex trading offers several option types for the trading including buy or sell, limit, stop, One Cancels the Other, trailing stop, hedge amongst others.
Although the forex trading and the binary options trading look similar, there are some striking differences and one should be aware of these before initiating their first trade.
Pros and Cons of The Forex and Binary Trading
In the recent past, the binary options trading has seen an unprecedented rise. The little known binary options of early 2000, now have more than 400 operators who offer binary trading.
Accepted, that the binary options trading is growing at a rapid rate but why you should indulge in it? Or why should you learn a new trading platform when you are already deep into forex trading? Is it really superior to already known trading mechanisms?
There are several advantages and disadvantages of the forex trading and the binary trading. The following text describes some of the most pros and cons, and hopefully, it will assist you in making the selection.
The biggest advantage of the binary trading is that the traders are aware of the maximum risk per trade, and it is the amount of money the trader invest in the underlying. Certain brokers, also allow you to close the trade before the expiry allowing you to further cut the losses, of course with certain conditions.
However, the same is not true for the forex trading. Even if with stop losses, you cannot be 100 percent sure that you will lose only the pre-decided amount. Though less likely, there is a chance that you may lose higher amount due to slippages, illiquid asset, price jumps, technical issues, amongst others.
In the case of the binary trading, except high or low options, the strike prices are set by the broker and even if you have a fair idea on how an underlying asset will behave, you cannot place an order to be executed at certain price points. On the other hand, the forex market offers the flexibility of placing limit orders or market orders during market hours to suit your requirements.
In an open trade, there are limited brokers in the binary arena who allows you to close before the expiry with certain conditions while the majority of the broker disallow pre-closing of open trade. On the other side, the forex trading allows you to close the trade even after 1 second of opening the trade, giving you a complete control over your transaction.
If you are on a winning trade, then the forex trading allows you to scale the investment and gain higher returns, whereas, the risk and rewards are fixed in the case of the binary options trading.
The forex trading attracts transaction costs in terms of a brokerage or spread or both. Whereas, in the case of the binary trading there is no addition cost for trading the instruments.
Unlike, the forex trading which has only one asset type for trading, the binary options have evolved to provide trading in commodities, stocks, indices, and currency pairs. This is one of the biggest advantages as one can diversify the trading portfolio by staying only with one broker whereas the same cannot be said for the forex brokers.
This is another advantage for the binary options traders. As the traders are well aware in advance the maximum loss they can incur in a single trade. So the events which induce high volatility in the market have a limited impact while trading with the binary options. Also, along with the risk, the reward is also fixed in the case of binary trading, and there is no possibility of scaling in more amount to gain higher rewards.
Whereas, in the case of the forex trading, the market reacts to events and sometimes the reactions cases heavy volatility increasing your risk multiple times. For instance, if you have taken a position in a specific currency pair expecting it to move higher, an unfavorable event can crash the prices of the currency pair, giving you no time to cover your losses. This way the volatility risk is very high in the case of the forex trading compared that with the binary options trading.
The errors in entering the trade are very low in the case of the binary trading as there is only one action which needs to be taken which is to open the trade and the rest is being done by the software. The binary options trading does not offer limit orders or stop losses for adjustments, these have their own advantages and disadvantages.
Even if you are a professional trader in the forex trading, your one mistake has potential to wipe your entire account. For instance, you forgot to exit from an open trade and the tide has turned unfavorable, in that case, the trade will continue till you may lose the total amount available for the trading in your account. Such errors will never occur in the binary trading, as the expiry is set and the trade will close automatically limiting the loss only up to your per trade investment amount.
As discussed above, both the platform provides ample opportunity for the traders to make money and both offers distinct advantages and disadvantages over others. The above text provides definite insights into both the trading world. However, the ultimate decision of selecting the trading market rests in your hand.
Best Binary Options Broker To Start With
My number one recommendation is IQ Option, the best broker site there is. When you invest with IQ Option you can be sure that you can start easily and effortlessly. They have comprehensive learning materials, friendly customer service and brilliant bonuses. Besides all that you know that your money is fully secured with one of the world’s most trusted broker sites. When you open an account to IQ Option by clicking the button below you are qualified to get 100% bonus when you deposit at least $ 200. Unfortunately, IQ Option does not accept US customers, so if you are from the United States, I recommend reading our GOptions, CTOption of Porter Finance reviews.
Conclusion: Binary Options vs Forex
As you may have came across many times in this article already, my personal recommendation, especially for novice investors is definitely binary options. You get to compete against other beginners from the same starting line, and you will also might find that investing can be really fun. Forex trading is a hard game dominated by experienced professionals. For a novice trader, it is really hard to make profit with forex trading, most likely result is a rapid loss of money. If you are nonetheless fascinated by the currencies I recommend investing in them by using binary options.
Binary trading vs. CFD trading: What is the difference?
Contracts for difference (CFD) and binary options are some of the most popular trading instruments available to online traders.
Many marketers wonder how these tools differ and which ones to choose to win better.
To understand it, we must analyze in detail the two trading platforms and put them side by side to see exactly what is what.
In this article, we will briefly review the similarities between CFD trading and binary options trading and we will make a more thorough assessment of their differences and we hope to draw a rational conclusion.
What Are CFD’s and Binary Options
Many beginner traders confuse these concepts. Therefore, first of all, we want to inform you briefly about each of these forms of trading in the stock market. So, what are then CFD’s and binary options?
CFD’s (Contracts for Difference)
CFD means contract for difference. In short, a CFD is an agreement between you and a broker to pay each other the difference between the price of an asset (such as gold, EUR/USD, Microsoft shares, etc.) at the time the contract is made and its subsequent price when it decides to terminate the contract, that is, close the transaction.
It means that you do not own the real asset, but you make a contract with the owner (in this case, the trading platform) to resolve the difference between you when the deal is over.
This opens the door to many opportunities, such as the fractional ownership of shares, short shares in assets that do not offer them and much more.
Binary options are often referred to as “yes or no” investments. If you believe that an asset will be quoted above a fixed price, you are predicting a “yes” and buying the binary option. If you believe that an asset will fall below a fixed price, you are forecasting “no” and selling the binary option.
There is a low barrier to enter. A binary option contract will not cost more than $100. You are not buying an underlying investment or even the option to buy an underlying investment. You are simply placing a bet on how the price of that investment will move.
These contracts always close at $0 or $100; You win or lose. If it correctly predicts the movement of the price, it is on the winning side of the operation, and the person on the other side of the contract, who incorrectly predicted, is on the losing side. Your profits or losses can not exceed $100 in a single contract, which means that your exposure to risk is limited.
Limited, but far from not existing. You can negotiate multiple contracts to increase potential profits; but at the same time the size of the possible losses increases.
To perform a binary option you must follow three main steps:
- Decide on an asset or market to trade.
- Decide an expiration date or time for the option to close. Most trading platforms allow you to sort by expiration date, so you can see contracts that expire within the next hours or days. Most contracts will expire at the end of the trading week, except those linked to economic events.
- Decide if you want to buy or sell the binary option, according to the exercise price and the expiration date. The exercise price is essentially a line in the sand. If you believe that the asset will be above the strike price when the contract expires, buy the binary option. If you believe that the asset will be below the strike price, sell the binary option.
Similarities between CFD’s and Binary Options
CFD’s and binary options are similar in the following ways:
- They are derivatives: it is not necessary to own the underlying asset to trade in the asset.
- They have short trading periods: for both binary options and CFDs, traders can select trading periods from one hour to a week depending on their business objectives.
- Predicting the movement of prices: both trading instruments involve making predictions about the market prices of the underlying assets.
Differences between CFD’s and Binary Options
Although CFDs and binary options have some similarities, these two trading instruments are also markedly different. The main differences include:
In binary options trading, the operator is usually aware of the possible loss or gain that will be incurred depending on the movement of the price of the underlying asset. However, with CFD operations, it is not possible to determine in advance what you can earn or lose with the fluctuation of market prices. This is because CFD transactions involve negotiating the difference between the entry and exit prices of the underlying asset.
Advanced traders can earn more dividends by trading CFD. However, the level of risk in CFD trading is considerably higher than the binary options trade.
CFD transactions, unlike binary options trading, involve the payment of commissions and fees for each transaction you make. This is because CFDs are financed with borrowed money, so traders can trade with numerous underlying assets at a reduced price. Each broker has its own commission structure.
When it comes to binary options trading, traders are not required to pay fees or commissions in addition to the initial investment. No fees are paid, even if the operation ends without money, that is, even if you lose. In fact, many binary options brokers offer a return of between 10 and 15% of the money exchanges.
Instead of reimbursements, CFD traders can protect themselves against losses by “stopping” their own losses. But stopping losses can only be applied when losses are already imminent.
Range of Tradable Underlying Assets
CFD trading gives you access to a much broader set of bases that includes bonds, currencies, indices, etc. On the contrary, binary options trading requires the existence of an underlying asset; This currency and the average index can not be negotiated using binary options. If you are looking to access more bases to operate, CFDs offer a better option.
Conclusion: Do We Have a Winner?
Yes, of course we have a winner: the trader! The trader is the final winner of this “battle” between OB and CFD because with this new CFD trend, we have more options and more negotiation styles. We do not believe that one is better than the other. They only have a few differences and operators will have to decide which style suits them best. If you are a trader who wants quick wins of 60 seconds, then binary options are your game. If you do not want to worry about where to put your “Stop Loss” and “Take Profit”, once again, the binaries are for you.
On the other hand, if you are a patient operator that wants to keep good trading for longer, then CFDs are for you. Because in the end, the patience of the trader who chose this tool, is much better rewarded. If the transaction closes successfully, you will earn much more money, and this is the goal of any trader!
In the end, it’s up to you if you want to invest a little time and learn a new way of trading or follow the known path.
If you decide to try the CFD trade, Libertex will be happy to offer you the best conditions. Our CFD service covers a wide range of asset classes. Get more information about CFD operating costs. Also for beginners, we are pleased to offer a demo account, through which you can practice CFD trading without taking any risk.Best Binary Options Brokers 2020:
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