Should You Be Trading Forex or Binary?
With their ease-of-use and substantial returns, it does not take a genius to determine why binary options trading has become so popular over the past number of years. Here, we’ll take a look at the primary differences among digital options and Forex markets so that traders can decide for themselves which is the better investment form for them.
By definition, Forex trading involves the trading of one currency for another. For instance, whenever we focus on the EUR/USD pair, we are speaking about how many United States dollars are needed to swap for a single Euro. Traders gain whenever their forecast about currency value movement in connection to a different currency is accurate. One example would be if the EUR/USD pair is trading at 1.6500 and traders believe that the Euro is going to increase to 1.7500, they would begin committing more funds into the pair and wait around for the increase to take place.
When trading binary options, investors gain by forecasting whether an asset price is going to increase or decrease over a outlined period of time. There’s no actual purchase of the underlying asset itself. Using the aforementioned example of the EUR/USD pair, if the trader believes that the pair is going to increase in value a Call option would be purchased on the pair to see if this forecast is accurate. If the price does shift as expected while in the expiry period and is there when the trade finishes, profit will be earned.
With Forex trading, most traders are capable of trading on mark up as this is among the features which are provided by brokers. The actual margin ratio is determined by the Forex broker. Generally the ratio provided is 1:100 up to 1:500. The primary benefit of being able to trade on the margin is that you can control your investment funds even more. On the other hand, the risk of loss going above your funds is also present. When trading binary options, margins are not applicable. Traders receive fixed pre-specified returns whenever their trades finish in the money. The advantage to this is the fact that there is never any risk of unlimited loss.
In Forex trading, traders may decide when they would like to close up their marketplace position. On getting the order, a broker must accept and implement the request of the trader. With binary option trading, the ending of market placement is fixed. As soon as the expiry period is arrived at, if the investment happens to be in the money, a fixed return is earned. When the expires out of the money, the entire cost of the option is lost.
Whenever trading Forex, it’s possible to trade using micro lots or standard lots. Even so, the size of trades may be restricted by the broker. When trading binary options, brokers also identify the lowest and highest possible investment amount. Having said that, some digital options brokers accept investment amounts of as little as $5, with maximum investments being as much as $5,000 or more per trade.
In summary, Forex traders have the ability to trade larger single amounts and generate more earnings but the risks faced are also considerably greater. In regard to binary options traders, even though they only receive a set pre-specified return on each investment, they have a higher level of control over risk. Quite simply, binary option trading is excellent for individuals who are just beginning to trade within the financial markets.