It is important to understand the difference between Forex Trading and Binary Options – on the face of it they are are both forms of financial trading, but in reality Binary Options are much more like fixed risk gambling and Forex whilst inherently risky offers more potential upside as well as downside and crucially more control over both.
On the face of it may sound like the fix risk gamble of Binary is the better option for taking a punt on the financial markets but in reality Forex is by far the better option – It’s a little bit like comparing Roulette and Poker.
How do Binary Options Work ?
Binary as the name suggests is a yes/no win/loss up/down proposition – that’s it. Binary is binary and very simple, but like betting red or black on roulette – to win you must simply win more times than you loose.
The simplicity is really it’s downfall – on the face of it you must be an outright winner at least half of the time just to break even, and obviously to be a net winner you need to win consistently more than half the time.
However the reality is a little bit worse than that – you also need to be able to cover the dealers margin as well so you really have to win the majority of bets, here is why …
When you lose an option you lose 100% of that money – so if your option is £100 and you are wrong you lose £100
When you win an option you get your money back plus about 80% – so £180 from a £100 option
Therefore if you were 50% right on your trades you would actually be consistently losing around 10% over time.
2 trades (1 win & 1 loss) so £100 loss + £180 win = net £180 from £200 staked = a £20 loss overall
This is very similar to playing black or red on roulette and thinking you have a 50/50 chance but forgetting that the house take all bets on 0 and double 00 so it is not 50/50 proposition at all.
Forex is crucially different to Binary Options
If you want to gamble on the financial markets then we recommend you choose Forex trading and put in the time and effort to fully understand it so that you maximise your upside and mitigate your downsides.
The huge advantage with Forex is you are not just predicting which direction an currency will go but also by how much it will increase or decrease. While the potential risks are higher so are the potential profits and crucially you have tools like using stop-loss and take profit options.
Remember the maximum you could potentially lose trading Forex is your entire trading account balance which is why Forex traders use tools to set their own take profit targets against stop-loss orders – they have a level of control over the trade that you simply do not have with Binary Options.