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Binary Options Vs Forex Trading

There are a lot of people that like to trade currencies within the Forex marketplace because of its 24 hour availability, the leverage that most brokers provide, and the lack of commissions. But there are still many barriers to success here that a good portion of these folk experience after a brief time. Binary options, when used correctly, can help solve some of the problems created by the Forex market.

When you are trading currencies, you are trading within the world’s biggest marketplace. More dollars are traded in Forex than in any single stock market. Billions of dollars change hands every day here, and because currencies are traded all around the world, there is always a market open. The major trading centers are in Japan, Europe, and the United States, and this allows the Forex market to stay open in some capacity all day, every day. This allows for a lot more trading freedom.

When you trade binary options, you do have the ability to trade currencies, and many brokers—even domestically based ones—will keep their currency options running in a limited capacity 24 hours per day.

But binary options have several advantages over straight Forex trading. One of the biggest of these is the concept of the spread. If you are trading the EUR/USD pair in the traditional sense, you have a gap that you need to overcome in order to turn a profit. So you might use U.S. dollars to buy Euros at $1.2990 each, but if you try to sell them immediately, you might be quoted at only $1.2983. This doesn’t seem like a big gap, but if you’re looking for short term profits, you will be out of luck in most cases. It can take quite a while to overcome that 7 pip spread, and even when you do, the price might not increase more than enough to give you a profit of a few pennies.

This is a problem that binary options have corrected. If you want to trade EUR/USD, you only need to be correct by a single pip in order to gain a profit, sometimes as much as an 85 percent return. The broker still needs to make money though, and this is why when you are wrong with a trade you lose 100 percent, but only gain 85 percent when you’re right. Still, to make a profit of 85 percent in the traditional Forex market, you would have to either be really lucky, or grind out small gains for several months. Binaries offer a profit level that is unmatched within all other marketplaces.

Trading Options Vs. ForexLeverage is another issue that needs to be addressed. For the savvy Forex trader, this can present a huge advantage. But for most people, it can be a really big problem despite its helpful appearance. Some Forex brokers will allow you 400 times the purchasing power that you are risking. So if you are buying $100 worth of Euros with your dollars, you will actually be able to trade $40,000 worth of Euros. This is great when you’re right since it will help you to increase your profits, but this is a double edged sword. When you’re wrong, you will lose a lot more—and the broker can stop your trade at any time in order to recoup what they’ve lost because of your trade. With binaries, you always know exactly what you’re risking, and exactly what you will earn. There is no leverage with this type of trading, and this offers both new traders and pros an extra level of protection not found within the traditional Forex market.

Risk Disclaimer