Traders who have gained experience in financial markets such as Forex may have an advantage over those who trade binary options for the first time, but despite the similarities, it is important to remember that there are many differences between Forex trading and binary options.
In this article, we will try to understand the key differences between Forex trading and binary options, as well as some similarities. This will help you decide which of those tools suits you best.
Betting against Trading
Despite the fact that binary options are strongly associated with financial instruments, in some things they are very similar to gambling.
For example, the fact that you know in advance the exact amount of winnings if the transaction goes in the direction you need, makes binary options look like bets with a fixed coefficient for sports matches or events. Many traders have nicknamed options as a quick way to lose (or win) money.
For this reason, most of the countries continue to regulate binaries as gambling, and not as a financial instrument.
In contrast, Forex trading has a real practical purpose for countless corporations and financial institutions around the world that use Forex to conduct international trading or hedge currency risks on income or expenses paid in foreign currency.
Private traders also prefer a more investment approach, sometimes trading in the Forex market to diversify their investment portfolio or to hedge risks with other financial instruments, such as company stocks or commodities.
Simplicity VS Full control
Trading options is usually less complicated than trading on the Forex market. For example, the size of your payout in binary options does not change from the magnitude of the price movement - all that matters are whether the price reaches a certain level or not. This eliminates the need for position management when you already entered the market.
However, in the Forex trading, you earn (or lose) depending on the distance of the price movement of the asset. For this reason, you need to manage your position in order to avoid significant losses, or use risk management tools, such as stop-loss, to automatically exit the transaction when the price turns against you.
The advantage of Forex traders over the binary option players
Only a few Forex trading skills could be applied to binary options. It is because options mostly do not appear to be trading as it really works. Binaries are more similar to gambling than to trading.
Because of all of the above, even traders with experience in Forex should develop new skills and a fresh approach if they want to begin to trade binaries. However, Forex traders have some advantages over absolute beginners in the world of financial markets.
Forex trading includes a bunch of useful skills such as technical and fundamental analysis, the basics of money management and the ability to draw up a trading plan which could be also used in binary options trading. In addition, the ability to control emotions might also have a positive effect on decision-making during options trading.
So, as binaries look a bit similar to Forex trading is actually have totally different logic and use different tools. Binary options are less complicated than the Forex trading but it is actually not trading. As we mentioned above it is more like gambling rather than real trading.
The Forex market, on the other hand, is a much-complicated way to make money that takes time and effort. But with the right attitude, psychological conditions and knowledge it is can be a powerful, stable and profitable tool for financial growth.