Forex vs binary options: Why they are NOT the same
Confusion is education’s obvious counterpart. To uphold the latter, the global Forex broker OctaFX presents the main differences between its own financial service domain and the one its colleagues from binary options are offering.
The confusion between two particular financial spheres still appears to be running rampant: Binary options and Foreign Exchange. One cannot mention enough that clarification on this matter is in high demand. Let’s take a look at some essential differences between the two.
Binary options overview
Here we talk about a financial product that fundamentally has only ever two outcomes. That’s where the name ‘binary options’ comes from. Also considered a transaction, it has each actor participating in it assigned a specific result. This can be called a ‘yes or no’ proposition. The trader is in profit or loses the entire initial deposit, depending on which one of these actually came to pass. Rewards, time frames for orders, and risks are all fixed in binary options. Again, if a given prediction is correct, one gains back the initial funds plus profit.
Forex has no set restrictions on how much money someone can earn or lose finalising a trading order. There are instruments to impact this uncertainty, though. One such mechanism is called a stop loss. It averts traders from suffering a loss beyond a certain amount. Meaning, the trade automatically closes once this preset threshold is reached. In turn, a trader can use the same principle for an order in profit, which has attained a pre-ordained value limit.
Their differences and parallels
Binary options as financial products have an expiry date (those ‘fixed time frames’ mentioned above)—Forex does not. But in both instances, you speculate on whether a given asset will go down or up.
Forex grants its traders the application of individual profit targets in combination with the stop loss orders mentioned above. Both are unavailable for binary options. In the latter, the trader needs to win the majority of trading bets to have a successful, profitable long-term track record.
Some general parallels between Forex and binary options do exist, as well. Both can be traded with small initial capital. Furthermore, clients can trade both online—an attribute that is a relatively recent ‘democratisation’ of vast parts of a once much more restricted financial market.
The traded assets themselves are a common ground, too. Much, if not all, financial products traded via binary options are also available on the Foreign Exchange market—like currencies or precious metals.
Last but not least, the Forex market is defined by a more significant fluctuation than binary options since it can be approached unrestrained by fixed expiry dates or profits. This aspect represents a broader range for profit as well as risk.
The bottom line
As with any meaningful financial engagement, such things as awareness, research, and education play crucial roles in mid-to-long-term success. Whichever broker on the market is offering the most comprehensive and intensive educational program, heightening the level of financial literacy of its clients, it is the one to go with. One such Forex broker is OctaFX. Its team emphasises that one shouldn’t approach Forex trading as a mere passing hobby. Instead, since one’s hard-earned money is involved, due diligence and eagerness for composing an educated and strategic trading plan with a trusted and reliable broker need to be at the forefront.
OctaFX is of the opinion that not adhering to these elementary principles can spawn misunderstanding and suspicion, followed by outrage, anger, and resentment—none of which have ever paved the way for financial freedom.
OctaFX is a global Forex broker that provides online trading services worldwide since 2011.
It offers a state-of-the-art trading experience to over 7 million trading accounts worldwide. In addition, the company is well-known for its social and charity activity, supporting infrastructure and humanitarian projects in many joint ventures. OctaFX has won more than 40 awards since its foundation, including the 2021 ‘Decade of Excellence in Forex Asia’ by the Global Banking and Finance Review, the 2020 ‘Most Transparent Broker’ by Forex Awards and, more recently, the ‘Best ECN Broker 2021’ award from World Finance to name a few.