Forex Trading Or Binary Trading?
In the last few decades, new forms of trade have arrived that take advantage of the digitally connected, online world that we live in today. Binary options trading is the most recent form of trade to take advantage of this technology infrastructure, but there is an older form of trade that operates on the same principles and is, in a sense, an ancestor of binary options trading.
It is known as Forex trading, or trading in the foreign exchange market, and, like binary options trading, it is a form of speculative trade. So if you’re interested in one or the other, why make that choice? What does Forex trading offer that binary options doesn’t, and vice versa? Let’s take a look now and see.
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Speculative Trading 101
Both Forex and binary options trading are known as speculation trading. This is very different from the more traditional form, which is making money through selling things. What happens with normal stocks, bonds or even currency trades is that the trader will actually buy and own the asset. Gold commodities traders buy real gold. Corporate traders buy and own actual shares in a company. They make their money when, after monitoring the market, they see that the prices of the asset they have purchased have gone up, and so “release” them back into the market by putting up for sale, making a profit on the difference between the time they bought and the time they sold.
Speculative trading is more about making predictions and seeing if those predictions are correct. With both Forex and binary options trading, even a negative effect, such as the value of a currency going down is not actually “bad,” and may in fact be fantastic if there was a trade predicting this downward performance. In other words, only being correct or incorrect about your prediction leads to a profit or loss. A currency crash can actually pay out handsomely for an investor who foresees and makes the appropriate trades, even if it means the economy of that country is actually in turmoil.
Both forms of trade are also based online, with people making their own individual trades using their computers. Because of this, people who choose both have the flexibility to trade according to their preferred schedule, and, because of the speculative nature, do not need huge amounts of start-up investment cash. You can start trading in foreign currencies with just a few hundred dollars, or even less if you like. So in that sense, both Forex trading and binary options trading are more flexible and accessible than the preceding forms of trade.
Focus Or Variety
While Forex and binary options trading operate on the same basic principle, there are also some key differences, and it’s these factors that play a big role in deciding whether or not one or the other is better for you. One of the biggest differences is the scope of trading.
With Forex trading, there is one market and one market alone; the currency market. This is definitely for people that have done their research and made up their minds about currency trades being their primary interest. Binary options trading, on the other hand, takes the speculative trading concept and extends it to all assets. Not only does it cover speculative trades for currencies, as Forex does, it does the same thing for stocks and commodities, allowing people to trade on one, two, or all three if they like.
Predictable Losses & Gains
Another area where Forex and binary options trading differ is in how profit and loss is ultimately calculated. Binary options trading has much more in common with a traditional bet. You make your trade based on the prediction of a price movement up or down. If your prediction is incorrect, you lose the entirety of your trade. However, if your prediction was correct, you can get anywhere from an additional 75-90% return on your investment depending on which binary options trader you’ve opened an account with.
Forex trading has the profit or loss of a trade tied into the final result at the end of the trading period. This means there are times when the amount of money a speculative makes or loses can be much more than what might have been predicted. If, for example, a Forex trader makes a speculative trade on the value of the Pound dropping, and it continues to drop and drop well below expectations, the profit from this can be much, much more than what was initially invested. Conversely, the same trader predicting the Pound would go up in price would lose far more than the initial investment and potentially end up in debt.
There are pros and cons to both forms of trade, but what doesn’t change between them is that both allow people all over the world to trade and profit on the Internet. Which is one is the better choice for you is a decision only you can make.
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