If you are new to financial markets, it is a legitimate question to ask yourself. Is binary options trading easy compared to forex? Is it more risky? From a theoretical point of view: we would say yes! Binary options are a lot easier to understand than forex trading instruments (CFD, Swaps, Forward Rate Agreements, Dual Currency Notes…). All these financial instrument valuations are impacted by many factors such as volatility, deposit rates, leverage level, bond yields… The way binary options operate and generate profit or loss is a lot more straightforward. You know the achievable return of your investment at the inception of the transaction. The only factor that will impact the payoff of your investment is the price of the underlying at maturity.
Never forget the risk associated with binary options
Let’s say you buy a HIGH binary option on an asset with maturity 15 minutes and a return of 80%. Only two outcomes are possible. Either the price of the asset after 15 minutes is above the initial price and you earn the return, or the price of the asset after 15 minutes is below the initial price and you lose your invested amount. You may nevertheless recover the “return on loss” proposed by most brokers.
It is relatively easy to understand binary options
For those of you who would like to have a first experience in trading, binary options are one of the most adequate financial tools. You don’t need years of experience in financial markets, trading, technical and fundamental analysis to trade binary options. It is really easy to understand how they operate and there are few factors to select and adjust. Of course, you should never forget the risks implied by such financial instruments. If you invest on the wrong scenario, you are likely to lose all your invested capital in a short period of time. However, most forex instruments can result in losses far greater than the invested amount if the market moves in the wrong direction. This is because most forex instruments are leveraged instruments. You only invest a small portion of the required capital (1% to 5%) but you have to add more capital if the underlying asset goes in the opposite direction.
Most people start to understand these differences. This is why forex volumes are steadily trending lower over the last years while binary option volumes are exploding. This also explains why more and more forex brokers are adding binary options to their instrument portfolios. However, pure-players such as OptionTime, AnyOption, TopOption or 24option already have a strong track record in the binary option trading business and it will be hard for newcomers to compete.