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Comparing Binary Options to Forex

Posted In: Forex Trading   Posted On: 2020/04/25 06:44 AM    Posted By: ituglobal

In Forex (FX), you trade only currencies, but in Binary Options (BO) you can trade commodities, stocks, indices, and of course, Forex. Binary trading is a vehicle that is different from Forex trading.


Trading BO gives you a reward that is less than your initial stake; whereas you can make far more than your initial risk in FX if you let your profit run. You can also lose far more than your initial risk in FX if you don’t use stop and there is a strong trend against you.


If I risk 10 USD in binary, I may not win 10 USD if I’m right…. But I can’t lose more than 10 USD, no matter how strong the movement against me is. That’s a great advantage in BO, because risking 10 USD in FX may lose more than that, even with stops. This is because of slippage and spreads.


If I target 10 USD with an FX trade, I cannot win that 10 USD if I’m correct, unless I factor in the spread. If the spread is 3 pips and I target 10 pips, then I need to set the final target to 13 pips (provided I win 1 USD per pip). If I don’t do this, I win only 7 USD. In this case, the higher the spread, the more the loss and the less the gain, as far as FX is concerned.


You cannot be a long-term winner in BO if you risk too much per trade and the same is true of FX. Exit strategies in FX are both manual and automated; but in BO, they’re automated only. I can leave a trade until my stop or target is hit or I close it for myself, with either profit or loss. I can’t do that in BO, as I need to wait for the expiry period to trigger itself, subject to the mercy of the markets.


If you let your profits run always and cut your losses in FX, 30% accuracy is enough to make your triumphant over the long-term. However, in BO, even 55% accuracy will guarantee eventual financial disaster.


You can lose money trading FX if you have 80% or 90% accuracy, but you don’t use stops. On the other hand, if you have such accuracy in BO, that means you’re already a permanently successful trader.


Based on many years of experience, I can conclude that BO is easier than FX.


NB: The next article would explain why many brokers don’t want to do BO.


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