During the past couple of years, binary options have become very popular. Their popularity is likely because they are easy to trade and they offer relatively high returns. Those who typically spend their time in Forex may find that binary options are a better way to go, depending on a number of things. There are a few differences between binary options and Forex that traders should understand before beginning.
“When trading Forex you are speculating that the value of one currency will increase or decrease compared to another, in an attempt to make a profit”.
Trading binary options is a bit different. Traders predict if the price of a specific asset will decrease or increase over a specific period of time. If the trader feels that the price will increase, he will place a call and wait for an hour to see if his prediction has come true. If it does, profit can be made for up to 80 percent or more of the investment.
Forex uses margin although binary options do not. While traders can still earn a return on the investment, there is no margin that is determined by brokers. Margins in Forex allow traders to increase the capital that they want to invest in order to make a larger trade and ultimately a larger profit. Binary options do not give the opportunity for margin calls but because of the potential for relatively large returns, many traders prefer binary options in spite of the lack of margin.
With binary options, you always know how much you stand to make. The payout as well as the loss return is always disclosed before the trade is made. This is not true of Forex where you can never quite be sure of the maximum profit that is possible. You do have the ability to set a stop with Forex, but if you lose, you may lose all of the funds that are currently in your trading account. This does not happen with binary options.
“Forex binary options are derivative instruments in the same way as the online Forex trades. The difference is the transparency for which there is no parallel as of today in online trading”.
Binary options trading was basically unregulated until just recently. Cyprus Securities and Exchanges Commission was the very first authority to regulate this trading platform when it granted a license to Banc De Binary and to OptionWeb. Many other countries are beginning to regulate binary options trading as well and the market could be completely regulated by the end of 2013.
While they are very different, careful analysis is required when trading binary options or Forex. Some websites offer many hints and tips that are designed to help traders to better recognize a good trade and learn more about mastering the trade in general. Some offer demo accounts that can be used for practice until a good understanding of the trade has been gained and others provide articles, fundamental and technical analysis and various other tools to assist traders every step of the way.
It is also somewhat important to understand the risks associated with binary option trading.
Signals can help to lower the risk but those signals must come from a reputable source. Traders in binary options trading have many different choices about the risks that they want to take and having good information can help to significantly lower those risks and increase the chance for a profit.
Vantage FX is the first broker in the world to provide the ability to trade binary options and Forex from the same MT4 or MetaTrader 4 account. The Australian based firm has been providing binary options trading for the past year and has seen a huge increase in activity during that time. Managing Director of Vantage FX, Antony Goddard feels that the industry is going to continue to grow.
“Binary Options are undoubtedly a growth area for financial trading in Australia – the last quarter saw Vantage FX quadruple our volume of binary trades.”
Forex certainly has no problem keeping up with binary options with regards to popularity. There are currently more than three million dollars in trades done in the Forex platform daily. There is however, more than enough room for binary options to make its stand. Since its inception, binary options trading has become very popular and is giving Forex a run for its money. The basic difference is that with binary options, there are two ways that one can trade.
They can choose to trade up or to trade down and either direction can make a profit.
With both Forex and binary options, traders can trade anytime they want with the help of the internet. Markets are open at some point of the day and with trading going on globally, there is always the possibility of making a trade. The main differences come in areas such as risks. Forex gives a fixed risk although binary options offers a bit more disclosure about those risks upfront and before a trade is made.
It takes a bit of preparation to trade binary options. Platforms are internet based which makes it easy and the fact that traders know the risks and the potential gains upfront is one reason why it has become so popular. The volatility likelihood that is evident in traditional trading is not seen in binary options, which makes it a great choice for beginners. Returns can run over 70 percent in just under 15 minutes so the returns are fast. Even a small movement can produce rather large returns.
Traders should understand that binary options may not be the right choice for everyone. Those who prefer instant gratification should certainly consider this form of trading, particularly if they want to see a good chance for a good return. Those who prefer Forex or who want to keep their interest in Forex for the long term may not be as impressed with binary options however. It comes down to the individual and their preferences regarding their risks and returns.