Forex and binary options are popular forms of trading, but they have fundamental differences. Forex trading began in 1971 when the US dollar was allowed to float freely against other currencies. The rise of the internet and globalization made forex even more widespread, and it continues to be the largest and most liquid market in the world. Binary options, on the other hand, were approved by the US Securities and Exchange Commission in 2008 and quickly became popular among retail traders. However, some regulators have banned binary options due to concerns about rigged markets, fraud, and unfair trading conditions. In the forex vs binary options battle, which one is for you? Keep reading to learn more.
How Does Forex Work?
Forex involves the transfer of currency between parties at a mutually acceptable price, with profit as the motive. While many people make forex transactions for holiday or business purposes, most transactions are made for investment purposes. Forex investment works similarly to exchanging unspent foreign currency, with investors buying low and hoping the currency will rise in value against other currencies.
There are several different types of forex trading, including spot markets, forward markets, future markets, options markets, and swaps markets.
How Does Binary Trading Work?
Binary options have become popular with investors for a number of reasons: the process is super easy, you can predict potential winnings and losses, you don’t need a huge initial investment, and you’re not dependent on what is happening in stock markets.
The principle behind binary options is simple. You make a prediction that the value of a certain asset is above a certain value at a certain time. That asset could take the form of a stock, a share, a commodity, or forex. If your prediction is right, you win. But if you’re wrong, you lose all your stake.
Here’s a simplified example of binary trade. Let’s say $1 dollar is currently worth £0.75. A binary option at $55 offers you a strike price value of £0.78, expiring on Friday at 17.00 GMT. If the final value is £0.78 or above, you win, and your option is worth $100.00. You make a $45 profit ($100 minus your original stake of $55). But if the exchange rate is less than £0.78, you lose all of your $55.
It is possible to make money with binary options, but remember that some countries have banned them over concerns of binary options fraud and unfair business practices.
The Pros And Cons Of Forex Vs Binary Options: A Comparison
If binary options and forex are not for you, there are plenty of other trading and investment options available. However, trading in these markets can offer potential opportunities if you practice and increase your knowledge of the area.
The pros of forex include easy accessibility, high liquidity, fast trades, greater transparency, and reasonable fees, but cons include exchange rate volatility, lack of global regulation, and potential bias against smaller investors. Binary options’ pros include simplicity, predictability, quick payouts, and the ability to invest small amounts, but cons include rigged markets, expensive fees, all-or-nothing results, and the prevalence of scammers.
Here’s a quick overview of some of the relative merits of binary options vs forex:
| Forex | Binary Options | |
| Simplicity | Easy | Easy |
| Risk factor | High | Capped |
| Stability | Volatile | Predictable |
| Potential return | High | Medium |
| Scamming risk | Medium | High |
| Legal | Yes | Limited |
| Automated trading | Yes | Yes |
| Accessibility | 24/5 | Market operating hours |
Your Options If You’ve Been Scammed
The success, ubiquity and simplicity of the internet is a double-edged sword. On the one hand, it greatly facilitates online trading in forex and binary options, but on the other, it hugely increases the scope for investors to be ripped off. Fake websites, rogue brokers, unregulated brokers, broken promises, dishonest deals and other cons are sadly all too common.
If you’ve been ripped off, your first step should always be to complain to your broker, and if that fails, to your national regulator. However, if you’ve been using the services of an unregulated broker or an overseas company, those choices might not be open to you. In such cases, the best option is to employ a dedicated funds recovery expert: Reclaim Expert is a leading example. With their experienced teams of legal and financial professionals, funds recovery companies have a successful track record of helping victims of scammers to get their money back.