What are the Key Differences Between Binary Options and Forex?
Forex trading and Binary Options are two of the most popular investment options that are available today. Both have its own advantages and disadvantages. It is important to gather as much information on both as possible before deciding which investment is suitable for your goals.
Investment (capital)
Binary Options
Most Binary Option brokers provide accounts for as little as $25.
Forex
Forex brokers require a higher minimum deposit of $100 or more, making it more difficult for new traders to enter the Forex market.
Leverage
Binary Options
Leverage is not used to trade binary options. Even without leverage, binary options allow you to make between 65% and 100% on standard options.
Forex
Forex trading offers a much higher level of leverage than binary options trading, meaning there can be substantially more potential profit if you make the right move.
Margin
Binary Options
Margin is not used when trading Binary Options. You can still make a large return on your investment (up to 80% or sometimes 400%).
Forex
To trade Forex you must pay a margin, which is basically a percentage of the total value of the trade. This means that you are only required to invest a small percentage of the full value of your position to place a trade.
Losses and Pay-outs
Binary Options
Binary Options trades have a predetermined pay-out, which means that traders will know exactly how much they will make when the trade ends.
Forex
With Forex trading, the earning or loss potential are much higher, because of leverage. The high leverage is attractive to many investors.
Types of Orders
Binary Options
There are many types of binary options orders to choose from such as high/low also known as up/down or call/put.
Forex
There are also a number of order types in forex trading and the most important are buy-sell orders. There are also advanced order types like hedge orders, trailing stop, limit, OCO, stop and others.
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Size of Trades
Binary Options
Every option broker has a maximum and minimum trading size. The minimum size may be $5 per trade while the maximum can be $1,000, $5,000 or even more.
Forex
Some Forex brokers offer micro lots which are 1,000 of the base currency. The maximum is set by the broker and can be as much as 100 standard lots which is $10 million in currency.
Cost of Trading
Binary Options
There are no commission, rollover, swap or spread in binary options trading.
Forex
Forex brokers charge rollover, swap and spreads fees. There are usually no commission fees.
Max Risk
Binary Options
When trading options the risk and profit potential are both fixed at the outset of the trade. This means if a binary option pays out 80% to winning traders, then you know that if you place $10 on a trade, you will either lose your $10 or gain $8.
Forex
Since Forex Traders must have position limits, the risk is limited with margin call, and risk management tools such as stop orders. This order is a good safety feature that is not always available in other financial markets.
Tax Treatment
Binary Options
Binary options are classified as capital gains and earnings. It is up to the trader to manage his account and earnings and pay appropriate taxes to the governing body if required.
Forex
As a forex investor can file either a 1256 or 988 contract. Forex , futures/options traders make several transactions per day. Of these trades, up to 60% are considered as long-term capital gains/losses.
Trading hours
Binary Options
Binary options are traded subject to the stock market hours .
Forex
One advantage of currency trading is the ability to trade 24 hours a day, five days a week if you wish.
Regulations
Binary Options
Options trading is an unregulated market.
Forex
Currency Trading is regulated market. See list of regulatory bodies.
Analysis
Binary Options
Options trading is all-or-nothing, you will either gain or lose if you choose to remain in your trade until expiration. Binary options traders use technical and fundamental analyses to help skews the odds in their favour.
Forex
In the world of financial markets, traders use fundamental and technical analyses to help predict currency movements. Traders use analyses to help develop a trading strategy.
Closing a position
Binary Options
With Options trading the broker controls different types of options with predetermined expiry times.
Forex
When trading forex, you choose when to close the position. You can close your position anytime the market is open and the broker must accept and execute your order.
Liquidity
Binary Options
The more options volume there is a for contract typically, the more liquidity will exist. Higher options liquidity means higher trading volume, and thus, less variance when it comes to pairing up buyers and sellers.
Forex
Forex Trading has the advantage of being more liquid than any other market, including Options Trading. With the average daily volume in the Forex Market reaching close to 2 Trillion.
Commission
Binary Options
There are no spreads, rollover/swap or commissions when trading Binary Options.
Forex
Forex trading involves spreads and rollover/swap fees, and some brokers charge a commission.
Platforms
Binary Options
Most options trading platforms come in 3 versions : web trader – no download required, mobile and app for all smartphones.
Forex
Same as options platforms currency platforms come in 3 versions: web-based, mobile and app.
Signals
Binary Options
Binary options signals are trade alerts for t or stock markets. The signals are real-time and can be delivered via e-mail, SMS or through a website.
Forex
In Forex, trading signals are technical indicators that recommend the ideal time to buy or sell a particular currency. The signals are real-time and can be delivered via e-mail, SMS or through a website.