Contributed article in our finance series. Enjoy! – Kimberly
Two financial instruments have entered the mainstream lately that are particularly attractive to first time investors, and they are binary options and forex trading. Both have their advantages, disadvantages and set of characteristics that make them better options for different types of investors. In this article, we’re going to explore the differences between the two and which ones you should choose depending on your preferences.
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Why Choose Binary Options Over Forex?
First, we’re going to explore some of the reasons why you should favor binary options over Forex. Then, we’re going to touch on why you should go for Forex investing over binary options. As you’ll be able to see, binary options targets a much broader scope of investors while Forex investing is more suited for a smaller number of investors who are more specialized and have a certain set of characteristics.
Binary options allow you to trade a wider variety of assets: When you’re involved in currency trading, you are limited to currencies only. With binary options, you can trade currencies, indices, stocks, commodities, pretty much any type of investment whose value is variable. The only limit is what the broker is willing to accept at the selection. Unless for some reason you are only interested in trading currencies, this is a major plus for binary options.
Competition is much less fierce with binary options: As you may already know, the competition in the Forex market is very fierce. As a matter of fact, it is the world’s largest market when it comes to turnover. The foreign exchange market attracts the best and brightest investors with large accounts and huge sums to invest. This means that as a Forex investor, you’ll be competing against the very top level investors in the world. On the other hand, if you take the binary options market, competition is still very limited. Also, since direct investment in equities is much more favorable when investing huge sums, you’ll be competing with mainly smaller investors. The toughest competition and mid level talent is virtually absent, which offers a great opportunity to novice investors.
Binary options offer a wider range of benefits: When it comes to brokers, the competition in the Forex market is pretty stable because of the long history of the market. This means that deals won’t fluctuate much between brokers. But when it comes to binary options, tons of new brokers and platforms are appearing every day and they all try to set themselves apart to gain new clients. Some platforms like Stern Options even go as far as releasing eBooks, educational materials and even their very own trading academy. Other brokers will offer all types of bonuses and benefits to attract new investors, which offers a great variety of choice to newcomers.
Binary option software is more accessible: Another great thing about binary options is the sheer amount of great free platforms to choose from. Competition is very fierce in this area, which gives new traders lots of variety. Most of the top platforms are free to use at the moment, so new traders are advised to sign up now while they are still free so they can still enjoy the benefits in the event they become chargeable. The best Forex platforms, on the other hand, can cost in the thousands and if you really want to succeed as a Forex broker, you’ll have no choice but to invest in one of those at some point.
Winnings are clearer with binary options: With Forex trading, it is often difficult to know exactly what the payout will be. In some cases, you’ll be forced to risk more because of fluctuations. This is not the case with binary options. With binary options, you know exactly what you’ll get at the end of the trade and the amount of money you put in when opening your position.
Why Choose Forex Over Binary Options?
The Forex is more of a niche market and is more suitable to a certain group of investors who know exactly what they’re doing. This market is less suited for novice investors and those with limited funds, but does have its fair share of advantages.
Forex is better for those with expertise in currencies: If you have extensive knowledge of currencies and the foreign exchange market, to the extent that it would take you a significant amount of time to gain the same expertise on binary options, then Forex is for you.
You are only interested in investing large sums of money: In many cases, binary option brokers will only allow you to invest limited sums of money. In most cases, they won’t let you invest more than $5000 on a trade. For some people, this might be too limited.
But when it comes to Forex, you can spend even tens of millions on a single trade. If you have more funds to invest and want a higher reward potential, then Forex is the way to go. Also, fees on larger transactions are much smaller in proportion with binary options, which is another plus.
You are only interested in trading currencies: If you are solely interested in trading currencies, then you should stick with Forex. While binary options allow you to invest in Forex as well, they are not quite like trading directly on the foreign exchange market. For instance, binary options have time limits on them while you can enter or close positions on Forex as you please.
Conclusion
So, what is better, binary options or the foreign exchange market? Well, it all depends on what you’re looking for. If you have limited assets and aren’t knowledgeable about markets in general, then binary options are the way to go. They are much more beginner friendly, have less competition and allow you to invest small amounts. However, if you are well versed in foreign currencies, interested in trading and currencies first and foremost, and are looking for bigger returns, then Forex would be a better option for you.
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