The Difference between Binary Options and Forex Trading

Every trader should understand the difference between binary trading and forex trading since applying the same methodology in both cases can damage your capital.

What is binary trading?

It is very important to understand that binary options are contracts with fixes risks and fixed rewards. In this case, the trader must decide if a particular financial asset will go up or it will go down during a fix period of time. The trader knows from the start how much he can make if he is right and how much he can lose.

Risk management strategy should also be adapted to this circumstances as in case you are wrong and the price does not go in the direction you predicted you will lose all the money you’ve risked. What each trader should understand is that if you want to make money with binary trading in the long run, accuracy is very important, so your number of gains should be higher than your losses. Less than 50% accuracy means that you are mathematically going to blow up your entire account.

How is forex trading different?

The forex market is a more flexible environment since you can set by yourself the amount of risk that you take and also you can decide when to take profit. Since the ultimate risk and profit are unknown, forex trading carries higher risks as it is harder for any individual to predict exactly where the price is headed.

Another key difference is margin trading. In forex you can use leverage so you are able to trade larger volumes than your initial deposit, while in binary trading that tool is not available.

In terms of similarities, it is worth to mention that both binary options and forex trading are online investments opportunities, being available through a broker platform.

To sum up, both binary options and forex trading have strengths and weaknesses, but what any trader should understand is that you have to adapt your strategy to the environment that you trade. A strategy with very high accuracy is a must for binary trading while in terms of forex trading, an increased attention to a more complex risk management system is absolutely required.

 

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