Comparing Binary Options with Forex
Binary options and forex have emerged as preferred trading platforms among investors worldwide. Although both platforms provide significant returns, there are several features that distinguish both.
Online, February 18, 2013 (Newswire.com) - Binary options and forex have emerged as preferred trading platforms among investors worldwide. Although both platforms provide significant returns, there are several features that distinguish both.
• Concepts
In Forex, traders are required to speculate movements in value of currencies in comparison with the other. The increase or decrease in currency value is estimated, and traders can earn profits with right decisions. One main feature of Forex, or Foreign Exchange is that the platform deals with pairs of currencies majorly used worldwide. Traders are essentially required to purchase one form of currency with another.
In binary options trading, traders are required to predict movement of the value of an asset in comparison with strike price, within the expiry time. The correct prediction about asset value moving above or below strike price can earn significant profits. Traders place a "Call" option if they predict the asset value to be higher and a "Put" option if they feel that the value may reduce, within expiration period of the options.
• Leverage
The concept of leverage in Forex enables investors to trade with funds that are much higher than the actual money present in their accounts. Many Forex brokers offer leverage as high as 200:1 and 400:1. With a leverage value of 200:1, they can trade 200 units of a currency for every unit of the same currency present in their account. Hence, if they have 1000 units of a currency in their account, they can trade with 200,000 units. Leverage is an attractive option as it offers the ability to make high transactions. However, leverage should be considered carefully to avoid losses.
Binary options trading does not offer any leverage, and investors are required to trade with funds present in their accounts.
• Assets Available
Forex, deals with different types of currencies used worldwide. Hence, investors who prefer Forex require being proficient in the trends of currencies, and domestic and international economies. Forex traders have the option of investing in different currency pairs such as EUR/ USD, USD/JPY, GBP/USD, and USD/CHF.
Binary options offer a range of underlying assets like stocks, currencies, indices, and commodities. Thus, traders with prior experience in stocks, or commodities trading can make use of binary. This platform is suitable for traders, who are new to the world of finance, as they can trade in different assets, and determine their trading requirements.
• Trading
In Forex, if traders estimate that the value of one currency is going to increase in comparison to the other, they make suitable decisions by buying the currency at a low price and selling it back for a higher value. The difference in price of that currency determines the amount of profits earned.
In binary options, traders are only required to estimate if the price of asset will rise or fall, and not the value by which it increases or decreases.
Whether trading in binary or Forex, it is necessary to equip oneself with extensive field knowledge so that they can make confident decisions in the market. Having a clear idea about differences between the two platforms, can help in deciding which is optimally suited to address trade requirements and style.