Websites offering binary options are popping up left, right and center. Adverts for payouts and quick expiries are found on banners across trading related websites. Promises of simplicity and clarity abound. But is this really true? Are binary options the easiest way to trade the markets? Let’s have a look at the four variables that binary options have – the selected instrument, its direction, expiry time and the trade amount – and how they compare to slightly more factors involved in forex.
Something they both share is the selection of an instrument and its predicted direction. A straightforward comparison at first, but in forex you have to consider how far it will go, so that you can decide if you should cut your losses or let your profits run. With binaries you only need a single pip to go your way and you’re in the money.
The expiry time is unique to binary options and gives an end point to the trade, confining the stress and excitement of trading within a preset amount of time. This feeling is familiar to the mass audience from sports and games and is seen by some as one of the factors that brings people from a wider circle into trading. There’s a clear contrast with the if’s and or’s of many forex trades that don’t have a defined end point, especially in low volatility markets and trading hours. They don’t seem exciting enough to those unaware of the specifics of financial and currency markets.
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Selecting the traded amount is also something that is done beforehand. With binaries almost all platforms show the potential profit, whereas in forex this is tied to the stop loss and take profit if you choose to use them. So on this point, we can say that they are generally similar.
Binary options are stripped of some very typical forex components. Stop loss and take profit levels (although you can exit early from some binary trades) are non-existent here, as well as contract sizes and leverage. They all have their place in how trading is done, but it’s clear now that for the binary speculation over a price level at a certain point in time, they are just not necessary.
So by the looks of things, binaries are simpler, but probably not as much as advertised. Regardless, the lower number of the variables one has to consider and the easier threshold of business and financial knowledge needed, make for an easy sell. Add to that the lesser amount of time it takes to make a decision for a trade (and seeing its result) and you have a solid sales pitch.