Your city is probably full of Forex advertisements, countless billboards, fabulous promises and castles in the air.
Well, Forex is in fact one of the most popular and lucrative markets in the world. Turnover in 2021 was more than 6 trillion dollars a day. Huge funds are traded over electronic networks every second during currency conversion operations on the interbank market, which is known as Forex – Foreign Exchange.
However, the real Forex is an interbank market and banks and investment funds trade there. They turn those trillions. But in Brazil, and in many other countries, we are instead offered a substitute, known as retail Forex. Yes, yes, children. It’s just like binary betting – it’s not traded as such.
Why are you surprised? Where in the word “interbank” do you see a retail trader pouring into the account of an offshore office some kind of virtual currency, like Qiwi, and clicking buttons on a toy Metatrader 4 terminal, which was originally created for Forex kitchens? You don’t have to be very clever.
Real Forex works in a completely different way. Trading is done on Reuters Dealing and Bloomberg bank terminals, on ECN networks such as EBS, while banks have mutually opened credit accounts for currency trades, where the main turnover is swaps, forwards, etc.
Retail Forex is not interbank currency trading, but betting on currency quotes disguised as currency trading.
What is the difference between Forex and binary options?
In binary options, we just need to:
- of the option value;
- direction (up/down);
- of the expiration date.
The price has gained at least 1 pip during the expiration time in the chosen direction – and so you receive a fixed payout. A very simple, understandable scheme for beginners that doesn’t require math.
In Forex you need:
- choose a lot;
- choose a leverage;
- choosing the right type of account (fixed or floating spread);
- understand why ECN accounts are necessary, what NDD and STP accounts are;
- study what spread exists for different brokers; this is a fundamental difference between binary options and Forex, because there is no spread in binary options;
- select the type of order execution – market or instant;
- if the order is pending, you need to select its type (buy stop, sell stop, buy limit, sell limit);
- in Forex, the gains are derived from how many points the price gains, minus the spread;
- in Forex, you always risk your entire deposit at once, there are no “bets” in it.
As you can see, there are many nuances, and the list of what you need to know about Forex is suspiciously long. The threshold for entering Forex is quite high, it’s much more difficult for a beginner to understand it.
Binary options: pros and cons
Now let’s compare the two types of instruments.
Benefits of binary options
- Easy market entry – forecasting based on two buttons.
- Prepayment amount (fixed) known.
- The ability to return part of the funds in the event of an unsuccessful forecast.
- From 80% for 1 transaction.
- With equal rates, an average of 57% of successful forecasts are required.
Disadvantages of binary options
- Behind the simplicity of the two buttons, people forget that on the charts there is a real foreign exchange market or a stock market that a beginner cannot predict (however, this is also a disadvantage of Forex).
- If the work is carried out according to the trend, Forex allows you to earn significantly more per transaction (in binary options, it doesn’t matter how much the price has exceeded the forecast – the payout is fixed).
- In binary options we put up 100%, but we only get 80-90%. If one transaction is unsuccessful, the second profitable one won’t even return the value of the previous transaction to us.
- binary options provoke excitement and disorderly trading.
But the main disadvantage actually lies in the very essence of the binary as a tool for newbies. In order to attract completely inexperienced citizens who just yesterday had no idea whatsoever about the foreign exchange market, incredibly stupid, primitive and untruthful advertising is often used.
What binary options and Forex have in common
Both industries want to drain money from ignorant citizens who haven’t studied at school. Newbies are lured in by implausible promises of fabulous gains and tricked, without it being explained to them that the average person cannot simply predict the movement of currencies on the interbank market. This requires long and meticulous study.
But you won’t learn about this from advertising – it will only show you sweet promises. Forex is similar – it remains an industry for morons who believe in Pinocchio.
This is what I would call a major disadvantage. Because as an instrument, a call or put option – any one, be it binary or regular stock – performs the tasks assigned to it. Do you need an all-or-nothing tool? Go for it. But this is being promoted as an alternative to sports betting, and binary companies are recklessly sponsoring sports teams and soccer clubs to attract sports betting fans.
In Forex offices, managers talk about “interbank”, “safe investments” and other nonsense. In reality, according to the year’s results, in both Forex and binary options there are less than 5% of successful traders (and that’s an optimistic estimate).
As a result, the inexperienced majority, driven mad by insane advertising, enter both binary options and Forex in record time. And nobody seems to know about the existence of binary options market exchanges designed for real investors, as well as about real Forex in Brazil. However, you’re mistaken if you think that everyone earns from real trading 🙂 There are few people like that.
Forex benefits
If Forex is so difficult for a beginner from a technical point of view, why bother? Because it has undeniable advantages.
- Forex is ideal for working with the trend. While in binary options we receive a fixed payout, no matter how far the price has gone, in Forex every pip costs money. And the more the price collects these points, the better for us.
- Forex is a very flexible tool, even too much so. Pending orders allow you to open/close trades automatically at any time when the price reaches a certain level.
- On Forex, you can exit a trade at any time. And the stop loss and take profit options make it possible to close a trade at any price.
- The old Forex companies have large trading volumes, so the normal companies that bring business to the ECNs pay out significant sums without any problems. Payments of 100 to 200 thousand dollars a time are not uncommon.
- Forex has very high leverage – between 1:30 and 1:2000. This allows you to use extremely small amounts (but multiplies the risks).
Disadvantages of Forex
Unfortunately, Forex is much more complicated than binary options. This is what repels many newbies, who go for the binary for its two-button simplicity.
Not only that – in binary there is a fixed loss. You can’t lose more than the value of the option. In addition, part of the loss can be returned by specifying the desired return percentage in advance.
But Forex trading immediately includes all the money. And there are no “bets”. With the help of the lot and leverage, you choose the rate at which your deposit will increase or decrease as the price gains points according to your prediction or goes against it.
In Forex, you always risk your entire deposit. In binary – only the value of a transaction.
Spread
Another fun invention. There is a difference between the buying and selling price of a currency – the spread. A Forex broker earns from this. So when you open a position on Forex, it immediately shows a small minus sign. And if you close immediately, you will lose that amount in the spread.
There are no binary spreads. You press the Up button, a trade is opened and, if the price goes up by 1 point, you’re already winning, you just have to wait for the expiry time to come to an end. In fact, it’s the opportunity to profit by 1 pip without a spread that makes people love binary options.
Stop Loss and Take Profit
That sounds simple enough. It’s the name of the instruction to the broker to close the position at a certain price. However, all traders inevitably encounter situations where the stop loss is broken.
This usually happens in the news – strong news comes out and “breaks” the stop loss, the position is not closed. As a result, you can lose a lot of money. There are often anecdotal situations where a trader goes to the toilet, comes back, but the money is gone – suddenly the market movement has eaten into the value and the stop loss has done nothing. Welcome to Forex, my son.
In the same way, taking profit may not work – lock in profits.
Forex’s flexibility also has a downside. That is, traders who can open/close trades at any time abuse this and encounter the “overtrading” effect.
In Forex, it is extremely important to observe the risk/profit ratio (also known as Risk/Reward), correctly calculate stops and takes. Being able to close a position at a loss when the price goes against you.
For example, if you try to “sit out” a loss on Forex without closing the trade, don’t even think about the price turning – and then your entire deposit is gone. In binaries, you can’t lose more than the value of the option. Never.
So what to choose, binary or Forex?
Do you ever feel confused? Forex in particular seems confusing, right? There’s so much… you can’t even choose.
There’s no choice. They’re different tools and they’re used… in different ways. You choose one or the other.
- Only after working with Forex will you understand why binary options are so good.
- Only with binary trading will you discover the best that Forex has to offer.
If you’re new to binary options, to get into Forex, you’ll need… a penny.
Cent accounts
What is a Cent account? This is a cent account. On Forex, you don’t even need a demo account. All brokers offer the opportunity to work with literally 1-2 dollars. A kind of demo, but with very little real money. For example, $1 on a deposit that is displayed as 100 cents, shown on your terminal as $100 (but it isn’t).
So, with cent accounts, you can learn by risking 1-2 dollars. In binary games, the minimum bet, as a rule, is 1 dollar, so cents are much more profitable to train with.
Two tools – two different principles – one chart. Therefore, binary options and Forex can be considered related. Unsurprisingly, many Forex companies added binary options and then renamed them to fixed and other digital contracts.
Where to use Forex and where binaries
Personally, I have each tool clearly in its niche. It’s very easy to show.
This is the market where I trade binary options:
And this is where Forex comes in:
Trend – for Forex, consolidation – for binary options. This is, in my opinion, the ideal separation between these instruments.
For Forex, consolidation is the most frustrating situation, due to the spread, commissions per lot and very low volatility. Only if traders on tick and minute charts can show their talents. However, on Forex in such a market, experienced people trade strictly with robots and algorithmic advisors.
But for binary options, consolidation, which is also a sideways price movement, is the most pleasant situation. Binary options are ideal for low-volatility markets. After all, we only need 1 positive point during the expiry time. And that’s without a spread! Spotting when a sideways movement is coming is not difficult, both with volatility tools (e.g. ATR) and with older timeframes.
Of course, this is my experience in this market. Binaries can (and sometimes should) also be used according to the trend. For me, sidewalls are literally created for binary options. Just as Forex and shares are ideal in a trend, on the other side it’s binary options that call the shots.
Your task is to find your own niche for each instrument based on personal understanding and experience.
From binary options to Forex and vice versa
Finally, two questions I often hear:
- why many people go into Forex after binary options;
- why after forex do so many move on to binaries?
Don’t you realize that these two questions answer themselves? After binaries, they go to Forex, because… things didn’t work out in binaries. And vice versa: with no results on Forex, they go to binaries.
These guys won’t achieve their goal. If at least one tool provided a strong mathematical expectation, everyone would work with it alone. Indeed:
- who chooses binaries if forex has worked?
- why on earth would anyone choose Forex when binaries, with their limited risks, are much more reliable?
It’s human nature to think that the neighbor’s chicken is better than mine. However, only once you’ve gained enough experience in both tools will you understand where and how to use them. Each has its own niche.
Searching between them in search of where it’s “easiest” is pointless. In binary options and Forex, more than 90% of the population is doing badly and this will continue to be the case. They are different tools with different principles of use. And they should be considered as just one part of trading.
And trading is big. In addition to Forex and binary options, there are:
- futures;
- vanilla options;
- stock;
- indexes;
- titles;
- mutual funds;
- ETFs.
There are a lot of things you can speculate on and profit from.
And no one thing on this list is guaranteed to be better than another – otherwise you’d kill your own mother to use a particular tool. Myself included, after all, we’re all here for money and personal freedom, aren’t we?
The variety available is good. So your task is to use the entire trading supermarket to discover the advantages of each instrument, from binary options to futures, and complex stock options structures.
So divide these tools – binary and Forex – according to their niches. Don’t mix them up. Binary options are not traded like Forex and vice versa. This is the only way to get the best results. If you push the buttons blindly without taking into account the peculiarities of each of the markets, you’ll get a round zero.
