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Forex vs. Binary Trading

Forex trading is great no matter where you do it.

Advantage Binary

However, trading Forex with binary options has a lot of advantages over trading forex with a regular forex broker. Let’s first understand the difference:

Forex is short for FOReign Exchange. When trading forex, a trader is actually trading a paired asset for example: EURO vs the US Dollar. This pair looks as follows: EUR/USD. The pair is represented by a price which shows up as a 5 digit number: 1.4154.

 

So when you BUY EUR/USD you are actually buying the EURO and SELLING the USD. If the price of the EUR/USD increases over the time you held the pair, you earn. However, if the price goes against you, you lose.

When you SELL EUR/USD, you are actually selling EURO and BUYING the USD. If the price of the EUR/USD decreases over the time you held the pair, you earn. If, however, the price goes up, you lose.
When trading with a forex broker, buying and selling means that you are holding the asset until one of 3 things occur.
1.    You close the trade on your own at a profit or at a loss
2.    Your trade is closed automatically due to a Stop Loss or Take Profit
3.    Your trade is closed due to a loss causing your account to be diminished to near zero; this is called a “margin call”.

When you trade forex at a forex brokerage, you are using margin or leverage to buy and sell. This is why the 3rd option as listed above is very common. Leverage means that you are buying an asset with only a fraction of the funds actually needed to hold such a trade. For example, you may have €1000 in your trading account. But with 100X leverage, you are able to make a trade of €100,000. However, that means that you only have 1% of the trade size in your account so any move against you in the market of 1% or more, and you have lost ALL of your money.

Now you may begin to see that forex trading is very risky. Don’t get us wrong, we are very much for forex trading. It is a great investment opportunity and is very useful in many strategies. However, you need to know your risks.

Binary Options trading on forex is somewhat different. With forex trading, your risk (assuming you don’t put a stop loss) is limited, but to your entire account. With binary options trading, the risk is limited to the investment itself. Like buying any option (stock market traded calls and puts or binary options), you can only lose the actual investment in the specific option traded. You can’t lose more.

This means that there is a greater control of risk here. With binary options, you can also return a portion of the loss back to your account, meaning an even greater amount of control as compared to normal options even.

The best part of binary option trading with forex pairs is the fact that you can use more advanced options to take advantage of market situations. For example, there are days where the market is simply range bound. When trading forex normally, you are very likely to lose money due to stop losses catching. However, with RANGE BINARY OPTIONS, you can actually make money when the market is within or even outside of a range. You can read more about RANGE OPTIONS in our trading guide here.

Another possibility is to trade TOUCH options. Markets are very dynamic. They change from minute to minute. Forex trading only allows you trade based on 1 direction in the market. But what happens when the market is volatile and goes up and down in strong movements? In these cases, forex traders again, tend to lose lots of money. Binary options provide a great solution. In volatile markets, where a clear direction is not known because of strong fluctuations, news releases, or other reasons – there is a solution. TOUCH OPTIONS. Think the market will reach a target price, but may not continue beyond it? Use Touch options to take advantage. Many times, markets “test” supports and resistances but don’t necessarily breach them. Knowing this, you can take advantage with Touch options. You can read more about Touch OPTIONS in our trading guide here.

To summarize: BINARY OR FOREX?

Forex Trading Binary Options
Advantage?
Can I trade Many Pairs 100s 10s FOREX
Can I hedge Yes Yes BINARY OPTIONS
Can I trade strategies No Yes BINARY OPTIONS
Stop Losses? Yes Yes BINARY OPTIONS
Take Profits Yes No FOREX
Margin Calls Yes No BINARY OPTIONS
Can I control my risk Somewhat Yes BINARY OPTIONS
Do I need to pick one direction? Yes No BINARY OPTIONS
Which is more flexible BINARY OPTIONS

ADVANTAGE?

BINARY

  

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