Forex Trading vs Binary Options Trading: What’s the Best Option for a Beginner?

Forex trading and binary options are both fast gaining popularity in the trading world, especially for beginners. Many people see these two options as great alternatives to stock trading because of the fewer restrictions surrounding the trade. Both options allow people to get in with little money and without having to deal with a stock broker or open an elaborate trading account. However, both options have their advantages and disadvantage that should be considered. In this article, we’re going to touch on whether binary options or forex is the best option for new traders.

Reasons to Go with Binary Options

One of the biggest advantages of binary options is that you can get a payoff very fast. As a matter of fact, this is one of the main reasons people get into the trade in the first place. Binary options is probably one of the only financial instruments that will allow you to get a 70% or even more return on your investment in hours, even minutes at times.

Another aspect that attracts people to binary options is how simple they are. Anybody with a little sense can start trading binary options and platforms like Stern Options will even teach you the ins and outs of the trade. The way the trade works is pretty simple, you choose an asset class, an expiration point, and pick a position amount. All that is left to do is to pick a direction and wait for your position to expire. While some brokers allow more complex strategies, many traders simply decide to stick to the up and down game and are making significant gains.

And with binary options, the stress and guesswork that comes with closing a decision is off your hands. With stocks, traders may be tempted to hold on to stocks a little bit too long and end up regretting it. With binary options, the closing point is already fixed for you, so even if you get a little carried away, you won’t make a decision you might regret in the long run.

Reasons to Stay Away from Binary Options

While binary options do have their fair share of advantages, they have their drawbacks as well. For one, the system currently favors brokers. A trader would need to win at least 55% of their positions to break even. That’s because commissions, the simplicity of the format and limited risk is compounded into the cost of every transaction.

Another issue is that since most binary option traders are located in foreign jurisdictions, you have to be extra vigilant when working with a broker. You should always go with a broker with many years of operation and a solid track record. Since most brokers are located overseas, your chances for recourse are minimal, essentially if they’re not licensed in their countries. The only way to circumvent that is to go with a reputable company with a solid history of paying back on time with minimal hassle.

Also, people who jump on the binary options trade tend to be overwhelmed by its simplicity. But like with any form of trading, you’ll need to use other tools in order to be successful. While most platforms offer a wealth of tools and resources to their traders, you’ll still need third party tools to get ahead.

Reasons to go for Forex Trading

One of the most attractive aspects of Forex trading is the fact that it takes very little money to get started and the costs associated with trades are slim to none. Most brokers make money from spreads on various currencies alone. So, you don’t have to worry about brokerage fees or other overhead charges when trading in the Forex.

Another thing that attracts many traders into the currency markets is that it fits a wide variety of trading styles. With binary options, you’ll rarely get to hold on a position for more than 12 hours, so this tends to attract trigger happy traders. As a Forex trader, you can easily hold on to a position for months, even years if you want to. In addition, currency markets are open 24/7, which provides plenty of options as well and more flexibility.

One more advantage of the Forex market is how liquid it is. Currency markets have, by far, the highest number of participants meaning that there will be minimal price fluctuations when it’s time to close a position. This almost eliminates price anomalies or manipulation. Equity markets are notorious for stagnation during certain hours, but the Forex market is always active, which makes it immune to volatility.

Reasons to Stay Away from Forex Trading

One of the most major issues with Forex trading is the lack of transparency. Since the forex markets are largely deregulated and dominated by independent brokers, you’re actually trading against professionals. And since it is completely broker driven, you might not get full transparency on a trade. As a trader, you might not know how your order is being fulfilled, get limited quote views from their brokers or not get the best deals. The only way to steer away from this uncertainty is to go with regulated brokers. While the market itself is deregulated, the actions of brokers aren’t.

Another issue with Forex trading is that price determination can be really complex, much more complex than with stocks or binary trading in fact. So many factors can affect a currency and trading on events can be extremely tricky. And there’s also not much holders can do when a currency is tanking. For instance, with stocks, shareholders can put pressure on management to improve performance, but with a currency, all holders can do is watch and hope either policy or new encouraging figures are announced.

Conclusion

So, what is the best option for first time traders? Well, if you have a little capital, both options are good. However, you’ll need much more time to make a significant profit through Forex. Both areas have shady brokers, but also their fair share of reputable brokers as well. At the end of the day, it all depends if you want a rapid return on investment or would rather diversify your options and use flexibility to your advantage.