Forex traders have gained a very strong tool in the form of binary options. Binary options have become very popular with traders used to using just Forex brokers because they eliminate much of the guesswork that currency traders face. Here, we will take a look at the big differences in advantage when it comes to both binary options and the Forex markets, and go over some of the concepts and strategies that will help you to gain an edge if you decide to switch between the two of these.
Advantages of Binary Options
There are a few big advantages of binary options, the first being that they are far easier to use than a Forex broker is. Forex brokers have a lot of potential for profits, but because of the very nature of Forex trading, there is potential for you to have a good trade, and still lose money. This is because of the spread. It’s an easy enough concept, but one that can get you in a lot of trouble if you don’t account for it with each and every trade you make. For example, let’s say that there is a spread price of 5 pips. The price that you buy at will automatically be 5 pips higher than what you can immediately sell at. These are referred to as the bid and the ask, and they have become many traders’ worst enemy. Binary options do not have two prices for each pair. They have one price, either the bid or the ask, and they keep it there. If your pair moves just a single pip, you are still profitable.
With binary options, your profits amounts are far more predictable, too. You don’t need to wait and see just how many extra pips you can squeak out per trade before you end it. Binaries have a set timeframe, and your profit rate is known before you even begin it. This gives binaries a higher level of predictability when it comes to income.
Binary options also have more types of assets than just currencies. You can also trade stocks, indices, and commodities with the same trading platform. Not everyone uses these, but this is a nice tool to have if you want to use it.
Disadvantages of Binary Options
Binary options have some disadvantages. In the majority of cases, once you execute a trade, it’s final. There’s very little in the moment risk management, which you would find with Forex trading. This doesn’t mean that you don’t need to manage risk, you just need to do it in a different manner.
Also, there will be rare times when the profit that you make with binary options is less than what you could have made with a Forex broker. But because of the use of leverage, the profits from a Forex broker usually carry too much risk to make this worthwhile. However, this situation where a balance is made does occur once in a great while.
With binary options, there are certain concepts and terms that you will need to master before you begin. The first is the expiry. This is the amount of time before your trade ends. Some expiries are 60 seconds; others can last a week or longer. Once you commit to an expiry, there are almost no opportunities to change it. Some brokers do allow you to end your longer term trades early, but this isn’t something that you should do very often.
Also, be aware of the option terminology itself. Call options are for trades where you think the asset’s price will rise, put options are for when the asset’s price is likely to drop. There are a number of different types of options, too. These include boundary, one touch, ladders, and pairs. They are not tough to figure out, but for people new to the binary options industry, they can be a bit overwhelming at first.
You will need to have a different approach to your trading when you move from the Forex market to the binary options market. The same technical concepts will guide you, but your larger strategy needs to change in order for you to be successful. First, realize that you are risking far less per trade with binaries. You don’t need to risk $1,000 to squeeze out a $1 profit anymore. Leverage makes situations like this possible, and in the Forex market, it’s almost a must if you’re going to see noticeable results. However, because binary options can give you profit rates of 68 to 81 percent per trade, you can risk $10 on a trade, and still see a higher profit amount than if you had risked 100 times as much through your Forex broker. These strategies mainly apply to money management though, and that makes this a far smoother transition than you might originally believe.