Binary Option Trading vs Forex trading So what’s the difference

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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.

Flexibility

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.

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Binary Options VS. Forex

The Forex (Foreign Exchange) market is currently one of the largest and most profitable markets in the world in terms of daily turnover. The foreign exchange market assists international traders and their investments, by enabling currency conversion. A significant part of the large turnover is contributed by online Forex trading, which has been steadily increasing over the past few years. This trend is expected to continue well into the future.

Binary Options trading is the new kid on the block. It is a new version of Forex market trading that is simple in comparison, which makes it the preferred trading method for new traders. Binary Options contracts have long been available and sold directly by the issuer to the buyer. They were generally considered “exotic” and there was no liquid market for trading these instruments between their issuance and expiration.

Since mid-2008, Binary Options websites have been offering a simplified version of exchange-traded Binary Options and people immediately embraced this new way of trading. Since then the number of traders and brokers kept going up, and now, I can safely say this industry has come a long, long way. Binary Options are now all over the internet and most online traders are using them one way or another.

In the early days, traders didn’t know what regulation was and because of that, brokers didn’t seek regulation. Now the most reputable brokers are fully regulated and traders have become more careful with their money so a regulated broker is their first choice. In the early days, the types of binaries were limited to Up/Down and maybe a few others but the choices were very few. Now brokers go out of their way to offer new and innovative types of binary options such as Ladder Options, Pair Options (Pairs existed before but now a lot of brokers are offering them), Touch, Boundary, Above/Below, etc. (some of these were available in 2020 but only a handful of brokers had them and now almost all brokers offer them). Overall the binary options industry has changed a lot and most of it is for the better. I believe we are not done yet and that we will see even better advances, more safety and a lot more professionalism from brokers in the near future.

What are the Key Differences Between Binary Options and Forex?

Making a comparison between Forex trading and binary trading is not easy as they both have their own advantages over the other but here are some of the main differences:

Binary options – Set And Forget

A Forex trade has a lot more variables than a binary options trade and this means that the trader is faced with a lot of decisions. Lots of decisions also mean that you can screw one up and one is all you need. You have Stop Loss, Take Profit, position size, etc. and as a Forex trader myself, I can tell you it can be terrible to see price one pip away from your Take Profit just to turn around and go straight to your Stop Loss. If you widen your Stop Loss, you can lose more, if you tighten your Take Profit, you can win less… but a smaller win is better than a loss, right? Or wrong…? See, lots of decisions, while on the other hand, a binary option trade is set and forget, there’s not much you can do after you open it. And on top of that, a single pip (or point) is all you need to win a trade, which brings me to the next difference:

One Pip Is All You Need

In Forex, the more price travels in your favor, the more money you make (or lose if it goes the other way). With binary options, things are different: it doesn’t matter how far away price travels because you can get the entire payout even if the price is only one pip higher or lower than it was when you opened the trade. One pip brings you 85% profit, 10 pips bring you 85% profit and 1 million pips bring you… yup: 85% profit. Of course, the payouts differ from broker to broker and this 85% was only used as an example.

Ease Of Use

Forex trading requires professionals with experience in foreign currency trading while Binary Options is quite simple and easily understandable even to novices in financial trading. This simplicity makes Binary Options more appealing but do not think you don’t need to learn anything. Education is a big part of success in trading and this applies to binaries as well. If you’re in need of education, visit our Binary Options School.

Know Your Risk And Reward In Advance

With binary options, you know right from the start how much you are going to make if your trade is successful: the payouts range between 60% and 85%. In Forex trading, the returns are uncertain and can only be determined after the closing of a position.

Refunds

Binary Option trading is safer compared to Forex trading. With Binary Options, some brokers offer up to a 15% refund in case of losses, which acts as a cushion for the Binary Option trader. Forex trading has no safety precautions in place (if you don’t use a Stop Loss order or other forms of protection) and in cases of wrong investment decisions, the Forex trader may lose all money invested.

Time Is Money

Forex can be traded continually throughout the weekdays while Binary Options can only be traded if the underlying market is open. Say if you want to trade binaries on stocks, you have to wait for the stock market to open. However, it must be noted that you can trade binaries on currency pairs and that means that you can trade around the clock during weekdays.

Range Of Markets

Binary Options offer a lot more assets. Forex stands for Foreign Exchange so obviously, only currencies can be traded, but when it comes to Binary Options, the choices are wider and include stocks, indices and commodities on top of currencies. More choices, more opportunities.

Regulation: We Need It

The Forex industry has a lot more regulation compared to Binary Options. However, in the last couple of years the top Binary Options brokers started to pursue regulation and this is a major step forward for clients’ safety. Before opening a binary options account, make sure you know as much as possible about Binary Options Regulation.

Leverage: Increase Risks And Rewards

Forex is leveraged and this can be both good or bad, depending on how you look at it: you have the potential to ma more but also you risk more. Binary Options are much simpler in this regard, because they are not a leveraged product.

Binary Options VS Forex – Bottom Line

Although they are differentiated by the aforementioned features, Forex market and options trading have some similarities. Both are easily accessible to the public since they can be operated online. What is required of potential traders is simply a network connection and start-up capital that can be as little as one hundred dollars.

Overall, nearly anyone can join this revolutionary way of trading. However, some binary options brokers are not regulated, which can potentially lead to some traders being taken in by scam artists. Beware, do your research and pick the right trusted binary options broker for you.

Difference Between Binary Options Trading and Real Options Trading

Are Binary Options and options trading the same thing? What is the difference between binary options trading and real options trading?

What Is The Difference Between Binary Options Trading and Real Options Trading?

In the recent history of investments, there has been alot of hype products; bitcoins, spread betting etc but more recently and currently still the global hype in 2020 are what are known as “Binary Options”. Binary options brokers employed the very best of internet marketing to the point where whenever you search for options trading, you are more likely going to see results for “Binary Options Trading” rather than real options trading. In fact, I see the disturbing sign of options trading dummies, complete beginner to the area of options trading and investing, (Read my Options Trading for Dummies Guide) are now thinking that Binary Options Trading is Real Options Trading as they are saturated with news, articles etc about Binary Options Trading and how people are making millions around the world trading Binary Options.

So, what exactly is the difference between Binary Options Trading and Real Options Trading? Here’s an infographic summarizing the differences between binary options trading and real options trading. Please feel free to link to it from your site and link back please.

Note: Please feel free to share the above infographic on your website or blog to warn more people. Be sure to link back to our page!

Differences Between Binary Options Trading and Real Options Trading – Short Expiration vs Long Expiration

One of the biggest difference between Binary Options Trading and Real Options Trading is that binary options trading typically have extreme short expirations of even down to just 60 seconds while Real options trading has expiration as short as a week and as long as a year. This makes a massive difference in that you have time to properly analyse a trade and managing the trade along the way, giving time for the price of the underlying asset, be it stock or other assets, to actually move in your predicted direction. By having an extremely short expiration says that you are such an expert trader that from the moment you put on an options trade, prices can only directly and almost immediately move as you predict it to. something even seasoned professionals cannot guarantee. Professional real options trading is having about giving the underlying asset time to move in the predicted direction. Having extremely short expiration means that you are essentially putting on a 60 seconds electronic bet without substantial research behind each “bet”. That makes the difference between gambling and investing.

Differences Between Binary Options Trading and Real Options Trading – Limited Profit vs Unlimited Profit

Another big difference between binary options trading and real options trading is that you can only win a limited amount of “payout” in binary options trading while when you buy a real options contract, the potential payout is unlimited. This means that in binary options trading, you typically win a fixed payout, typically 75% of what you put into the options trade, no matter how far the price of the underlying moves in your favor. However, when you buy a real options contract, there sky is the limit. As long as the price of the underlying stock keeps moving in your favor, the option will keep accumulating profits and so it is not uncommon even to see profits of beyong 1000% in real options trading while in binary options trading, you get your 75% even though you are an expert analysis and the price of the underlying asset moves extremely strongly in your favor. Some people say, in that case, just keep buying more binary options as the price moves up. well, the problem with that is that even in a strong uptrend (or downtrend) price don’t go straight up (or down), you may be caught in one of those small 1 minute or 2 minute or even 5 minute pullbacks are not uncommon even in a strong trend and get your account wiped out on the losses and you typically lose more on a losing trade than you can win on a winning trade, which brings us to the next difference.

Differences Between Binary Options Trading and Real Options Trading – 85% Loss vs 100% Loss

In binary options trading, when you lose a trade, they actually give you back 15% of the money you invested with, making it a 85% loss while in real options trading, you can lose up to 100% of the money you put in, yes, the whole thing. At first, this may making binary options trading look very attractive versus real options trading until you remember the last difference, that there is a limit to the profit you can make on binary options trading which is almost always smaller than the amount of money you can lose. So, if you stand to win 75% or lose 85% in a 50/50 trade, would you win in the long run? Even though you stand to lose 100% in real options trading, two important differences make up for it; one is the unlimited profit mentioned above, potentially returning you way higher profits than the 100% loss and second, it can be sold to cut loss before you lose the whole thing! Which brings us to the next difference between binary options trading and real options trading.

Differences Between Binary Options Trading and Real Options Trading – Cannot be traded vs Can be traded

Binary options “trading” technically isn’t trading at all. Trading means being able to buy AND sell. So when you buy something for one price and sell it for another, that’s trading. However, in binary options trading, you can buy but you literally cannot sell it to another options trader. Once you “buy” a binary option, you will have to hold it to its eventual outcome, there is no way to sell it to salvage any remaining value when things start to look wrong. So, there is no way to “stop loss” so as to speak. You either win or lose according to the criteria so there’s no “trading” involved at all, only “betting”. Real options trading on the other hand can be traded on the public exchange to another options trader or market maker anytime before it expires. So when things start to go wrong, you could actually sell it to salvage remaining value just like trading stocks. There is a real market with real buyers whom you are trading in and trading with in real options trading. Which brings us to the next difference.

Differences Between Binary Options Trading and Real Options Trading – Unlisted Instrument vs Listed Instrument

Another difference between binary options trading and real options trading is that Binary options, the hyped ones, do not really even exist. It’s not a financial instrument that is listed on a regulated public exchange like a stock market or the forex market but exists only as a computer program you are placing bets on which is no different from an online casino or a game. Real Options Trading on the other hand trades a real options contract that is listed on a regulated public exchange and gets bought into your account as an equities asset when you buy real options. This means that in real options trading, you are actually buying a real options contract off the real stock market and owning it as an asset in a real equities account. You actually own an asset when you buy a real option but when you “buy” a binary options, its actually an expense item which you bought using your credit card just like game credits. Which brings us to the next difference.

Differences Between Binary Options Trading and Real Options Trading – Trading Against Binary options broker vs Trading against other traders

In Binary Options Trading, you are really trading only against the broker, or in more precise words, “betting” against the “banker”. There isn’t any market in which you are trading with other traders like in the stock market or the real options market. In real options trading, you are trading options contracts with and against other options traders and market makers. This means that you are able to buy AND sell the options contract that you own at any time you wish before expiration whereas in binary options trading, you won’t be able to sell it once you “buy” it and is committed to hold it until one of the two possible outcomes. Of course, you aren’t really buying anything in binary options trading as explained above, you are just placing an electronic bet on an electronic game.

Differences Between Binary Options Trading and Real Options Trading – No Real Underlying Asset vs Real Underlying Asset

Real options contracts allow you to actually trade the underlying asset that it represents. For instance a AAPL Call Option allows you to buy Apple Stocks at the strike price at anytime before expiration should you choose to do so and AAPL Put Options allows you to sell your existing Apple Stocks at the strike price. This shows that real options trading trades real options contracts that trades real securities in the real stock market. Whereas Binary options cannot be exercised to buy or sell anything. A Binary Call Option cannot be exercised to buy the underlying asset nor can a Binary put option be exercised to sell the underlying asset. Binary options only exist in their own digital form, which is why they are also known as “Digital Options”, with no real assets behind it. Simply a bet on a bunch of moving numbers determining if you win or lose, again, no difference from an online casino.

Differences Between Binary Options Trading and Real Options Trading – Unregulated Brokers vs Regulated Brokers

Another big difference, and a rather major difference, is that most (if not all) Binary Options Brokers are usually unregulated brokers while real options brokers are regulated brokers. Regulation means that they are registered with the Securities and Exchange Commssion (SEC) if they are in the USA and is a part of an investor protection program such as the Investor Compensation Scheme or FINRA in the USA. These ensures that your money won’t be lost through bankruptcy or fraud by the broker and that the broker is actually performing a real securities market service in the real stock market and not just an electronic game. Yes, in a real options trading account, you are actually protected by the regulation and the government such that if the broker closes down, you actually get back some, if not all, of your money. However, when you “invest” in an unregulated broker such as binary options brokers, your money is lost when and if the broker closes down. Which brings us to the next big difference between binary options trading and real options trading.

Differences Between Binary Options Trading and Real Options Trading – Ease of Depositing Money vs Difficulty in Depositing Money

Yes, it is actually hard to start depositing money to a real options trading account while its extremely easy to deposit money to a binary options account. Why is that so? Because real options trading involves working with a real financial institution with real responsibilities just like opening a bank account. That is why you would not be able to just “transfer money” using a credit card just like you can with binary options accounts. Real financial institutions are not allowed by law to accept money from a credit card because that would not be your own money, see? However, binary options brokers, being unregulated entities on the internet, is just like any ecommerce site, selling you online gaming credits, as such credit card payments are accepted and why they are growing so quickly due to the ease of payment.

Differences Between Binary Options Trading and Real Options Trading – Hard to Withdraw Money vs Ease in Withdraw Money

Contrary to the above difference, it is far easier to transfer your money from a real options trading account back to your bank account than it is to transfer your money from a binary options trading account back to your credit card or bank. Yes, in real options trading, its hard to deposit but easy to withdraw while in binary options trading, its easy to deposit but hard to withdraw. In Binary Options Trading, typically when you attempt to withdraw money back to your credit card or bank account, you will receive a phone call right away, promising you all kind of perks including extra credits if only you don’t withdraw. Basically everything they can promise you to convince you out of withdrawing and to continue “trading”. exactly the same thing online casino sites do. Then, there are also many cases reported to the US Commodity Futures Trading Commission, CTFC (Read the full report by CTFC) of binary options brokers simply refusing to credit the money back if you insist on a withdrawal.

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