Binary options are a topic we hear a lot about lately. Apparently there are investors and day traders who in a short time have earned a lot of money with trading these options. Is it something the forex traders among us should dive in to?
What are binary options?
Binary options are also referred to as ‘digital options’ or ‘exotic options’. When binary options expire they either pay out or they don’t pay out at all. Meaning, if you would buy a digital option you whether gain a lot of profit (up to 85%) or lose the money you invested, there is no middle road in this. The outcome depends on your predictive skills.
The underlying asset can be a stock, but also an index, commodities or a pair of currencies. In this article we will use a magnifying glass to compare binary options trading with forex trading.
There are several types of binary options. With a higher/lower option you have to predict whether the value will be higher or lower in the near future. A touch/No touch is challenging, you have to determine what the rate will be before the expiration date is reached.
The Pro’s and Con’s of Binary Options
Are binary options a good investment? There are both advantages and disadvantages. A few advantages are:
- Binary Options are easy – There are only two outcomes possible which makes deciding easier than trading forex
- There are a lot underlying assets – Binary options can’t only be traded as currency pairs, but also as stocks, stock indices, commodities and in the near future maybe even more types. This also makes spreading the risk possible.
- There is no spread – When the rate just good 1 pip in the right direction you already are in the money.
There also a few disadvantages involving binary options trading:
- The revenue – The revenue (max. 85%) always is lower than the loss (100%). In order to make more profit than loss, you must have more trades ending in a positive result.
- No stop-loss – Everytime you risk losing the invested amount of money you have put on one trade. The loss can’t be limited by selling is at a certain rate.
- No flexibility – You are not able to determine the closing rate of the trade, the values depend on the broker.
Binary options in Forex
The most important question for forex traders is of course: are binary options on forex more attractive than classic forex trading? I don’t think this is suitable for all forex traders. The strategies you are using in classic forex trading are not applicable in binary options trading due to lack of flexibility.
An exception might be the scalping technique in which you are able to gain small profits on slightly changes in the currency rate. You don’t have to pay a spread, which is a big advantage because the number of pips you have to pay are very small in this strategy. After all, your results are magnified, you are already ‘in the money’ with a profit of one pip.
Binary options can make more profit than classic forex trading in specific examples of trades. However most forex traders will go for a higher profit and for a longer period. Therefore they have to be creative with the stop-loss system, and must be able to close the position whenever they want to.
If you are looking for a binary options broker, please read our binary option review on this page. I think the best binary trading solution is the one GOptions offer.
Trade binary options yourself
GOptions is a leading broker company offering all the tools you need. GOptions have an education section and offer a weekly report involving the latest news, tips and strategies in binary options trading. The binary options trading platform provided by GOptions is multilingual and available for different devices.
Binary Option Broker
The expiry times for most assets are hourly, daily, weekly and even monthly! This convenient range of timings is one of the best features we liked about this broker with an overview can be found in our forex article.
To take a look at our binary options broker Top 3 you can go to this page.