Saturday, January 25, 2014

Is Forex a Safe Option than Binary Options?

Binary Options has been heralded as an easier trading platform when compared to Forex. However, Binary Options does involve a large element of risk and the potential for loss.
Forex trading is high risk as well and requires knowledge and training which is why Binary Options appears more user friendly, but without a proper understanding of assets and market trends Binary traders still stand to lose their investment.

What exactly are Binary Options and Forex?
Binary Option trading is the practice of predicting the price on a given asset and determining whether it will rise or fall in a set amount of time.

Forex involves speculation on the value of one currency either increasing or decreasing in comparison to a second currency. Forex trading isn’t based on a set time frame and trade can be closed at any point while the market is still open. Margins are a cornerstone in Forex and are determined by brokers. They allow traders to increase investment capital, whereas margins are not used in Binary Option trading.

How do you make money?
Payout and loss return amounts are predetermined before investment is place on an option in Binary trade. Payouts range from 80 percent up to 400 percent depending on the option, and depending on the broker, loss back is sometimes offered meaning a small percent of your initial investment will be returned to you.

Forex traders don’t secure a maximum profit before making their trade, although a set limit or stop order can be determined to guarantee a specific percentage profit.  Losses can also be managed using limit or stop orders, but it is absolutely possible to lose all the money in your trading account.

One of the benefits of Forex, compared to Binary Options is the flexibility in closing. Positions can be closed anytime the market is still open, whereas Binary trade times close automatically when they reach expiry time. Some brokers do allow trades to be closed early, but you will lose a percentage of your expected return. Other brokers will allow rollover or delayed expiry trade, but in order to rollover to the next expiry time traders are required to increase their investment by a specific percentage.

Are the trading methods secure?
Forex is a considerably more mature industry compared to Binary Options which has only been around for a handful of years.  All the major foreign exchange jurisdictions are regulated and have been for a number of years.

Binary Options have far less regulation although the United States has outlawed trade of retail binary options.
Other large markets like Japan and the UK still have yet to put any regulations into place and unfortunately there are a number of brokers engaging in scammy practices. However, if you’re going to engage in Binary trading, vetting a decent broker is part of performing due diligence. Reviews and customer forums are great places to find reliable information regarding various brokers.

Finally, there are two major problems associated with Forex and Binary trade. First, the majority of Forex traders don’t have a background in finance and fail to understand basic financial options and concepts.

Second, many brokers have given Binary Options a reputation of being a get rich quick scam due to their poor business practices and scam tactics. People who fail to do their homework before investing with a Binary broker stand to lose a substantial amount of money. Although both platforms carry risk, the biggest gamble traders can take is not doing their research and becoming educated on market trends before diving in head first.

Author’s bio: Miles Hall is Michigan State graduate with a degree in General Management. Miles works as a writer and has focused largely on the world of small business, investment and finance.


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