You can trade currency pairs in both the traditional sense with a Forex broker, or through binary options. Both have benefits, and you can make money in both with a lot of the same skills. Which one is better overall has been a big matter of debate over the last couple years as binaries have become more and more popular, but the fact remains that there is no distinct “better” way to trade yet. Both can be extremely beneficial to you, but your own personal circumstances and your trading background will help determine which one is actually going to benefit you the most.
So, Which One?
Binary options are great because they advertise a high rate of return per trade. And this is definitely a big benefit. But you need to look beyond this before you buy the hype. An 81 percent return is amazing, and very unlikely to happen elsewhere, but that’s not the end of the story. Because binaries are so short term and don’t have a lot of flexibility with expiries, there is a ton of variance with them. Perhaps you can give a pretty good estimate on where prices will be a year from now on the EUR/USD pair. That doesn’t mean that the path to get there will be linear. Most assets, including currency pairs, move in an oscillating manner: they go up and down on their way to get to where they’re going. This has opened up the doors for lots of short term traders to take advantage of these ups and downs, but the fact is that short term oscillations are a lot harder to predict than long term movements are. If you’re going to try and take advantage of the shortest terms in binaries–the 30 and 60 second trades–your variance is going to be even higher, and thus your error rates will be higher.
These problems exist in both binary options and Forex trading, but are more pronounced in binary options because so many people are drawn to the short term trades. A lot of Forex traders focus on short term trades, too, but there is a lot more leeway with the spot Forex market. If a trade doesn’t pan out in 60 seconds, you can keep it open longer at no penalty in the vast majority of cases. The only time this will ever be a problem is if your broker has a carryover rule where you are charged a fee for keeping a position open after “official” trading hours have ended. This isn’t a big fee, but if you hold a position for a few days, it can eventually erode your earnings. So, in truth, both types of trading have drawbacks in flexibility, but with the Forex market, you have much more.
Does Account Size Matter?
Yes. How much cash you have in your trading account is important. As a general rule, you will need a higher minimum amount in a spot Forex account than you would in a binary options account in order to meet a degree of success. Experts tend to agree that a bare minimum amount that you should deposit into a Forex broker is about $2,000, whereas you can get away with $500 or so with a binary broker. This is mostly because a worthwhile trade in the Forex market needs more cash since you are looking at percent changed rather than a flat earnings rate. In order to take advantage of the small percentages of change in a currency pair, you need a lot of cash. Leverage helps you multiply your money, but it also multiplies losses, too. Binary options can allow you to minimize this risk, yet have high rates of return with smaller amounts. Really it’s your decision, and if you avoid using excessive leverage, both can be low risk if you do it right. But in most cases, you will need more starting cash in the Forex market to see significant progress than within the binary markets.