Binary Options vs Forex

Binary Options have become widely popular during the last two years. The main reasons for this, is that they offer high profit returns and they are easy to trade.

In this article I will try to outline the main differences between Binary Options and Forex, so that you can evaluate which is the better trading method for you. A good way to start is to provide definitions of both and look at an example of a trade.

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Forex definition: When trading Forex you are speculating that the value of one currency will increase or decrease compared to another, in an attempt to make a profit. For example: The current price of EUR/USD is 1.30850 and you think the price will increase in the future. You buy 1 lot of EUR/USD and wait for the price to increase to the point where you want to close the trade and realize the profit you want.

Binary Options definition: When trading Binary Options you only have to predict if the price of an asset (for example currency pair or stock) will increase or decrease from its current price over a certain period of time. For example: The current price of EUR/USD is 1.30850 and you think the price will be higher in the next hour. So you place a “Call” option on EUR/USD and wait to see its price 1 hour from now. If your prediction is right you can make a profit of 80% of your investment.
Margin

Forex: You can use margin to trade Forex. The maximum margin is determined by each broker, and sometimes can be up to 1:200 or 1:500. Margin allows you to increase your investment capital so you can make a larger trade and make a larger profit if your trade is a winning one.

Binary Options: Margin is not used when trading Binary Options. You can still make a large return on your investment (up to 80% or sometimes 400%), so Binary Options are still very attractive for traders. The good news is that you can never get a margin call.

Payouts and Losses

Forex: With Forex you never know what is the maximum profit you can make on a trade. You can set a limit or stop order so that you can be guaranteed a certain percentage profit if the limit or stop is executed. The losses in Forex can be managed with limit/stop orders, the same way profits are managed. The maximum loss with Forex may be all of the money in your trading account.

Binary Options: Before you make your trade you will know exactly what is the payout and loss return percentage that you will get for the particular option, when it expires. Some brokers offer payouts up to 80% or sometimes 400% depending on the option traded. This means that if you invest $500 on an option and the payout is 80%, you will make $400 profit if the option is a winning one. Some brokers don’t offer “loss back”, which means that if your option trade is a losing one, you will lose the amount you invested in the trade, but not more.