There are actually many similarities between binary options trading and forex trading. For one thing, they tend to be the preferred methods of trading for those who are new to financial trading. With forex or binary options, there are usually much wider trading times available.
For instances, depending on the market, trading can take place at any time of the day or the night, during most of the week. Also, traders tend to need to invest less in both these endeavors than with other types of trading.
This makes it easier for a layperson to start trading. Of course, there are many differences between binary options and forex trading. They certainly tend to appeal to dissimilar types of traders. Here, these variations are examined:
The Risk and Profit Potential
One thing that traders tend to favor about binary options trading is that you are aware of the exact potential to either win or lose. This is because most of this is predetermined. For instance, before entering a trade, you will know exactly what the payout will be. Since binary options tend to be an all or nothing type of trading, you are aware of just how much you stand to make or lose. Furthermore, there is also a set time limit for how long the trade is going to last. More often than not, the trade expires quite quickly. With forex, however, this is not a comfort that you can afford. From the offset, you cannot be sure how much you are capable of making or losing. This will depend on the exact moment that you decide to sell or buy your particular currency pairs. Also, the trade could go on for weeks or months.
The Impact of Small and Large Price Changes
With binary options trading, you make a prediction based on whether you think the price of an asset will either increase or decrease. It does not really matter how much the value elevates or depreciates. The only thing that is important is that you correctly predicted the direction of the price movement. With forex, you have to consider both these factors. You will have to make an assumption of about whether the value is going to go up or down.
In addition, you will also have to make a prediction regarding the actual value. This means deciding just how far the price will drop or increase. As such, there are more things that you need to be concerned with.
Forex only affords you the opportunity to deal with currency pairs. While the exchange market itself is quite vast, traders have no choice but to stick with the various currencies offered. Even then, most traders tend to stick with ones that are most popular such as the US dollar, the Yen, Pound Sterling, Euro, Canadian dollar, Australian dollar, etc.
With binary options trading, however, there are many asset classes to choose from. This includes stocks, forex, commodities, and indices. This way, you can invest in many different assets, depending on where your strengths and capabilities lie.
These are just a few ways that most traders compare forex trading and binary options trading. While these do have certain things in common, their discrepancies are greater.