Monday January 29, 2018 - 14:59:33 GMT
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The advantages of trading on binary options in comparison with Forex
There are many arguments today in favor of trading either on Forex or on binary options, as it is possible to make a profit with either of these financial instruments. However, if we compare these two popular ways of making money online, then obviously options trading has the most advantages. And here's why.
Simple trading algorithm
Despite the fact that both binary options and Forex are basically concerned with the forecasting of fluctuations in the price of exchange-traded assets, the principles of using these two financial instruments to extract profit from the financial market are largely different.
To earn money on Forex, you, simply put, need to buy currency low and sell it higher. In addition, this trading process is accompanied by a variety of conditions. You will need to do the following:
- initially choose the type of account (ECN, STP, NDD)
- choose market or "kitchen" order execution
- take the spread into account
- select a lot and leverage factor
- take swaps into account
- set limit orders
It’s much simpler with binary options. The type of account is generally predetermined by the sum of the initial investment, and when concluding a trade there are only three simple conditions to take into account:
- the amount of the lot
- the expiration term
- the forecast for the movement of the price, up or down, by clicking on up or down buttons
Thus, trading on binary options is much simpler than trading on Forex, which means that you will spend much less time studying how to do it. The trading process itself will also be simpler, which will allow you to concentrate more on analyzing the market, rather than on thinking through the right conditions for the trade itself.
The trading terminal also has a simplified interface. For example, the Binomo company offers the following platform for trading:
Profit on 1 point
Based on the above trading conditions for Forex, your profit depends on how many points the price of your asset increases or decreases. That is, the more points the price moves after the conclusion of the trade, the more you will earn. If the price only moves a few points on the Forex market you will be in the red regardless, because it’s impossible to cover even the spread (the company’s commission for the trade) with 2-3 points’ worth of profit.
With binary options, you can get up to 90% in profit, even if the price moves only 1 point in the direction of your forecast. Here you aren’t buying or selling anything, you’re just making a bet on changes in the price level, so the number of points doesn’t matter.
This advantage is really important. Very often the price doesn’t reach the levels set by the trader in limit orders due to low volatility of the market or changes in the trend. For binary options, such a problem doesn’t exist, so the chances of earning on options trading are much greater.
Short timeframe for receiving profit
A rather important advantage is the timeframe for receiving profit. Quotes might fluctuate for several days back and forth on the chart before they reach the take-profit level on Forex. If there is a flat on the market, the price of the asset might get stuck at the level it entered the market, and if the trend changes, you will get a loss. To put it simply, time will pass and not only will you not earn, but you will also lose money.
When trading binary options, you set the duration of your contract yourself with expirations, which start at 1 minute. Thus, the duration of your trade can be adjusted to the rules of your trading strategy and/or your approach to risk management. The most important thing is that at the expiration of your trade, the price should be at least 1 point away from the place it opened. And that will allow you to get up to 90% of the investment in just 1 minute.
In Forex trading, you are risking the entire amount in your account, because there is no such thing as a trading bet. That is why it is much more difficult to trade in accordance with the rules of money management on Forex, because even if you set limit orders, which upon reaching you achieve either a profit or loss, they won’t prevent you from losing your entire account balance in the end. Even if you calculate the amount of risk for each contract, in the broad sense of things, you will not be able to build a proper management system with your capital.
For binary options, competent money management simply involves not setting the trade amount above 5% of the account balance, since the amount of loss and profit is initially known and fixed.
Of course, it's up to you to decide which of these tools to choose, but now you know the essential differences between them.
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