The trading world has recently started buzzing about Binary Options. Forex trading, on the other hand, has been around for quite some time. The Forex market size is estimated at an incredible three trillion dollars in daily trades. When compared to binary options, Forex is the grand-daddy and binary options is the newcomer with a lot of interesting new features. The exodus to binary options has taken place progressively from the time Forex binary options brokers began penetrating the industry in 2008, and the trend is only getting stronger.
Let's first take a look at what Forex and Binary Options are, so that we can understand the differences.
When buying and selling Forex you're speculating that the value of one particular currency will decrease or increase in comparison to another over an unspecified time frame. The level at which you enter the market, compared to the level at which you exit the trade, determines how much you stand to win or lose. This means that a sudden spike in the market can hit your stoploss, taking you out of the market, or you might need to deposit more money in order to comply with margin requirements.
Binary Options Definition
When trading Binary Options you simply have to anticipate if the price of an asset (for instance a Forex pair or stock) will increase or decrease from the present price, over a specific time period. Margin is not used when trading Binary Options. Before making your trade you will know precisely what the payout value and loss return is that you will get for the selected option when it expires. Binary options brokers offer traders the opportunity to trade numerous kinds of binary options, including indices, commodities, stocks, and Forex. Binary Options Education and learning is no less essential than Forex trading training, and without it, the likelihood of losing money is considerably greater.
Stop Getting Stopped Out
The leverage supplied by conventional foreign exchange brokers has been responsible for cleaning out the accounts of countless newbie traders who are lacking good money management skills. The novice Forex trader often places their stop loss point too close, too far or worse, don't bother to place a stop loss level and gets wiped out by an unexpected market event over night.
With binary options, you do not have to worry about spikes in the market, there is no need for a stop loss and your account will not get wiped out by a spike in the market. The only variables you have to get right are the direction of the market and the time frame in which it will be above or below your strike rate.
Web Based and Mobile Binary Options Trading
Our recommended brokers ordinarily have excellent mobile apps and mobile websites. Unlike Forex trading, where pretty much all of the brokers provide MetaTrader 4 (MT4), in BO primary trading solutions are web-based, which means more than likely you'll be trading from your web browser. The great thing about this is that you don't need to install any binary options trading software onto your computer, you can access your trading platform anywhere that you can get onto the internet.
Price activity is in essence the foundation of almost all profitable Forex, binary options, stocks or plain options trading strategies. Using this type of binary trade you determine your target price. If you choose “no touch” you could set the target price contrary to the direction of the trend. If you select the “touch” method you can set the target price in the direction of the trend. You then pick your time frame for the trade, which would probably be longer than a plain binary option call or put. Bear in mind that all prices quoted by your broker are offered by market makers instead of by exchanges. This means that you might see slight differences in the price quoted by different brokers for the same asset.
Binary Options Signals
Now, if you are not a trading expert yet, you can get help by using Forex or Binary Options Signals. That way you don't have to devote several hours of work to educate yourself on the market, and do research to start making profits – let other people do that for you! You can then use the binary options signals of the experts to guide your trading. Big market fluctuations make it tougher to generate a profit and sometimes can cause a BO trader to experience major losses, if they don't learn more than the bare basic principles of binary options trading. This is important, even if you're using a binary options signals service. Forex trading has a long history, but with recent wild market fluctuations, thousands of Forex traders are flocking over to binary options trading. In addition, binary options brokers present traders with the opportunity to trade several varieties of binary options, which include indices, commodities, stocks, and Forex.
Binary Options Trading in Trends and Sideways Markets
Are you following an upward trend or a downtrend? Should it make any difference if it's a trend? Or do you prefer trading tight price action ranges?
For binary options trading, the primary concern is time. If at a particular point of time you are below or above a specific price, you are in the money (ITM), however if you're wrong, you lose the amount you risked. If you're from traditional Forex trading, you might want to think about it like an automatic stoploss. Your profit potential will be between 70% to 90% of the amount at risk (i.e. your “stoploss” amount), but you will win the trade even if you're only one micro-pip above (for a call) or below (for a put) of your entry point! A micro-pip is the 5th decimal of a price quote, in traditional Forex trading, that's not worth much at all, unless you have a huge account.
What this means for trading in either a trending or consolidating market, is that you can adapt your trading methods to use support and resistance levels for breakout trading, or look for bounces when the market is mostly going sideways. You can make money in either market, because you do not need huge trending trades to make money with binary options. Forex trading on the other hand, mostly favors huge trends, but you can easily lose a lot when the market is not trending. With binary options you make money either way.
Binary Options News Trading
Binary options provide a unique advantage when trading news, spikes will not take you out of the market. You might have seen how often news events make the market spike in one direction, only to promptly reverse? These spikes often take out the stoploss levels of regular Forex Traders, but with binary options you are immune to those spikes and your only concern is the expiration time of your trade, which you can pick beforehand. There are numerous popular market news sites, such as Investing.com's economic news calendar that cater specifically to traders.
When the news is negative (the result is red) for the relevant currency X, we're going to select a Forex pair where the currency X appears in the numerator, and quickly open a downward position (PUT option). In the event of the news being positive (the result is green) for the relevant currency X, we are going to pick a Forex pair where the currency X appears in the numerator and instantly open an upward position (CALL option).
Binary Options Forex Trading Summary
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Although this article has focused on binary options Forex trading, it should be noted that virtually all binary options brokers offer a wide variety of assets, and that you are not restricted to only trading Forex binary options. If I can offer a quick tip, I would recommend that you do not sign up directly with a binary options broker, but use the opportunity to get a free binary options signals service, such as Mike's AutoTrader, CashCamp or even a brand new system like Insiders Circle. You will need to fund your account with a binary options broker in any case, so why not get a free binary options signal service at the same time? Remember to only trade with money that you can afford to lose.