Forex Trading versus Binary Options Trading
Forex trading and binary options trading have many similarities, but there are also some important differences. In this blog post I will discuss some important advantages and disadvantages, and discuss forex binary options trading.
No complicated calculations with binary options
Forex trading often requires complicated calculations before you actually can open a position. Calculating your risk is very easy, but you should also calculate the lot size and depending on the currency pair and the currency of your account, you must also convert to the correct value. Although there are excel files where you only have to fill in the data, it takes a relatively long time. Especially when you quickly want to open a position.
With binary options, this is all much easier. You just need to calculate your risk. You do not have to convert or something like that, so you can quickly open a position.
No stop loss with binary options
In the forex market you can open a position in the direction of the trend, but when the price goes in the wrong direction and hits your stop loss, closes your position at a loss. Immediately thereafter, the rate again in the right direction and your original take profit level achieved. Each trader hate this scenario, but in fact it’s just part of the game.
With binary options you have no stop loss. It’s just that the price to the correct position when the option expires. What does the interim rate is not important. This seems at first sight to be an advantage, but in my opinion this is very relative.
With binary options you have to deal with expiration times and may imply similar situations also occur. I have often seen that the price went in the right direction, but at the time the option ran a small retracement was, so I still ended OTM. When a forex position had been it was a profitable setup before.
I am therefore of the opinion that there is difference on this point between forex and binary options, but I do not think there really is an advantage to either. This applies in particular to personal preference.
We all know the saying, “Plan your trade and trade your plan”. With me is in practice often: “Plan your trade good and fucked with the wrong trade management”. I know the theory, but often I close out positions before they have reached the take profit level that I previously had in mind. This type of mismanagement can have a great influence on the final gain.
If you are not familiar sound that’s great, but if it is then I would definitely recognizable even consider binary options to try. When you have opened a position in binary options is that there is no trade management. You’ll just have to wait until the option expires. In other words: You cannot mess up! (At least not that particular trade if it is already open).
Probability in forex and binary options
Personally, I think many people underestimate the difference between forex and binary options when it comes to probability. In forex trading, you can influence the risk / reward ratio, and therefore you can determine what you need to win ratio in the long run to be profitable. Read the strategy article “Probability in forex trading” for more information on this topic.
In principle, the math is very simple. If your risk / reward ratio is 1:1 (you risk as much as you can win) then you need a win ratio of> 50% in the long term profitable. If you only trade setups chooses a risk / reward ratio of 1:2 then you already profit when you winratio above 34%.
Banc de BinaryBij binary options is the story “a little” different. The only influence you have on the risk / reward ratio is to choose the currency pair with the highest payout percentage. At Banc de Binary offers AUD / USD uitbetalinspercentage the highest (90%). The payout percentages on most currency pairs lies between 72% and 79%.
It is very important to realize that you do not even risk / reward ratio of 1:1 have. It varies between 1:0.7 and 1:0.9 namely often. This means that with a win ratio of 50% not even a break even result obtains, but even loss runs. To be profitable in the long run you at least a win ratio of around 60% should achieve.
However, this is quite a difference. I know that the ads of binary options brokers are very attractive: “Get 91% on your investment!” Sounds very nice, but the truth is that you lose your entire investment if you lose the trade ….. and that is 100% … .
By this I do not mean to say that you are not profitable binary options trading can, but it is important that you realize the difference.
Read more about Binary Option trading.