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In the world of online trading, Forex trading and Binary options seem to be really gaining traction. A lot of people are saying the binary option is another form of forex trading. However, binary options and Forex trading are different in a lot of ways. To get a better understanding of binary option vs forex trading, let’s start by knowing what they are.
The Binary option offers a contract that allows the trader to choose what happens to the asset that they are trading with. This can be forex assets, commodities, or even stock.
As the trader trades with the assets, they are allowed to choose the direction that the asset will go, which can either be up or down. After placing the trade, the trader is shown the amount that they are going to earn upfront.
What is Forex Trading?
Forex trading is the change of currencies from one form to another. These changes can be either from one place to another or from a currency to another. The trading involves a trader being able to buy and sell currency from the widely available options that are present in the market.
A forex trader relies on the environment, both economic and political, to determine whether a currency will increase in value or decrease. When the trader opens trade, they have decided that a currency may increase or decrease in value.
Binary and Forex Trading at a Glance
|Volatility||Low volatility||High volatility|
|Trade Errors||Trader Prone to Few Errors||Trader Prone to many Errors|
|Leverage||No Leverage||Has Leverage|
|Fees||No trading fees||Has trading fees (spread)|
|Control||Control the risk with a stop loss||Control the risk with a stop loss|
|Access||Must use the broker to access the market||Must use the broker to access the market|
|Risk||You loose your stake per trade||Can Loose all your trading capital if no stop loss order|
|Margins||No margin option,||Has a margin|
The Difference Between Binary Options and Forex Trading
1. Forex Vs Binary: Transaction Cost
The transaction cost of binary options is much lower than that of forex trading. This is because binary options brokers do not charge for transactions; therefore, the binary options traders are not charged for placing trades. There are no transactional costs on binary options, as opposed to the forex which includes transaction costs. For some, this might be the main difference between binary and forex trading.
2. Forex Vs Binary: Volatility
For binary options, they have a binary nature which means that you either win or lose. This means that binary options have lower volatility compared to forex trading. They have a fixed amount that the trader expects and a fixed amount of time that the trader can trade-in.
On the other hand, forex trading makes the trader decide not only the direction that the trade will go but also how high and how low it might go. The time taken for forex trading can be for as low as 5 minutes to as much as a few months for the same trade.
3. Forex Vs Binary: Trade Errors
The fact that binary option has only two options for the trader, the only trade errors that the trader can make may be choosing the wrong flow of the trade. Forex trading however has more trade errors.
This is because the trader has to determine the flow of the chart as well as the time. In case of any opportunity, the trader can choose to take while making sure that they are keen on the details of the flow chart being presented.
4. Forex Vs Binary: Leverage
For binary options, they do not give the traders any leverage. Leverage refers to the capability of the funds used by the trader to trade with unaffordable instruments. Forex trading has leverage that is determined by the broker that you choose. It can range from the leverage of 1:50 to as high as 1:300 or even more.
5. Forex vs Binary: Platforms
The difference in the platform is all about time. Binary options platforms do not allow you to trade past the available allowed time frame while forex traders, they can choose to trade for as long as they may want. The platforms for both options are however similar given that they have trading tools and demo accounts.
6. Forex Vs Binary: Fees
Though binary and forex trading both have fees, judging binary options depending on the fees charged will tell you that binary options have no extra fees charged for either carrying out the trade, placing the trade, or even staying for a while without trading. Forex however comes with a number of fees that are attached to them. These fees are charged in the form of opening and closing trade fees, spreads, and commissions.
7. Binary Vs Forex: Control
In both options, you do not have any control over the market, of course. But you can control your trade-in binary options given that some platforms allow the traders to stop losses any time they may want. However, forex trading offers more control over a single trade. You are able to choose how much profit you can make and the duration that the trade can run with the ability to close and open other trades simultaneously.
8. Binary Vs Forex: Access
Binary options provide access to their client’s accounts much easier than forex traders do. This is because binary options trading accounts give traders easier access to the traders, with the traders having no brokers or middlemen between them and the platforms. For forex trading, the presence of the brokers means that the traders have to go through them to get access to their accounts.
9. Options Trading vs Forex: Risk
Both binary and forex trading have risk. However, the risk involved in binary options is low compared to that of forex trading. The amount you may lose with binary options is determined by the stake that you have placed, for forex trading, the maximum loss you can incur is the amount that is in your trading account.
10. Options Trading Vs Forex: Margins
Binary options come with no margin option, unlike forex trading. Margins are determined by the forex brokers, and they allow traders to increase their investments in a single trade if the trade is a winning trade.
Which is Safer Between Binary Option and Forex Trading?
There is no safer option given that the major determinant is whether the trader has read and understood the markets well enough. The options are both okay. But I would rather choose forex trading given that it is regulated by top-tier agencies around the world, unlike the binary option.
Binary Option Vs Forex Trading; Who Wins?
So, what do you think about binary option vs Forex trading? Which type of trading is more appropriate for your needs and skill set? Think about the time frame that you want to trade in. Do you have a high-risk tolerance or are you looking for something with less volatility and lower risk?
Consider how much money is at stake before making your decision. The article helps you understand the difference between binary options and forex trading so that we can make a better-informed decision when it comes to choosing which type of trader we should be. We hope this helps!
Want to Start Trading? Here is our List of Recommended Forex Brokers
|Broker Name||Minimum Deposit||Spreads||Regulation||Website|
|Fx Pesa||5$||0.01||CMA||Open Account|
|Scope Markets||20$||Spreads from 1.2||CMA||Open Account|
|Exness||10$||From 0.0||CySEC and FCA||Open Account|
|Hot Forex||5$||From 0.0||FCA, DFSA, FSCA and FSA||Open Account|
|Pepper Stone||None||ECN spreads from 0 pips for EUR/USD||FCA, ASIC and DFSA||Open Account|
|FXTM||50$||0.1 on ECN accounts and 0.5 on Standard accounts||CySEC and FSC||Open Account|