There are many ways to make money in the financial markets, but in the CIS space, the most common are Forex brokers and binary options. Advertising on the Internet alternately praises one or the other, and it is really difficult for a newcomer to the market to understand and understand which of these suits him the most. It is in order to understand what is better forex or binary options, as well as what type of trading suits you the most and this article has been developed.
How is Forex different from binary options?
For a beginner, the words binary option and Forex sound almost the same. However, their principle of operation is radically different. Yes, both Forex and binary options provide their clients with the opportunity to earn on quotes of various currencies and instruments. The main difference is how a trader needs to act in order to earn.
How do binary options work? In order to make a profit on options, three components are needed: the amount of the option, the choice of direction (up or down), its expiration time, for example, one minute. If the price during the expiration time has managed to gain one or more points, the trader receives a fixed payout set by the broker.
The scheme seems simple, no additional mathematics is needed, no deep knowledge is needed, it is similar to bets and a casino. And unlike Forex, binary options do not require a trading platform interface loaded with features, there are only two main buttons – call (up) and put (down). The amount of earnings depends on the amount chosen by the broker, but usually it varies in the region of 70-80% of the deposited amount. But if your “bet” does not work, you lose the entire amount of the deposit.
This is what makes binary options less profitable – a negative mathematical expectation. The broker never pays 100% of the stake, even if the price has risen by several points at once. And the minimum share of correct forecasts for regular earnings should always be more than 50%.
To summarize, among the advantages of binary options is a fairly simple entry into the market, as well as the full amount of payments known in advance in case of success and losses in case of failure.
How does Forex work? In order to open an order, you must first prepare: decide on the type of trading account, select a working lot, margin leverage, decide whether to place a pending order or not. After that, the order is placed, and the profit or loss depends on how many points the price passes (minus the spread).
Unlike binary options, the platform in the international Forex market is more advanced. On the example of the most popular MetaTrader4 terminal, you can see that a large number of different indicators, plug-ins, and additional features for monitoring the situation on the market are used here. Plus, there are several types of orders: market – opens at the current market price, and pending – the ability to automatically open an order at a given price in the future.
- Payouts by number of points. To the question: “Where are the payouts more – forex or options”, the answer is obvious – Forex. The fact is that in options the rate is fixed, and it does not matter how many pips the price goes through. In Forex, the profit depends on the points, which is great for working in the direction of the trend.
- Flexibility. The ability to open pending trading orders, set stop losses and Take Profit. The trader can decide for himself what percentage of his deposit he is willing to risk.
- The ability to exit the transaction at any time.
- Leverage. Forex brokers offer their clients leverage, which allows them to deposit smaller amounts for trading, but receive increased profits (however, this also increases risks).
- Variety of tools. Trade Forex, Indices, Stocks, CFDs, Metals and Commodities to name a few. some brokers give you the opportunity to try Forex options.
- Large volumes and trading volumes with Forex brokers. This means that at almost any time the broker can pay out impressive amounts to his client.
Cons of Binary Options and Cons of Forex
Answering this important question, which is better than binary options or forex, one cannot help but talk about the shortcomings of each market. First of all, the experience that traders get in the Forex market can later come in handy when deciding to move to the “next” level of trading – for example, on stock or cryptocurrency exchanges. Trading on binary options does not provide such knowledge, it is rather comparable to regular bets, it works on the principle of an online casino.
Why are binary options bad?
- Deceptive simplicity. A novice trader may be deceived by the exponential “simplicity” of options – it would seem that there are only two buttons. Up or down. 50/50. But it’s easy to forget that the charts are still a real market, and predicting it is not as easy as it seems.
- Limited profit. Even if the price went much higher than the forecast, the payout will still be fixed, the trader will not receive more, regardless of whether it is one point or one hundred.
- Negative mathematical expectation. Each time, 100% of the deposit is put on the line, and the profit is ~ 80%. If the trade turns out to be unsuccessful, the next profit is not a fact that will return the amount lost in failure.
- Seeming “lightness” can provoke disorder and emotional excitement to “recoup”.
What is the problem with Forex?
The main disadvantage of the Forex market is a large number of unreliable fraudulent brokers, the so-called “kitchens”. But this minus is easy to level out by finding a broker you can trust: with many years of experience, comfortable conditions and working on a brokerage model with the obligatory withdrawal of transactions to the interbank market.
- Complexity. Due to the fact that Forex trading is more complicated than options trading, it is much more difficult. It is necessary to correctly find the time to enter the market and the moment of closing the position. You need to be able to analyze markets and “read” charts. But all this is gained with experience.
- Each point = money. This works both in case of earnings and in case of losses.
- With illiterate risk and money management, for example, if you refuse to use a stop loss, the trader risks all his deposit at once.
The main catch of binary options
Every novice trader who decides to choose an option or Forex should remember one important point about how binary options work. The whole point of profit on options is to keep the price at the level that the trader has chosen for the entire time of expiration. However, even within one minute, the prices of different brokers may change. And if this happens, the trader will not be able to prove in any way whether there was such a price or not. A large number of new traders in the markets fall for this binary options trick.
If you drive into any search engine the query “Binary options or Forex which is better” – there will be a large number of various promotional articles dedicated to a particular type of earnings on the Internet. But this question cannot be answered unambiguously.
For those who are in search of constant simplicity and do not want to bother with studying the markets, they may like binary options as a way to make quick money. For those who prefer regularity, durability and regular earnings, the Forex market is best suited.