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What is the difference between Binary Options & Forex Trading? Watch this film to understand the great advantages in using Binary Options rather thank Forex trading.
The world of investing is very diverse, and that diversification is a key part of building a strong portfolio. The different types of trading options out there means that you can easily branch out into numerous areas and choose investments that pay off in different ways and bring with them different benefits.
One thing that is worth taking a closer look at for anyone is the binary option. This type of trading differs from the traditional forex trading that most are familiar with, but when you understand the basics it’s easy enough to grasp it and what it offers. There has always been a debate between traders as to which is the better option, but the reality is that both have pros and cons that make them worth paying attention to. Fitting them into your plan means understanding the basics behind each of them.
How Do Binary Options Work?
Most are well versed in the basics of forex trading, but before we go any further it’s worth taking a second to understand how binary options work for traders.
Essentially, you select a trade and then choose whether you think the option will increase in value or decrease. Then, you invest your money based on that decision. There’s a basic timetable in place, and once the trade period ends you’ll be paid the agreed upon amount if the option performed as you predicted.
For example, you chose that a stock will increase in value within a set period of time. At the end of that timetable, the stock has increased. You earn your agreed upon amount. Everything related to binary options is set up at the onset of the trade including the total you could win or lose and when the trade closes.
Understanding The Primary Differences
In forex trading, you’re involved in a variable investment that can change over time. The amount that you stand to earn or lose from your investment depends largely upon how the stock performs. Stop losses can help control various risks, but you may not be able to act on the movement of the stock in time to reduce overall losses.
With binary options, you’re entering into an agreement that has profit and loss set at the very beginning of the trade. For example, a binary option may come with a 70% payout to winning traders. For every $10 you place on that option, you could earn $7 or lose your initial $10.
There are no variables involved in the binary option. You set and control your potential losses from the beginning of the trade, and understand exactly how much you stand to earn if the option goes the right way. This comes at the cost of losing much of the flexibility inherent in forex trading. For example, if a binary option moves in a huge way you still only earn that initial agreed upon amount. In forex, a huge move could net much larger gains for the trader.
There are a few additional differences that are worth understanding regarding the big differences between forex and binary options. Here are the main things to keep in mind.
•You know exactly when every trade ends, and the time frame is set based on the option you choose. In forex trading you can open and close trades whenever you like. In binary options, you have to conduct trades based on the time frame that is set up for you.
•In forex trading it’s possible to lose more trades than you win overall. This is because the reward/risk element can be adjusted based on various trades. Losing a small one can be made up with a larger one. But with binary options, you must win more than 50% of your trades in order to earn any real profit.
•In binary options, the simplicity is obvious and attracts many looking for a straightforward type of trading. However, the risk is nearly always larger than the reward. Most binary options pay between 60 and 80 percent, but if you lose the option you’ll lose 100% of your initial investment. In forex trading you can stop the loss before you lose your entire upfront investment.
The Bottom Line
Overall, figuring out whether or not binary options are the right pick for you really comes down to making sure that you know how they differ from forex trading. The reality is that both types of trading offer very real pros and cons to you, and mingling the two within your portfolio is all it takes to start branching out of your initial comfort zone.
Binary options and their easy to understand nature and guaranteed win/loss values make them an attractive option for anyone looking to invest in a different way. There are options out there for virtually anyone, and it’s a valid addition to your portfolio.
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