Is Forex Trading Better Than Binary Options Trading?
Forex trading is an entirely different financial market when compared to binary options trading, as both of these markets cannot be compared with each other on an equal platform. Forex trading is based on a traditional form of investing in the markets while binary options trading is oriented towards a betting approach that has more in common with gambling rather than outright trading.
On the outset, it ‘s hard to determine which is best among the two, as both Forex trading and binary options trading have their unique set of features and advantages that make sense from a trader’s perspective. A majority of traditional traders consider Forex trading to be better than binary options in every aspect and are firm followers of conventional forms of investing.
What Are The Core Advantages Of FX Trading?
Forex trading has several advantages over almost all other types of financial markets, including traditional stock markets. Forex is chosen by traders mainly due to the liquidity of the markets, lower transaction costs, better returns over shorter timeframes, and a larger profit potential. FX trading involves transactions on currency pairs from all over the world, which are highly volatile and present numerous trading opportunities over different time zones. The Forex markets are open 24 hours a day and most currency pairs are active during a large part of the Asian, European, and US trading sessions. This provides ample opportunities for traders to enter and exit trades according to their convenience, and even hold overnight trades with a small SWAP or interest paid to the broker.
Forex trading has caught on to the imagination of investors from all over the world due to the significantly better transaction costs and the ease of trading through online trading platforms. Several online brokers offer excellent platforms that allow a trader to evaluate the markets and trade currency pairs using any amount of investment capital. Forex, being a leveraged product, also enable retail traders to invest in the currency markets with a small capital that can be as low as $1. This has helped Forex to achieve immense popularity among different types of traders who are excited about the unlimited earning potential that the FX market presents.
Forex markets also have relatively smaller barriers to entry when compared to stocks and indices from US, Europe, and other parts of the world. Several Forex brokers do offer the convenience of trading a broad range of financial instruments from across the globe, but traders from different time zones will find it difficult to get involved with the markets when they are open. Forex, on the other hand, gives freedom to traders to exercise total control over their trades and manage them according to their requirements.
Trading Forex For A Living
Forex markets present a remarkable opportunity for those who wish to make consistent profits for a steady income. Forex is more commonly known as one of the riskiest investments of all time due to the high leverage and volatility of the markets that are known to wipe out an entire capital of a trader. The major issue with such a strategy is that a bulk of traders approaches the market with a mindset to make a significant sum of money within a short span of time.
However, the leverage and volatility can also play in a trader’s favor if they are careful about their risk and reward by using proper money management rules. Several institutional traders as well as professional retail traders trade in the FX markets for making substantial sums of money on a daily basis. Unlike amateur retail traders that lose money on most of their trades, professional traders have made it a priority to read the markets accurately and make comprehensive decisions by taking both profits and losses on equal terms.
Forex is a great financial market that can provide steady income potential for a disciplined and educated trader. Instead of considering FX as a way to instant riches, traders can become highly successful by treating the Forex markets as any other financial market in the world. Forex trading is also considered to be more stable and rewarding than binary options trading, which depends on a huge list of factors, and ‘luck’ being a primary one among them.
Controlling Risk & Exposure With Forex Trading
It is a well-known fact that Forex trading has a bad reputation of being the riskiest investment ventures of all time. FX trading deals with currency markets, and the introduction of binary options trading into the arena has only complicated matters for most investors. FX markets have the same risks that are usually associated with financial markets across the globe, but the risk and exposure is magnified due to the leveraged nature of trading. Forex brokers offer unbelievable leverage that has the potential to wipe out an entire account with just a simple move in the opposite direction of a trade. For instance, several Forex brokers have been advertising a leverage of 1:1000, which means for every dollar invested in the market, the position size is multiplied by 1000. Therefore, even a small 10 pips move in the wrong direction can result in a losing trade that will wipe out the invested capital.
The currency market is extremely volatile that sees a daily turnover of $5.3 Trillion. Therefore, even small moves are known to have a 10 to 20 pips variance, which can mean a lot to traders who are using extremely high leverage. It is common for all major currency pairs in the Forex market to experience 80 to 150 pips move during a single trading session, which is a lot when considering the impacts of trading on margin. Even relatively moderate 1:100 leverage can result in a losing trade if the market moves 100 pips in the wrong direction.
So, how does a trader control the risks of FX trading? Every trade in Forex markets should be considered as an investment and should be treated with utmost respect. The FX market can be ruthless, and there are several components at play that determine the trend of a currency pair. It would be wise for traders to make accurate predictions of the market through extensive analysis of the currency pairs and invest using smaller leverage to ensure that the losses don’t exceed the vested amount of capital per trade. Losses are simply an integral part of trading, and trader should not feel dejected to take losses early on in a trade if it starts moving against their position. Being wrong in a trade does not mean the end of the world, as a trader with even 50% of the right calls and a risk-reward of 2:1 (win to loss ratio) can make consistent profits over the long term.
Getting Comfortable With The Forex Markets
It is not easy to get completely comfortable with the Forex markets with a lack of discipline in trading. A trader should always keep his emotions out of trading to ensure that he can read the markets for what it represents. A gambling mentality is one of the major downfalls of a trader due to the emotional aspect of making a significant amount of money within a short amount of time. A trader needs to understand that the unlimited earning potential also signifies unlimited losing potential, which is something that expert traders have come to terms with.
To get a proper understanding of the markets, a trader should spend a considerable amount of time into researching about the markets and to understand all the risks associated with trading on a margin. Even if a trader decides to trade without leverage, the losing potential can be enormous if a trader has no mechanism in place to protect his investments. Therefore, the concept of trading the financial markets is entirely dependent on the risk appetite of a trader and his ability to conserve funds while making consistent profits.
The Best Times To Trade Forex
The Forex market is a 24 hours phenomenon that is open for 5 days a week. The Australian session is the first to kick off, followed by the Japanese session. The London session opens just after the close of the Australian session and just before the Japanese session closes. Then there is a brief overlap between the UK and US trading sessions, which ends just before the Australian session starts for the next day. The cycle is repeated every 24 hours, which is why there is a notion that currencies can be traded around the clock. Even though the market is considered open 24 hours a day from Monday start of the Australian session to the close of the US session on Friday, the actual volume of transactions and volatility differ greatly according to the open and close of trading sessions in the respective regions.
The 24 hours timeframe allows traders from anywhere in the world to trade the FX markets and catch strong trends during overlapping sessions. The Forex markets are active the most during the UK and US trading sessions, but the Yen and Aussie Dollar are also active during the Australian/Asian sessions. The volatility and volumes are significantly higher during session overlaps, which happen due to the influx of traders when a trading session commences.
As far as the best times for trading Forex are concerned, it depends on the personality of a trader and his availability. Some traders are comfortable with a slow moving market, while some traders are excited about the opportunities available in highly volatile market conditions. Trading is considered to be profitable when there is a clear trend in the market, which is more prominent during high volume sessions. There are also a group of traders, who find it profitable to trade during news events, but such a strategy is hugely risky as the volatility of the markets during news events are extremely high, and a currency pair can move around 100 to 200 pips on average within a few seconds. Trading the news is not recommended for traders who don’t have an understanding of the fundamental factors of trading and for those who use high leverage while trading.
Trading Profitably Using Forex Signals
Forex signals can provide great pointers about the underlying trends in the Forex markets. There are several Forex signals providers in the industry that either provides a free signals service or a subscription based signals package for a nominal fee. Forex signals are used extensively by a large number of traders to make profitable trades in the markets without risking their money through their own analysis of the markets. Forex signals can act as an incentive for newbie traders to understand the FX markets and enjoy consistent results early on in their trading careers.
However, forex signals are not guaranteed to churn 100% positive results for any trader. Forex signals are also susceptible to losing streaks, which can diminish a trader’s capital if he is not careful about using smaller leverage and lot size per trade. A trader can only profit with Forex signals if he has a clear idea of how the market works.
Finding Good Quality Regulated Forex Brokers
A good quality broker should be an important tool in a trader’s arsenal, as the broker is the key link between a trader and the FX market. Regardless of trading strategies, profitable results, or a thorough analysis of the markets, if a trader is unable to partner up with a reliable broker, it will be difficult to enjoy seamless trading.
Every trader should make it a priority to choose a regulated broker that has a good reputation in the industry. Brokers that are committed to excellent customer service will always concentrate on offering a fair and honest platform where traders can excel in their fields of expertise. The significance of a good broker not only comes in handy while carrying our Forex transactions, but is also important when it comes withdrawal of profits and managing a trader’s investment capital. In most cases, regulation is the key to choosing a broker, and it would be a good idea from a trader’s perspective to choose a regulated broker that is affiliated to the best regulatory agencies in the world. At Binary Options Trading, we provide you access to some of the best Forex brokers in the industry that will help you to achieve consistent trading results by trading Forex.
Forex Trading Versus Binary Options & Spread Betting
Forex trading has many similarities with spread betting, but the only differences being that spread betting is tax-free in the UK and it is possible to have a negative balance in spread betting. In Forex trading, almost all brokers employ a stop-loss mechanism that automatically closes all trades in the event of a margin call. Such a margin call is designed to prevent clients from ending up with a negative balance. However, in spread betting, the nature of trading is dictated such that a huge loss against a trader can result in negative balances. Negative balances are a rarity in Forex trading, but it is not entirely impossible.
Binary options have more in similar to the roulette than Forex trading per se. Binary options deals in either a buy or sell order and the outcome are fixed. A trader can either earn a fixed amount of money on a trade or lose the invested amount if the trade doesn’t work out in a trader’s favor. Binary options also do not provide the freedom to a trader to manage his trades, and once entered, a trader will have to wait until the expiry of the option. This type of trading is the polar opposite to Forex trading where a trade can be managed by a trader and the profit and loss per trade is actually in control of a trader.
Forex trading is indeed a real financial market that gives the trader a sense of fulfillment to see that his investments can grow according to his trading results. On the contrary, modern and exotic markets such as binary options and spread betting limits the amount of flexibility in diversifying the investments and managing a trading capital according to a trader’s trading strategies. Forex markets have stood the test of time, even when several scam brokers and high leverage looked to tarnish its image as a valid financial instrument.