Binary Options vs Spot Forex

There are many advantages and disadvantages to both binary options and spot forex. People are in somewhat of two minds when deciding among the two of them. Binary options are a younger trade than forex is, but attracts people who are long term forex supporters. But why should you change sides? Why start with something new when you are already good at something else? Is it better to stick to something you are already good at and do not want to take risks of starting with something new that does not promise to be cost effective. We’ll touch upon a few issues about both binary option trade and spot forex trade and hopefully, you can determine which trading instrument may be right for your trading style.

Max Risk

One of the better advantages of Binary option trading opposed to spot forex is that there is a lower percentage of risk involved. You do not stand to lose enormous amounts of money and the maximum risk is much lower with binary options. The only amount you stand to lose when using binary options is your premium, which the broker sets, not more or less. You will instantly know how much your potential losses might be because they possible cannot be higher than the premium. Additionally, most binary option brokers even allow you to cut your max losses by “folding” your trades before expiration, but only after certain types of trade conditions have been met.

On the other hand, with spot forex trades you cannot always be certain how much your losses may be. The risk is much higher and even with a stop loss order set you cannot be certain how to calculate your losses. The most probable issues which occur with spot forex are slippage or lack of liquidity to execute a stop order at the desired price. So as you can see, spot forex proves to be a lot riskier and can sometimes take from you more than it gives. Even the most experienced traders slip sometime and only those who are up to the challenge still use forex.

Trade Management Flexibility and Maximizing Reward

Regarding the management and flexibility of your trades, spot forex takes the edge opposed to binary options. Even if you have an idea of how a market might behave within a certain time frame, you may not have the best option available to you to play your idea. With spot forex, you are able to enter limit orders for any price or execute a market order at any time during open market hours.

With binary option trades, some binary options brokers allow you to close options trades early, but that usually happens only after a predetermined amount of time has pass after the option trade has opened and before it closes. The result with this occurrence, nevertheless if the market is in-the-money or out-of-the-money at that point, the broker always ends up of taking his or hers fair share and ending up with a certain amount taken from the trade.

The thing with spot forex is that you can close your trade at any time, even after a few seconds. This way you can reduce your losses, but you cannot use this option during the weekend because most of the brokers do not allow it. Techniques like scaling in and stop trailing may be useful with maximizing your profits when you think that the trend will hold on and you manage to hold it as much as possible.

All in all, Depending on your risk and trade management preferences, either trading instrument can be good or bad depending on how much time you want to spend in front of your trading platform, how active you want to be, or what you expect the market may do.

Transaction Costs

Transaction costs differ for both binary options on spot forex trades. The difference is that with binary option trades there are no additional costs. The only costs that do exist are always factored into the final layout. But the deal with forex is a bit different. The transaction cost with spot forex transaction may come in three ways, in the form of a commission, in the form of spread or with both.

Trade Choices

Binary option trading is great for, among other reasons, the ability of not being limited to just currency pairs, which is not the case with spot forex. Although it may be that currency trade are the most common asset in binary options and that most brokers offer it for their trades, there are many more options for you to try as well. There is a limited number of individual stocks offered as well and stock indices and various commodities also. This versatility makes binary options more intriguing to play and gives you an option to study different fields and try your luck on all of them.

Volatility Risk

The volatility is always an issue when trades are the case. But any trade you take can weather the volatility caused by some events with binary options and do not cause a great issue. It does not matter what events trigger the volatility on the market and what it may cause for your trade because with binary options you will be completely secured if you manage to guess the transaction correctly. You already know the maximum risk in advance but so is the maximum reward known to you as well. On the other hand, volatility in spot forex can be a great factor. The unforeseen swings caused by volatility with spot forex can affect your trade substantially, particularly because they happen very quickly. You need to be aware of the risks that you take with spot forex because it can affect your losses and risk management becomes a very important factor.

Trader Error

The margin for error when entering a trade with binary options and with spot forex differs greatly. It is one of the reasons which convinces many people to choose binary options instead of spot forex because it alleviates the error margin. This is due to the fact there are only two actions to take with binary options: open and close. There are no limit orders to keep track of, to close or adjust and it really allows you a risk free setting to earn your money. But, alternatively, the greatest problems with sport forex trades happens when an inattentive trader forgets to place exit or adjustment orders. This in most cases creates a unplanned losses which the trader cannot afford to make and often results in creating unnecessary debt.