Binary options vs Forex: what is the difference between?
Forex market is a market in which transactions are made to buy and sell currencies in order to make a profit by changing the rates of these currencies. Forex is the largest financial market in the world, its turnover far exceeds the turnover of stock and other markets; therefore, Forex has a high liquidity and attracts many traders, both beginners and professionals.
A binary option is a digital contract that makes a forecast of an asset’s price direction at a set period of time. The problem is to correctly determine one of two possible variants of market situation development: resource will go up or down. The validity of a contract is limited by the time of its expiration (closing, expiration).
Binary options and Forex are two parallel existing types of trading that do not exclude each other. Let us try to highlight all the pro’s and con’s of binary options and Forex, which would be easier to compare and to choose the most advantageous exchange product for you.
When it comes to how to trade binary options, we only need:
- Option amount;
- The direction (up/down);
- Expiry time.
The price gained at least 1 point during the expiration time in the chosen direction – you get a fixed payment. Very simple, understandable for beginners scheme, which does not require mathematics.
In Forex, you need:
- Choose a lot;
- Choose a leverage;
- Choose the right type of account (with a fixed or floating spread);
- Understand why we need ECN accounts, what is NDD and STP accounts;
- To learn what is the spread, it is different for different brokers; this is the fundamental difference between binary options and forex, because there is no spread in forex;
- Choose the type of execution of orders – market or instant;
- If the order is pending, it is necessary to choose its type (Buy Stop, Sell Stop, Buy Limit, Sell Limit);
- In Forex the earnings come from the points accumulated by the price minus the spread;
In Forex you always risk the entire deposit at once.
Forex binary options systems
Forex binary options systems – is one of the topics that can interest professional forex market participants. Having experience and knowledge, traders understand the potential of working in this direction: knowledge of the laws of binary options and Forex trading instruments movement is the basis for good earnings. And the use of proven binary options and Forex trading strategies when working with options will allow to get much more income, as compared to ordinary trading, and much faster and easier. But all of this will only be possible if you work with the best binary options and Forex brokers.
Unlike spot trading on the forex currency market:
Option contracts allow the trader to receive a fixed profit with the risks that the option owner himself has chosen. Also, option trading enables the trader to derive profit from changes in the exchange rate, either upward or downward, even in case of minimal rate fluctuations.
For the beginners in trading binary options and Forex it is convenient to use contracts, under which they receive a fixed profit or nothing if the contract conditions are not complied with.
Forex binary options trading is best suited for short-term trading: binary contracts can bring profit within one business day with minimal risks. The trader does not pay any commissions or option premiums for buying such options and the expenses are spread over the market spread. It is worth knowing that binary trading on Forex includes such types of contracts, as “below” or “above” (they can also be called “call” and “put”. So, basically, by buying the option the trader is trying to predict whether the event will occur or not.
What are the advantages of Forex binary options trading?
– No commission for buying options
– Limited risks
– You can get short term profit
– You can choose short or long positions
– Wide choice of instruments and conditions
– Continuous price feed
Forex binary options systems and strategies
Directional or Trend Trading
If the market value moves upward and makes high highs in the process, an uptrend is formed. Conversely, if the market falls and makes a series of low lows, a downtrend is created. Trends can appear on the charts at any time period, so binary options traders can trade them effectively.
Those who trade trends with binary options tend to ignore small fluctuations in the market price. Instead, they focus on identifying the general directional movement over a period of time using technical analysis methods and indicators.
A popular Forex binary options trading method offered by almost all binary options brokers involves the use of a binary call/put option. A binary call option pays off if the price of the asset is higher than its strike price after a given period of time. A binary put option pays out if the price of the asset turns out to be lower than its strike price.
Traders can also use a riskier, but potentially more profitable, one-touch binary option. It involves predicting the level that investors believe the market will reach within a trend.
Swing trading is a speculative Forex binary options strategy in financial markets where a traded asset is held for one to several days to profit from price changes or “swings”.
While trend traders tend to ignore the slightest fluctuations in the market, focusing on the general direction, swing traders cleverly change directions to profit from them.
Swing Forex binary options trading involves a good understanding of technical analysis and market momentum. That is, the user must understand what assets to sell when market trends begin to weaken, and hold them while the trend remains strong.
Advantages of swing trading:
- Application. Swing trading can be used in all markets and for a large number of instruments.
- Resources. There are many online resources to help you understand trading and profit, such as: e-books, training video courses, PDFs, apps and a range of websites. They can all provide ideas for forex strategies, general trading plans and the best tips for identifying patterns.
- Tools. You can make trades using candlesticks and other techniques on many number of platforms, which offered by IQ option, eToro and other binary option brokers.. There is also the possibility of using automated bots and robots-advisors. If used correctly, they can allow you to make many more swing trades than you can manually.
Disadvantages of swing trading:
- Market risk. You can definitely lose money. Even though swing Forex binary options trading seems simple, the slightest mistakes can have a big impact on your income. Moreover, trading on margin and using leverage can cause you to lose more money than you actually have.
- Time. Swing Forex binary options trading is not one of those types of trading where you can create a position and just check it after a week. This is live trading, and strategies that work require constant monitoring.
- Taxes. Swing trading does not exempt you from taxes.
- Risk Management. If you’re interested in penny stocks or using an algorithmic service, failing to implement an effective risk and money management strategy can cost you a lot.
Range and Breakout Trading
Range and breakout traders are those who identify trading ranges and try to profit from them. Forex binary options trading ranges occur when the market fluctuates between the upper and lower limits.
If you plan to use a range trade or breakout Forex binary options strategy, you will tend to use binary options “inside” the boundary. In that case, you need to set the upper and lower values between which you think the value of the option will be by the time it expires.
If, on the other hand, you want to trade on a breakout trading range, you can use an “out of the range” binary option. This allows you to set a range with boundary levels that you think the price will pass through at expiration.
Trading on the news
While most traders rely on technical and fundamental analysis to make decisions, there are also those who make investment decisions based on market news.
Market news is the reporting of current financial events such as: scandals, corporate earnings, management changes, and rumors of mergers or acquisitions. All of these can cause fluctuations in asset prices, some of which can be significant and dramatic. Broader news, such as changes in interest rates, unemployment, export rates, and changes in regulation, can also cause events worthy of trading.
One of the major risks associated with trading such news is stop-loss order slippage. Requotes and/or delays in the execution of market orders can also cause serious unanticipated losses for the trader.
Using binary options for news trading can completely eliminate this risk and make a news Forex binary options strategy much safer. Nevertheless, it is worth remembering that the outcome of news trading remains highly unpredictable due to the wide variation in the size and duration of news movements.
Trading candlestick patterns
Candlesticks or candlestick chart is a financial chart used to describe the movement in the value of a security, derivative or currency over a specific period. It resembles the shape of a candle, that’s why it has this name.
Candlesticks have different sizes, shapes and colors. The reason for this is that they are based on prices. Since prices are constantly changing, the size and shape of candlesticks also vary. These differences indicate the psychology of the market and very effectively, help predict the future direction of the market.
The advantages of candlestick patterns are:
– Are easy to understand;
– Can be used in conjunction with other indicators;
– They provide a more detailed description of market events as well as buyer-seller interactions than traditional charts;
– The color and length of the candlesticks help you determine at a glance whether the market is bearish (weak) or bullish (rising);
– Quickly indicate market turning points and assess market direction;
– Show reversal patterns that are not visible on other types of charts;
– May be used in all markets;
– They are very accurate in predicting market trends.
Due to the variety and different features of candlesticks, candlestick pattern trading plays a key role in the Forex binary options trading strategies available today.
Binary options trading platforms have been developed in a special way to combat the negative effects of the psychology of humans. This is why some of the biggest financial firms use Forex binary options systems with different models and algorithms while most of the retail traders have a system of rules. The binary options trading help lots of investors to find profitable assets and find the proper entry position. Usually the Forex binary options systems use technical analysis to recognize the important factors.
You can try to use forex binary options trading by registering on the FXTM brokerage platform. Which will be a great solution to succeed.