Differences Between Forex Trading and Binary Options

Differences and Similarities

We have already discussed Forex Trading. Today we want to talk a little about differences between Forex Trading and Binary Options and other aspects. Binary Options, which is another service offered by forex brokers, but which has its origins in Forex Trading.

So what are Binary Options and how do they differ from Forex Trading? Approved in 2008 in the US but made popular in Europe, Binary Options, as the name suggests, offers the trader two options: the asset that goes up or the asset that goes down. Simple to understand: you open a position by guessing the direction it will go in a more passive way, compared to Forex Trading, because you don’t need to define an entry price and an exit price of a transaction.

The same analyzes that traders do in Forex Trading to define the direction of currencies are applied to Binary Options, namely Technical Analysis and Fundamental Analysis. However, in Forex Trading you can perform long term analysis. In Binary Options, you must be adept at studying and predicting short-term market fluctuations before participating in such an operation.

The platforms in this trading arena are all web-based (while Forex Trading has its own software as well) and all you have to do is click an up or down arrow.

In Binary Options, you know exactly how much you will profit or lose, so there is no common “suspense” of Forex Trading transactions. If you like instant gratification and accept smaller profits, Binary Options is for you. But know that in this trading arena the same skills as in Forex Trading are required. Therefore, an inexperienced trader can lose money.

How It Works

Let’s say you buy a Binary Options contract on stocks from companies like Microsoft or Coca Cola (this contract can last for minutes or a whole day). If the expiry time is reached and the stock is trading above the price when you bought the option, you will get the return set by the broker. If the stock is trading below the share price when you bought the Binary Option, you will lose part or all of your investment.

There is another Binary Options solution: you can resell your assets to another trader. Some traders buy assets at a higher price and, before the contract expires, resell them at a profit, which guarantees a return on investment. It also eliminates the risk of losing money if the contract ends by pointing to a price below what it was at the initial bid.

Conclusion

From a statistical point of view, in Binary Options you have a 50% chance of losing and a 50% chance of winning. But a more technical analysis reveals to an experienced trader that such probabilities change every minute. The fact is, intuition is of the utmost importance when investors are trading Binary Options, because a smart trader will have to act quickly when he realizes that the Binary Option contract will not close in his favor.

We hope you have understood the differences between Forex Trading and Binary Options, as well as aspects intrinsic to this trading arena. The negotiation process is simple and straightforward. You can go to a Forex Broker to open a trading account and choose a market in Binary Options.