Is it forex or binary options? – Social News XYZ | Jewelry Dukan

New Delhi, Sept. 18 (SocialNews.XYZ) According to research, 25 percent of traders find it difficult to differentiate between forex (some notable forex brokers are OctaFX, AvaTrade and FXTM) and binary options, while 14 percent think they are the same. After all, they share similar charts, indicators, and trading tools. However, these two financial instruments are completely different.

What is Forex?


Forex is the largest and most liquid market in the world. Large financial institutions, banks and investment management companies use Forex to exchange and trade currencies. If you are on holiday in another country, you can also participate by simply buying that country’s currency.

Exchange rates change every day. You can see it just by looking at the screens in an exchange office. If you buy a currency today and its price goes up tomorrow, you can sell it and make a profit. This is exactly what Forex traders do – albeit with more complex tools – by tracking price movements in real-time. When it comes to binary options, the process is quite different.

How do binary options work?

Some talk about binary options “trading”. That is not completely right. Rather, most people use binary options as a slot machine. With such a roulette there are always only two possibilities – hence the name -: The course rises or falls during a fixed period of time. For example, if you bet Rs 100,000 on the EUR/USD which is going to rise in the next 5 minutes and it goes up, you will get the bet of Rs 100,000 plus up to 80 percent bonus, for a total of Rs 180,000. However, if it goes down, you lose 100 percent of the money wagered.

The differences between the two financial instruments are presented below. Investors can use them to understand whether they are dealing with a forex broker or a binary options provider when they start investing online.

timelines

With forex, investors can open trades on currency pairs and hold them for as long as they wish. During this time, the price may fall below the level at which they entered the trade and then after some time rise again. Trading will still result in them profiting. Even if the price stays low, they are unlikely to lose all of the money they have invested in the trade.

In binary options, if the price falls and does not recover before the option expires, binary options users will lose the money they invested in the bet.

gains and losses

In Forex, the mechanism behind profits and losses is transparent. It is almost the same as buying physical currency and selling it for a profit the next day.

In binary options, it is unclear how profits and losses are calculated. Again, the best example of how it works is betting. A binary options user receives betting odds based on the option’s expiry time and instrument, as well as some other unknown parameters. These odds are usually less than 80 percent of users’ money bet. But if they lose, they lose 100 percent of it.

risk management

In Forex, traders can manage their position while it is open. They can also manage risk by setting stop-loss and take-profit orders that close the trade once the price hits a certain profit or loss level. In binary options there is no way to change the bet once it is open. If you close it before it expires, you lose the bet completely.

margin trading

By using leverage, traders can open positions in sizes far exceeding their initial investment capital, allowing for a much lower barrier to entry into the Forex market. Margin trading is not available for binary options.

order types

While forex traders can set up to 10 order types on the renowned MetaTrader platforms, adjust their strategies and enter or exit the market at a set time, binary options users are in most cases only two order types available. All they can do is bid on the rising or falling price.

legality

While the forex market is regulated and many brokers around the world hold licenses issued by financial authorities, binary options are illegal in many countries including India.

conflict of interest

In most cases, forex brokers send the trades made by their clients to the interbank market, where they are executed. The forex broker does not profit from the losses of its customers. On the contrary, it is interesting for them to be successful as it often means they trade more and bring in more money in trading fees.

Binary options providers do not send the trades anywhere. What do they benefit from? Your customers lose bets, just like a betting company. Such providers make money on losing bets, are not subject to regulation and do not pass the trades on to the broader market for execution. These facts create a conflict of interest that is not a desirable path for financial cooperation.

Knowing the risk and reward of a “trade” in advance does not make binary options a safer instrument. It is the fixed expiry time, win/loss mechanism and lack of variability in order types and risk management techniques that puts the investor’s money at greater risk.

Since binary options providers are aware of the questionable qualities of their products, many of them try to make their offerings appear more trustworthy by adding forex trading as an additional feature. Traders should understand the risk these providers can pose to their capital. Such “binary options and forex” companies undermine the credibility of the forex industry as a whole by bringing together two completely different financial instruments, one of which has all the hallmarks of gambling activity.

Forex only brokers in India include OctaFX, Exness and XM and should be viewed as intermediaries between potential investors and the interbank FX market.

(IANSlife can be contacted at ianslife@ians.in)

Source: IANS

Is it forex or binary options?

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