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The Profitability Factor
Simply put, the profitability factor of a trade is the ratio of how much money can be made versus how much money is lost in that trade. Even though this concept is used to basically describe trading systems, we will adapt this a little to compare the profit factor in the binary options market versus other conventional markets such as the forex market.
When deciding on what financial market to invest in, the profitability factor is definitely one of the key points that must be taken into consideration. After all, the whole essence of investing in the financial markets is to make money, and the more money that can be made from an investment, the better. For instance, if you could put $1200 in one market and make $300, but if there is another market that can take $800 to make $300, the latter would obviously be more profitable because an increase in the invested amount would deliver more returns assuming the same level of profitability is achieved.
This is where the appeal of the binary options market lies. Using some of the trade types such as the Call/Put options with short expiry times that start at 60 seconds or 15 minutes, it is possible to achieve a level of compounded returns that gives this market a higher probability factor than the other financial markets. Let us take the forex market and the binary options market as markets that can be compared on the basis of the profitability factor.
Theoretically, can someone with $500 in the forex market make $5,000? In theory, he can do this if he is able to make 250 pips from 2 trades, staking all his money in the trades. But in practice, we know that this is not possible. There are leverage and margin requirements to consider, and staking all your money in one or two trades in order to hit it big is not going to work in the forex market. Generally, it is accepted that traders must not risk more than at most 5% of their accounts in the market at any one time, so a trader with $500 in the forex market is going to need at least 50 to 100 profitable trades to make $5,000 out of his money. This is surely going to take quite some time to achieve, as the profits in forex are purely a function of how many pips the trader can achieve in a trade. If the trader makes only one pip in his favour, all he goes home with is the financial equivalent of one pip.
Now let us examine the case of a trader with $500, seeking to make $5,000 in the binary options market. One key point to consider is that profitability in the binary options market is not a function of how many pips the asset has moved in the trader’s favour. Unlike in the forex market where a pip in a mini-lot trade is equivalent to $1, a pip in the binary options market in the trader’s favour is equivalent to the entire payout for that trade. Consider this. A trader looking for a quick scalp, stakes $100 in a trade in the forex market, and makes five pips profit. He goes home with $105 (profit + capital). Another trader stakes $100 in the binary options market for a trade with a payout of 80%. The asset ends the trade with one pip in his favour, and he walks away with a payout of $180 (profit + capital), $75 more than the forex trader. By the time 10 of such trades have been taken on an intraday basis, the forex scalper goes home with just $25 profit while the binary options trader would have gone home with $800 profit. This is a profitability factor of X32 in favour of the binary options trader for every day both traders are in the market, assuming profit-making frequency remains constant. With such astounding figures, we really wonder why retail traders are flocking to the forex market in droves when they really ought to be trading the binary options market.
Another point we can use to illustrate the profitability factor in the binary options market is the fact that a trade like the Call/Put trade can be concluded in as quick as 15 minutes. Unless you are a master scalper, it is hard to make any real money in forex in just 15 minutes, unless you are probably trading the news. Trading the news is not a piece of cake and many more will lose money than make money on it, so a forex trader cannot really count on that as a source of making money in 15 minutes in the market. But for binary options traders, this is how the market is structured. You can actually trade 15-minute trades several times a day on several different assets for great results.
It’s clear, therefore, that the profitability factor of the binary options market outstrips that of the forex market by a mile. Not only is this the case, but a trader with little money in the forex market will find it really hard to get going because the same effort required to trade a $500 account is the same required to trade a $10,000 account. In contrast, a binary options trader can take the little money that he has and make it go a long way.
Binary options traders must be adequately prepared to wring out maximum profitability from the binary options market by setting themselves in position to receive proper training and by using an assemblage of tools that will make their job worthwhile, check out our binary options blogs by professional traders to learn what to do.
Binary Options vs. Forex Trading: Understanding the Difference
Forex trading and binary trading are quite different and it is important to understand these differences in order to become
The article was written by Connor Harrison from Binary Brokers (BBZ). BBZ makes an effort to educate their traders so that they can understand recommendations regarding binary options, international legislation, risk management and other issues related to trading.
Binary options are option contracts with fixed risks and fixed rewards. In binary options trading, the trader must decide whether an underlying asset, such as a stock, a commodity, or a currency, will go up or down during a fixed period of time. Traders are shown up front the value of their earnings if their predictions are right.
Binary trading works in much the same way as a roulette: if your prediction is wrong, you lose all the money you risked, but if your prediction is right, you receive your money back plus a return. A common set-up is for the trader to make 80% of what they bet on any trade that they get right. For instance, if a trader puts in $10 dollars betting on the value of the USD/EURO going up, and the guess is correct, he would receive $8 dollars plus his initial investment. If the value of the same currency drops, however, the trader loses 100% of the money that they put in.
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Connor Harrison, BBZ
To make money in binary options in the long run, you must win the majority of the bets. Since forex trading allows users to set their own profit targets vs. stop loss orders, traders can still make a profit even if they do not win the majority of their trades.
There are of course some similarities between binary trading and forex trading. Both financial trading markets are tradable online, and they both allow users to start trading with small amounts of capital.
In both types of markets, users are speculating on which direction an asset moves in. In the case of guessing correctly, both trading options provide strong profit potential.
However, there are some differences between binary options and forex. In a binary market, traders only guess whether an asset, such as a foreign currency, will go up or down in value over a fixed period of time. In this sense, there is no variability in the risk or in the profit potential. The binary market is named after the binary system, in which the only two input options are 1 or 0. Similarly, in binary trading, the only two options are up and down.
Higher variability, more risk
Forex markets offer higher variability and more risk for traders. In forex markets, sometimes known as FX markets or currency markets, traders must decide not only in which direction as asset will go, but must also predict how high or low that asset goes. Thus, the ultimate risk and profit is unknown.
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In forex, there are no limits to how much money a trader can make or lose, unless they use certain tools to control trading. One tool is a stop loss, which prevents traders from losing more than a certain amount. In other words, once the trader has lost a certain amount, the trade automatically closes. Similarly, the potential reward may also be fixed beforehand. The trader can decide that he wants the trade to close once it has reached a certain profit value.
The maximum loss in forex would be all the money on your trading account. In forex, both losses and profits can be managed with limit/stop orders.
Binary trades operate on specific timelines. The trader has no control over when a trade begins or ends once a trade has started. Before a binary options trade begins, users must select when the order expires. Each option has a start time and an end time.
At the expiry time, the trade automatically closes. Some brokers allow you to close early but you will exit your option at a percentage of the expected return. Not all brokers offer this option.
Similarly, some brokers allow traders to delay the expiry time to the next expiry time. This is called “rollover” and is only possible if traders increase their investment by a certain percentage.
In forex trading, users can take trades lasting from one second to many months, since they can open and close the trade whenever they feel like it. This flexibility has both advantages and disadvantages.
Forex also has a tool called margins. Each broker determines the maximum margin. Margins allow traders to increase their investment capital so that they can make a larger profit if the trade is a winning one. Margin is not a tool available for binary options.
There are five types of binary options you can trade. These are high/low, 60 seconds options, touch/no touch options, boundary options, and option builder. There are many different types of orders in forex. Buy/sell are the most important type. However, there are more advanced types such as limit, stop, OCTO (one cancels the other), trailing stop, and hedge orders, among others.
Forex trading and binary trading are quite different and it is important to understand these differences in order to become a successful trader.
Binary Options vs Forex – Which is best?
The quick answer is no. Forex trading request experience and knowledge in order to expect reaching profit. Binary option is adding a fake layer of simplicity over Forex. Giving the impression of easy decision and quick profit. It fact it’s worst.
Let’s me clarify a bit on it. I just really want to help in order to avoid people losing money won with difficulties in a fake heaven of money !
A Professional Point of View
If you ask professional traders about the different way to makes money on the market, you will hear about Forex, Commodities, Stocks, Futures, Index, Bonds, etc some about C.
Binary Options Vs Forex: What’s More Effective Forex or Binary Options
Binary options vs Forex trading is an article where you will find the necessary information on two different trading types. The differences are major. But both trading types are profitable.
To be an expert trader, you have to know both the advantages and drawbacks of Binary options trading and Forex. One trading type will allow you to earn within a short time. And another one will take a longer time to make the same profits. Additionally, they may not serve the same needs.
At first, we will give you an idea about two different trading types. So, it’s easy to know which one is best suited for you. Then one by one, we will describe the trading process of each type.
So, let’s start with the definition of forex trading and Binary options.
What Is Binary Options: Introduction
Future asset price prediction is the fundamental of binary options trading. In binary options trading, traders get profit from the increasing value of the particular trading assets. The payout percentage is also fixed.
In binary options, whether you have to predict the right asset’s value or will lose 100% of your initial investment. Moreover, you can trade options on different trading instruments. We will discuss the trading process later in this article.
Before jumping to the phase of how it works, we are recommended to read what is binary options article, which is a great source to know about binary options trading. This article will work as a guide for new traders.
Binary options trading is popular among low-skilled traders. Because it is a simple financial instrument, that helps traders to earn within a very short time. Those who are completely new to trade binary options can open a demo account from the recommended broker list.
Types Of Binary Options
You will find different types of binary options trading available for traders depending on the expiry time. Each type is different from the other. Moreover, you will find different profit ration including some unique features.
There are many advantages of knowing the details of all binary options types. Additionally, it will make your trading life simpler.
We will give a list below of those types. These are:
- Touch/No Touch
Advantages Of Binary Options
In our previous point, we have mentioned that Binary Options hold numerous advantages. These advantages mainly encourage people to get involved with binary options trading.
Additionally, having a good knowledge of the trading market will help you to make the right decision.
We are going to bullet some advantages below:
- The trading process is simple for binary traders
- Possible to start with a low investment
- High return percentage
- You can trade without depending on the market condition
- Fixed risk and reward
- Can trade binary options on a wide range of trading instruments
What Is Forex Trading
Forex trading is popular among traders for its decentralized marketplace. It is the most liquid marketplace, where currencies are traded.
In forex trading, traders exchange one currency in terms of another currency. There are some commonly traded forex pairs along with minor pairs.
Moreover, you will get an opportunity to trade forex using leverage. Leverage helps traders to trade the currency market using more money.
Traders around the world can trade the forex market at any given time. The forex market is open all day long including business hours.
Types Of Forex Trading
As we all know, the forex market is the largest financial market in the world. Traders from around the globe join the currency trading market to earn money.
However, you will find any specific types in forex trading. But based on the experience level and trading strategies, you will find various types of traders.
The list of forex traders:
- Day trader
- Swing trader
- Position trader
Advantages Of Forex Trading
Anyone can get involved with forex trading to earn money. But you need some knowledge to avoid trading risk. Only because of the improper trading strategies, more than 90% of traders walk away with empty-handed.
So, it will add an extra benefit to your trading life if you learn the basics of forex trading.
Here are a few advantages of the forex market:
- The forex market is flexible for traders. So, you can trade anytime you want
- Transparent for traders
- The forex market allows you to use Leverage trading
- High liquidity
- No involvement of Central Exchange
- Most volatile trading market
- Weekend trading
Binary Options Vs. Forex Trading
Along with their trading terms, you will get many more differences between these two trading types. We will describe all differences one by one in this article.
The Form Of Trading:
Traders compare binary trading with gambling because of the time frame and future prediction. Suppose you are going to open a position of $30. If everything goes right, then you will win the trade with an extra $24 with an actual investment.
Here, the return percentage is 80%. On the other side, if the value of the asset goes down, the trader will lose 100% of the money that they invested in. To make the trade profitable you have to win the maximum trade. There is no opportunity to minimize your loss amount.
However, you can not consider binary trading as a full form of gambling. Because at this moment, most of the broker platform is regulated by different Financial Institutions . Traders now can trade with different types of options offered by different trading platforms.
In forex trading, you don’t have to predict the future asset price to win the trade. Here, traders mainly analyze the market by using different trading tools and strategies. Moreover, the trading time is longer than Binary options.
In forex, you have to predict a target area instead of asset price prediction. So, you can close your deal anytime you want.
Potential Gain From Trading:
Forex markets are known to have a higher variability with greater risk for traders. Sometimes in the currency market, traders must decide both the direction in which the asset will go and predict how high or low that particular asset will go.
So, traders don’t know for sure the final status of the risk and profit. In forex trading, unless using some tools to control trading, there are no definite limits on how much money a trader can make or lose.
One such tool is stop-loss, which restricts traders from losing money more than the limits. In other words, if a trader has lost a certain amount of cash, he/she won’t be allowed to trade. Moreover, the trade will automatically shut down. Similarly, the potential profit might also be determined beforehand. Forex traders have the option to close the trading once a certain amount of profit has been realized.
On the other hand, both the profits and losses can be managed by implementing the limit/stop orders. In forex trading, users can set the stop-loss, and take-profit. As a result, traders are still able to make a profit in spite of if they’re unsuccessful in winning the majority of their trades.
In Binary Options, traders always know the exact risk before placing any trade order. The minimum return percentage is approximately 60% if your prediction goes right. Remember, the risk amount will always higher than your potential gain. There is no opportunity to minimize your loss amount.
Differences Between Forex & Options Trading
You will learn about the following concepts
- Risk Factor
- Profitability Factor
Traders will always argue which type of trading is better – trading Forex or binary options. Every person, engaged in trading either way, knows that they both have certain advantages and disadvantages. If you have not taken a closer look at the specifics of Forex trading and binary options trading, then you are probably not aware of the major differences between these two types of trading. Let us point out several differences.
Both Forex and binary options trading involve risk. However, if we take a closer look at both types of trading, we may draw the conclusion that binary options trading is a bit less risky due to the fact, that you know how much you are going to earn or lose before you place the trade. This is a huge advantage over Forex trading. This way you have better control over your money.
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Another considerable advantage of trading binary options over Forex is that you will not be that dependent on leverage. Every Forex trader knows that he/she must take advantage of the leverage offered by his/her broker, in order to be able to trade with decent amounts of the asset/s he/she has chosen. Although leveraged trades will bring you a larger profit, they will also multiply your losses in case your trade goes awry. As a result, there is a greater possibility for novice traders to lose their money quicker, while operating in the Forex market.
Trading binary options has another advantage – you have the opportunity to refund a portion of your trades, if you feel that your projections will not turn out to be accurate. However, this option is not offered by all brokers.
Participating in the binary options market is fairly simple, as trading operations lack the complexity of operations in the Forex market. You may need to set several parameters of the trade, but in most cases you will be able to place a trade in just 3-4 simple steps. On the other hand, placing a trade in the Forex market involves setting additional parameters of the trade in order to limit your losses, manage risk levels, etc. The reason why trading binary options is quite easy is that the trader can only choose between two types of orders – Call or Put. In the meantime, Forex traders are faced with a more difficult choice.
In binary trading the amount of money you make will depend on your investment, knowledge, experience and last but not least – on the profit percentages offered by your broker.
In most cases the profit percentage your broker offers will vary between 60%-80%. The percentage entirely depends on the type of options you are trading, because the payout for certain types of options can be up to 300-400%. The fixed payout percentage gives you accurate information on how much money you will make from the trade. This way, as a binary option trader, you can control your money better and quickly calculate how much money you are going to earn, and how much you feel comfortable to lose.
Binary traders are quite active in the market – they often make over 10 deals per day. If you are one of the traders who deal with 60-second binaries, then it is very likely that you will make over 40 trades on a daily basis. In the meantime, Forex traders have to be more careful, while placing trades and, in many cases, they end up placing just 3-4 trades in a single day.
Binary options have quickly gained popularity among retail traders, because they do not require huge investments and are a great way of generating a decent amount of passive income. On the other hand, Forex traders need to invest larger amounts of money, especially if the leverage offered by their broker is lower. Do not forget that leverage is a great way to multiply your profits, but it is also the quickest way to lose all the money you deposited. One should not be tempted by the prospect of making large amounts of money in no time.
Both ways of trading have their pros and cons, so it is up to every trader to determine which one suits best their preferences. Each one of these markets is meant for different types of traders. On one hand, Forex is a dominant market segment at the moment, while trading it is the full-time occupation of millions of people worldwide. On the other hand, binary options are a relatively new trend among Internet users and at the moment there are not so many people, who make a living by trading binaries. But, why not turn binary options trading into a full-time engagement?
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