The Difference Between Binary Options and Forex Trading

The Difference Between Binary Options and Forex Trading

Trading, whether it be binary trading or Forex trading, can be a lucrative experience. These types of trading have some similarities but they also have some fundamental differences. Knowledge of these differences is important when it comes to choosing which type of trading you would like to partake in. Both types are ways to make or lose money through the financial markets but binary trading involves a fixed level of risk and potential return whereas Forex trading involves varying levels of risk and return.

This article will explore some of the major differences between these two types of trading.

Binary Options

1. Binary Trading Involves Fixed Terms

In binary trading you enter into a contract in which there are fixed risks and fixed returns. This means that you know exactly how much you could lose and similarly, exactly how much you could make. This is inherent in the name ‘binary’ which refers to the limiting input options of 1 or 0. In binary trading this translates to the up or down prediction that you make on a particular asset. This means that it does not matter how much an asset increases or decreases but only that it does increase or decrease.

So, if you have predictions on a variety of different assets, you will need to get a majority of your predictions correct in order to make a profit. Forex trading involves more variability and therefore more uncertainty.

Read Also:  Using a Pip Calculator in Forex Trading

2. Binary Trading is done over a Fixed Period of Time

In binary trading you choose a fixed period of time that you will trade for. This period of time can range from 15 minutes to a week. There will be options that allow you to close the trade early or continue for longer than the allotted time but you will only be able to do so if you forfeit a partial percentage of your return or invest an extra percentage respectively. With the exception of these, binary trading is done in a rigid time frame that will automatically open and close at specific times.

Forex Trading

1. Forex Trading Involves More Variability

Forex trading involves the same up or down prediction of the value of an asset with the added element of how much that asset goes up or down. This makes the risks and the returns of your trade much more uncertain. Having a good broker can assist in making you a profit. Binary Trading Australia has an excellent asset index for all the major brokers in Australia. In this type of trading, there are no limits as to how much money a person can make or lose when trading.

However, there are tools that can act as fail-safes that ensure that you will not lose or make more money than whatever amount that you set. With these tools, once you lose or make a certain amount of money, the trade will automatically close.

Read Also:  20 Amazing Facts About Forex

In essence, these tools allow you a certain level of certainty as you can preset your maximum limits in the positive as well as the negative. This does not however provide any more certainty as to how much you can make or lose in one trade.

2. Forex Trading is done over a Variable Period of Time

The timeline of forex trading can range from a few seconds to a few months. During this period, you will be able to open and close the trade at will. In binary trading this would not be an option. Instead, if you chose a week as the fixed period of time, the trade would be open for the entire week regardless of whether or not you are watching it.

Although there are some similarities between binary trading and forex trading, there are also a number of important differences. In order to be a successful trader, one should be aware of these differences and, with consideration of these differences, make the decision that will be most beneficial.