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Home» Binary Options School » Intro to Binary Options » Forex & Binary Options: The Differences

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Forex & Binary Options: The Differences

Written by: Sophie May

Assets

By definition, forex is limited to the trading of foreign currencies. Investors trade in one currency by purchasing it with units of another currency. Binary options traders have a wider range of underlying assets to choose from, including stocks, indices and commodities as well as currency pairs. This allows traders greater flexibility and the chance to profit from the knock on effect between different types of assets, such as between the USD and oil.

Leverage

Forex traders aim to maximize profits through leveraging their positions, meaning that an investor with only $1,000 could make a $200,000 purchase. This can be exciting and highly profitable but it also increases the amount of exposure. Although it is rare for currencies to swing widely enough to overtake the leveraged position, when this does happen, it can be disastrous. In contrast, the binary options trader can still make up to 90% profit in a trade, and up to 500% on the One Touch platform, but can never lose more than the invested amount.

Payouts

In forex, returns are uncertain because the payout is dependent on what extent the market moves upwards or downwards. In binary options, the payout is predetermined in advance and is normally around 70%. It does not matter whether the asset value at the expiry time is 1 pip or 1000 pips different from the starting price. So long as the trader correctly predicts the direction of the asset movement, they receive the agreed payout.

Control

In addition to the financial stability offered by set payouts, binary options are also viewed as more manageable for the reason that they come with set expiry times. The trader always knows from the outset when the contract is going to expire, and is fully in control when deciding whether to open a 60 second trade, hour trade, or week long trade etc. In contrast, forex trading generally uses stops and limit orders to try to manage when a position is exited. This can be difficult psychologically, with the increased pressure leading some traders to second guess their decisions.

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