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Home > Binary Options vs. Stocks

Binary Options vs. Stocks

For the longest time, stocks were seen as the best way to engage in financial trading. When binary options trading emerged on the scene, many traders were quite skeptical. When compared with stocks, binary options appeared to be more akin to gambling or betting rather than trading.

Once traders and others began to become more familiar with binary options trading, they realized the potential for profit. Some people even began to prefer this type of trading over stocks. For one, it certainly was easier and was a lot kinder to new entrants. In this article, these two are compared against one another:

The Concept

At its very core, stock trading and binary options trading differ in the actual practices that traders engage in. With stock trading, you are actually purchasing (and then later selling) a small portion of something – perhaps in a particular company. With binary options trading, there is no purchasing or ownership taking place. Instead, the trader is simply making an educated assumption regarding whether the price of a particular asset will increase or decrease. This takes place within a limited time frame.

Startup Capital

In order to make a profit with either of these types of trading, you are going to need to invest a certain amount of money. The amount that you invest in each trade will largely effect just how much money you will make in return.

Now with stocks, you can choose to invest as little as much as you want, depending on the stocks that you want. However, if you plan on actively engaging in buying and selling stocks, you are going to require quite a bit of startup capital. This is particularly true if you intend on having a margin account. This typically requires about $10,000.

With binary options trading, it is often a much smaller investment. Of course, this does depend on the binary options broker that you have chosen. However, in certain instances, the initial deposit can be as little as $10. The more average – and recommended amount – tends to be about $250.

The Timeframe

Once you have bought a certain number of stocks, a waiting game ensues. This is because you will need these stocks to appreciate in value before it makes sense to sell them. This often takes several days or even weeks for this to happen. During this time, the price shift is often about five or ten percent, depending on the current market conditions.

With binary trading options, you are working with a much smaller timeframe. This is because these types of trades are based on the price changes within a short period of time. There are even trades that last no longer than thirty seconds. The most common timeframe, however, can range from a minute to about five minutes. While the trades can last longer than this, it is generally quite unusual.

The Risk

In terms of risk, many people feel as though binary options trading carries a greater amount of risk. This is because with this form of trading, you are either in the money or out of the money. Therefore, you have either made a profit or lost all of your money. This is not the case with stocks, you can only sell if you feel as though you can make a profit. Of course, there are ways of mitigating some of the risk involved with binary options trading. Nonetheless, it does tend to have less certainty than stocks.

These are just some of the ways that you can compare and differentiate between stocks and binary options trading.