Why trading binary options instead of Forex Pros and Cons

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Binary Options vs Forex.

What are the Pros and Cons?

Understand Trading and You Understand Both

Before we even dive in to the differences, pros, and cons between binary options and Forex, you must first understand that you will find it hard to be consistently profitable on either if you don’t understand trading itself. You may be able to get lucky for a while but the same can be said for the casino. What your goal should be is teach yourself a job for life. Your introduction to reading price action and order flow has been presented in the Forex Basics and Trading Strategies sections of this website. You will need to master that before attempting to trade in either way but for now this lesson may help you understand which type of trader you will become, you may even like both and do a bit of each!

One big difference between the two is that with binary options you will take trades with a fixed return, 70% would be a common example, but the returns do vary from broker to broker and from trade type to trade type (you will learn more about that later). With Forex your returns are not limited in the same way and a healthy risk:reward strategy can be implemented, returns of 200% and higher are a common example with Forex. The next big difference between the two is the fact that with binary options you are required to assign a time duration to your trades. With Forex you need to predict a target area for your trades and it doesn’t really matter if it gets there fast or slow. There are definitely pros and cons to each which we will now address so that you are clear.

From a technical standpoint; if you can trade spotFX profitably then you should also be able to trade binary options profitably, and vice versa. This is why most of the lessons that you will learn from all of the various sections of this website will help you with both styles of trading. Reading price action and order flow is key for both.

Trade Duration

Forex:
Once a trade is open you can exit the trade whenever you see fit. Usually this will be at your take profit or at your stop loss but could also be due to what you are seeing on the charts or major news events. The real point is you have full control and the only real exceptions is on weekends where you can not exit any open trades.

Binary Options:
Before you enter any trade you will have selected the expiry time, this could be 1 minute to 1 hour from entry and is your choice. Once you have committed to an expiry time you are tied in to that trade until the time passes. Some binary options brokers will allow you to exit your trade early but at the price of a lower return than originally agreed. Other will allow you to delay the expiry time at the price of a higher investment. Not all brokers offer each of those options and the binary options broker world is very diverse.

Risk:Reward

Forex:
If you have taken the time to learn and develop a complete trading plan then risk:reward on Forex is completely in your hands. By using a stop loss you can limit your risk on every trade to a percentage of your account and always know your risk. The exception to that would be due to slippage which may drag your stop loss point further away and increase risk, this is just the price you pay for full control. If you were to always target a minimum of 100% return, so that you never risk more than you are trying to gain, and sometimes enjoy returns of 200% or 300% then you can be profitable winning even just 50% of your trades. The real point is that you have control over your risk:reward and can use that to your advantage.

Binary Options:
With binary options you will always know your exact risk before you enter any trade and nothing can change it. Returns however are out of your control and are lower than a sound trading plan on Forex. Your average high/low binary options trade has a return of 65-80% which means you will always risk more than you are trying to gain. There are other types of binary options trade that have much higher returns but they are not the types of trade that we will be using here at ElectroFX.com (They will be discussed in a later lesson though).

Trade size

Forex:
Forex brokers vary in their minimum trade size but the lowest you will find are called micro lots. This is 1,000 units of the base currency and is also known to as a 0.01 lot. On the other end of the scale you will also find a different maximum trade size between Forex brokers. It can go as high as 100 standard lots of the base currency which is 10,000,000 units.

Binary Options:
Binary options brokers also vary in their minimum and maximum trade sizes but the lowest you will find is $1. A more common minimum would be in the $20-25 range though. The highest maximum we have found to date is $100,000 and the next level down we have seen is $50,000.

Leverage and Margin

Forex:
Leverage is something that will vary from broker to broker but a very common example would be 1:200, this means that you could trade a $200,000 trade size using just $1,000 of your account. Without correct management you could find yourself getting a margin call because the value of each point the market moves against you is based on the $200,000. This is easy to avoid and easy to understand with the correct training but it is one part of trading Forex.

Binary Options:
There is no leverage or margin to concern yourself with when it comes to binary options.

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Trading costs

Forex:
The costs involved with any Forex trade will always be the spread, and if you hold overnight, the swap/rollover. Depending on your account type and broker you may also be charged you a round trip commission also.

Binary Options:
With binary options there are no spreads, swap/rollover or commissions to think about.

Volatility Risk

Forex:
The market is know to have surprise volatility that occurs both out of nowhere or due to news events. These sharp swings in price can trigger your stop loss and cause a loss from what then goes on to be a winning trade.

Binary Options:
When surprise volatility hits your binary options trade it will not hurt your trade as long as your view was correct when expiry time hits. Only the expiry time can exit your trade.

Human Error

Forex:
There are several potential points of error when trading Forex which makes it the more technical trading style of the two. With the correct training and tools (like provided here at ElectroFX.com) you can minimize the chance of error significantly but you can never eliminate it. Without the right training and tools you may find yourself entering the wrong trade size, forgetting to place a stop loss, or forgetting to place a take profit. Even with the correct tools you may find yourself interfering with a trade or exiting early.

Binary Options:
The chance of you making an error with binary options is very low which is most likely why they have become so popular these past years. You could perhaps enter the wrong amount such as 255 instead of 25, or select the wrong direction but that is about it. If you did make either of those mistakes then the lessons would be learned fast and there are no other real foreseeable errors to make. This is definitely the most user-friendly trading style of the two.

Pros & Cons of trading Binary Options

Pros & Cons of trading Binary Options
So, you have decided that trading Binary Options is something that you want to do. With this desire comes a lot of responsibility. As you get into the binary options trading world, you will understand that there are not only plenty of advantages but also a number of disadvantages that you need to consider. A lot of traders by now understand what it means to trade digital options. A lot of new traders who haven’t ever traded Forex or Stocks have chosen to trade binary options instead of going directly to Stocks or Forex. Nonetheless, you need to know what type of trader you want to be in order to decide what options you are going to use.

Your Background
How efficient you are at trading Binary Options will depend on your background. Each trader has different experience thus different trading background. It is common for beginners to face more disadvantages in Binary Option trading because they simply have less experience. However, once you develop a strong background in the trading field, you will be able to comprehend digital options. For instance, if you have been trading in the stock market or the forex market for several years already, you will have no problem and won’t hesitate to move to binary options. Binary options are simple and easy to start with.

Where Do You Want to Be?
Beginners of Binary Options trading must know where they want to stand. If you are not sure where your next step will take place, it is pointless to trade in this market. It is important to set a clear goal and to have a wise working plan to guide you through. If you know what your objectives are, the possibilities of making great profits from Binary Options trading will get higher. To increase your success rate, we recommend trading with our Binary Options Pro Signals. It will help you achieve your goals in the Binary Options trading world and help you to be much more successful.

Concentration
You need to know yourself well in order to be successful in the financial trading field because your concentration will be highly required when it comes to the binary option market. Concentration levels differ among traders, and this is going to play an important role to reach your goal once you trade Binary Options. You have to have to have a high level of concentration or learn to have a high level of concentration. The more experience you have with the Binary Options market, the easier it will be to have the concentration necessary to trade. If you are lacking excess amount of concentration, financial trading can be a little problematic at first, but if you are aware of this, you are already on your way to improve on your concentration and to achieve Binary Options trading success.

The Next Step
Read through the different articles provided in the website, you will find very helpful tips and secrets. These articles will help you learn the secrets of Binary Options trading. As you progress, you will notice that Binary Options trading will have both advantages and disadvantages, but the benefits you gain from this trading with Binary Options can be bigger than those in other trading categories. It is best to read through the articles from time to time if you are planning to boost the benefits you gain from Binary Options. And most importantly, if you haven’t signed up for our signals already, sign up for them and start working toward your financial success!

Forex Trading Career: Pros and Cons

Forex Trading Career: Pros and Cons

Often perceived as an easy moneymaking career, forex trading is actually quite difficult, though highly engaging.

Forex Trading Career: An Overview

Owing to its high liquidity, 24/7 schedule, and easy accessibility, forex trading has emerged as a popular career, especially for people with a financial background. Being your own boss with the comforts of making money using your laptop/mobile when its convenient for you is enough motivation for both young graduates and experienced professionals to consider forex trading as a career.

However, forex trading has its disadvantages, such as high risk and volatility.

Pros of a Forex Trading Career

There are several advantages that a career as a forex trader, also known as a foreign exchange trader, offers. They include:

Low Costs

Forex trading can have very low costs (brokerage and commissions). There are no commissions in a real sense–most forex brokers make profits from the spreads between forex currencies. One does not have to worry about including separate brokerage charges, eliminating an overhead. Compare that to equity or other securities trading where the brokerage structure varies widely and a trader must take such fees into account.

Suits Varying Trading Styles

The forex markets run all day, enabling trades at one’s convenience, which is very advantageous to short-term traders who tend to take positions over short durations (say a few minutes to a few hours). Few traders makes trades during complete off-hours.

For example, Australia’s daytime is the nighttime for the East Coast of the U.S. A U.S.-based trader may trade AUD during U.S. business hours, as little development is expected and prices are in stable range during such off-hours for AUD. Such traders adopt high-volume, low-profit trading strategies, as they have little profit margins due to a lack of developments specific to forex markets. Instead, they attempt to make profits on relatively stable low volatility duration and compensate with high volume trades. Traders can also take long-term positions, which can last from days to several weeks. Forex trading is very accommodating in this way.

High Liquidity

Compared with any other financial markets, the forex market has the largest number of market participants. This provides highest level of liquidity, which means even large orders of currency trades are easily filled efficiently without any large price deviations. This eliminates the possibility of price manipulation and price anomalies, thereby enabling tighter spreads that lead to more efficient pricing. One need not worry about the high volatility during opening and closing hours, or stagnant price ranges during the afternoons, which are trademarks of equity markets. Unless major events are expected, one can observe similar price patterns (of high, mid or low volatility) throughout the non-stop trading.

No Central Exchange or Regulator

Being an over-the-counter market operating across the globe, there is no central exchange or regulator for the forex market. Various countries’ central banks occasionally interfere as needed but these are rare events, occurring under extreme conditions. Most such developments are already perceived and priced into the market. Such a decentralized and deregulated market helps avoid any sudden surprises. Compare that to equity markets, where a company can suddenly declare a dividend or report huge losses, leading to huge price changes.

Such deregulation also helps keep costs low. Orders are directly placed with the broker who executes it on their own. Another advantage of deregulated markets is the ability to take short positions, something that is banned for a few security classes in other markets.

Volatility a Trader’s Friend

The major currencies frequently display high price swings. If trades are placed wisely, high volatility assists in enormous profit making opportunities.

Variety of Pairs to Trade

There are 28 major currency pairs involving eight major currencies. Criteria for choosing a pair can be convenient timing, volatility patterns, or economic developments. A forex trader who loves volatility can easily switch from one currency pair to another.

Low Capital Requirements

Due to tight spreads in terms of pips, one can easily start forex trading with a small amount of initial capital. Without more capital, it may not be possible to trade in other markets (like equity, futures or options). Availability of margin trading with a high leverage factor (up to 50-to-1) comes as the icing on the cake for forex trades. While trading on such high margins comes with its own risks, it also makes it easier to get better profit potential with limited capital.

Ease of Entry

There are hundreds of forex technical indicators to draw on for short-term trades, and several fundamental analysis theories and tools for long-term forex trading, creating enormous choice for traders with varying levels of experience to make a swift entry into forex trading.

[Important: The chances of insider trading are almost nil (especially on major currency pairs), as there are no insiders in the forex market, which is dependent on global factors and perceived developments.]

Cons of a Forex Trading Career

In essence, there are lots of advantages to forex trading as a career, but there are disadvantages as well.

Lack of Transparency

Due to the deregulated nature of the forex market dominated by brokers, one actually trades against professionals. Being broker-driven means that the forex market may not be fully transparent. A trader may not have any control on how his trade order gets fulfilled, may not get the best price, or may get limited views on trading quotes as provided only by his selected broker. A simple solution is to deal only with regulated brokers who fall within purview of broker regulators. The market may not be under the control of the regulators, but the activities of brokers are.

Complex Price Determination Process

Forex rates are influenced by multiple factors, primarily global politics or economics that can be difficult to analyze information and draw reliable conclusions to trade on. Most forex trading happens on technical indicators, which is the primary reason for the high volatility in forex markets. Getting the technicals wrong will result in a loss.

High Risk, High Leverage

Forex trading is available on high leverage, meaning one can get profit/loss exposure multiple times of the trading capital. Forex markets allow leverage of 50:1, so one needs to have only $1 to take a forex position worth $50. While a trader can benefit from leverage, a loss is magnified. Forex trading can easily turn into a loss-making nightmare, unless one has a robust knowledge of leverage, an efficient capital allocation scheme, and strong control over emotions (e.g., the willingness to cut losses short).

Self-Directed Learning

In the stock market, a trader can seek professional assistance from portfolio managers, trade advisors, and relationship managers. Forex traders are completely on their own with little or no assistance. Disciplined and continuous self-directed learning is a must throughout the trading career. Most beginners quit during the initial phase, primarily because of losses suffered due to limited forex trading knowledge and improper trading.

High Volatility

With no control over macroeconomic and geopolitical developments, one can easily suffer huge losses in the highly volatile forex market. If things go wrong with a particular stock, shareholders can put pressure on management to initiate required changes, and they can alternatively approach regulators. Forex traders have nowhere to go. When Iceland went bankrupt, for example, forex traders holding Icelandic krona could only watch.

The 24/7 markets make it difficult to regularly monitor prices and volatility. The best approach is to keep strict stop losses for all forex trades and trade systematically through a well-planned approach.

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