Which Style of Trading Suits You?
In the previous lesson we look at the pros and cons of binary options vs Forex and now you need to determine which best suits you. It may even turn out that both of them will suite you just fine and you just need to understand when each one makes more sense than the other. In order to determine all of that we must first pose a series of questions.
Are You Good With Computers and New Software?
If you are good with computers and learning new software then both binary options and Forex remain possible for you. No matter which style of trading you chose you will need to learn how to actually read the price action on the charts, but with Forex you will need to also learn how to use more a more complicated interface/software than with binary options. Furthermore, if you are to trade Forex trading with serious money you will also need a VPS server to host the software and protect you from power failure and internet outages at home.
If you answered no to this question then it may be the only question you even need to ask. Trading Forex requires you to not only learn about trading itself but also to learn new software. You may end up getting frustrated before you even start and sticking with binary options would probably be best for you. Just remember that the cost of taking the easy route is lower returns and the need to win a higher percentage of your trades. If you don’t understand why this is the case then don’t worry, you will by the end of this lesson.
What Speed of Trading Do You Prefer?
Intra-Day to Longer Term:
If you would like to trade anywhere from intra-day to longer term then both binary options and Forex remain possible for you. Forex will be more profitable though because many of these trades have a much higher than 1:1 risk:reward available, this also means that you could even get away with only winning 60% of your trades and still making a good profit. Binary Options will limit you to a set percentage that is usually always well below a 1:1 risk:reward and that means that you will need a much higher win ratio to see any profit. Both binary options and Forex at this pace can be traded in a set and forget fashion with minimal time and effort on your part.
Scalping / Fast Paced:
If you prefer more action and like to scalp the markets then the trading costs of Forex start to become an issue. The spread in particular becomes more and more important the faster you try and trade. With binary options there are no trading costs and no spread so they start to make more sense than Forex. The returns will still be below a 1:1 risk:reward but you would also have a hard time maintaining higher risk:reward with Forex.
What Kind of Risk Capitol Do You Have?
If your risk capitol is low then it really depends how low, some Forex brokers have extreme leverage and allow you to trade micro lots. For just $200-$300 you can safely trade micro lots when the leverage is good and it will allow you to play around with minimum risk per trade, $2.50 per trade would be an example if you were using a 25 pip stop loss. By trading Forex you may have the chance to make $5.00 from that $2.50 risk, if you trade with a binary options broker that allows such small amounts then you could only expect to make about $1.75 from your $2.50 risk. The bottom line is that both Forex and binary options remain available to you.
Once again both Forex and binary options remain available to you and it all boils down to your answer on the previous questions. Just make sure you stick to regulated brokers if you are investing large amounts and remember that even they sometimes they go bankrupt. Do your research and don’t trust just anyone with your funds.
When Does Forex Make Sense from a Logical Angle?
If you are looking to trade anywhere from intra-day and higher then Forex is clearly the best choice. Your risk:reward control along with not committing to a ‘time duration’ for each trade will allow you to often take trades that yield a 200-300% or higher return. That in turn will allow a lot of room for error since you will be able to be profitable winning even just 50-60% of your trades. At the very least you can never drop below a 100% return and be profitable with a 60% win rate. These are the benefits of adding the complications of learning new software and having to think about leverage, margin, commission, and spread, plus needing to think about getting a virtual private server (VPS).
When Do Binary Options Make Sense from a Logical Angle?
The first instance where binary options would make more sense is quite simply if you wanted to keep things as user-friendly as possible. Not everyone finds new programs easy to learn and trading binary options intra-day, longer term, or for scalping is all very possible. With anything other than scalping you will just have to accept that while you are making 70-80% returns others are making 100-300% returns on the same trade prediction.
The second instance where binary options makes the most sense is strictly for scalping, and this also applies to those who can trade Forex. When it comes to scalping small moves on any given asset the last thing you want to deal with is spread and commissions. The fact that binary options trading is so easy to do means that if you know how to trade Forex then binary options are child’s play. This is where you start to see the advantages of doing both because sitting down to scalp is hands-on no matter how you do it, intra-day to longer term Forex trading with the correct tools is set and forget and only takes minutes per trade.