Binary options or CFDs – what investors need to know?

Binary options and CFDs are often criticized, because they are highly speculative financial transactions and many newcomers have lost very large sums of money in a short time. However, many investors continue to try both forms of trading, because despite the high probability of loss and profit, the probability is high. What you need to remember when investing in CFD or binary options, and how to identify which of the two options is best for you, is explained in the following article. Also possible Switch from one trading variant to another Let’s take a closer look and explain how newcomers and converters need to look, so that online trading is successful and no financial problems occur.

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Binary options are designed specifically for beginners

Binary options are very easy to understand because they are simple financial bets. Unlike CFDs, where the exact profit depends on the amount of price change, binary options are only “cash or not”: either the trader makes a profit of the amount set from the beginning, or he loses his bet completely. The payment is already included in the difference between profit and loss, and thus need not be calculated separately.

 

 

The trading course has also been significantly simplified for binary options. When trading with CFDs, there are many different things to watch out for: positions must be opened at the right time, and the decision on when to close them again must be made by the trader. There are many other things to remember, for example, with different order functions at a given loss, the position can be closed to limit the maximum loss. Also taking profit on the set amount is possible. On binary, however, the trader only needs to open a position and set the maturity. Everything happens automatically, so that the trader here can take some influence on his profit, but also the potential for error is greatly reduced, which is very suitable for beginners.

 

CFDs offer more options and cost advantages

When choosing between binary options and CFDs, binary options are often advised, as they are less complex and therefore easy to understand even for beginners. However, here, we advise not to decide quickly on CFDs, because these also have some major advantages.

CFDs provide all aspects of off-exchange trading, and on binary options, only a few sections have been selected. Therefore, they offer more opportunities and the traders make a more valuable trading experience that can be important for their entire career.

Also, the cost advantage is on the CFD side. For binary options, only the payment of 80-90% of the bet is made in case of a win, while the loss is 100% of the bet. For some suppliers, profits are lower. Therefore, binary options brokers make an average of more than 5% profit per trade, which is quite high. For CFDs, fees are usually calculated in the form of spreads and are much lower than binary options. In some trading accounts the commission is due not to the spread, this is far below the broker’s profit in binary options.

Therefore, there are several good reasons for CFD. If you take the time to deal with the complexities of both products, you can profit from them in the long run with better conditions.

Now open a trading account on IQ Options 

 

Trade against brokers

Critics of forex trading often criticize that brokers set the course themselves. This is the case with almost all brokers for binary options and also the majority of CFD brokers. Therefore, the broker has the opportunity to make a profit when the trader loses his trade, because the broker acts as a direct partner for trading.

For this reason, brokers are often accused of manipulation, which has happened repeatedly in the past. Broker fraud should be prevented by comprehensive regulations. Competent regulatory authorities pay attention to irregularities and, if in doubt, intervene quickly. However, fraud is not excluded, therefore customers should only trade with brokers with good regulations and a solid reputation should act. Doubtful brokers can still offer good trading conditions, when traders cheat their money, registering with the provider is almost automatically a loss.

In CFD trading, trading problems with brokers can be avoided by choosing a so-called STP broker. He does not plan his own course, but forwards customer orders directly to the market, where he executes among different participants at the best conditions available at the time. STP brokers are considered by industry experts to be very safe and often also offer excellent trading conditions.

Above all, binary options trading carries a high risk of price manipulation, therefore customers should take special care when choosing a broker.

 

There are not only differences, but also many similarities

Among other things, binary options are modeled on CFD trading and aim to offer newcomers a trading opportunity that, while offering the benefits of CFD trading, is easier to understand and implement. Therefore, in addition to binary options CFD differences also have a lot in common with this. Also in terms of risk, there are great similarities. Therefore, traders do not need to invest in binary options or CFDs, which cannot be done easily. A complete loss of the deposit at any time. Some CFD brokers also have an Additional funding required so that more money can be lost from clients who have deposited into their trading accounts. The loss must be offset by other deposits.

The variance is in binary options although slightly higher than in the already highly volatile subject of CFD trading. This is related to a lower choice of results, as this depends more on chance.

Binary options and CFDs require good risk management if they are to be taken seriously. Otherwise, the risk of total loss due to variance is so high that it will happen sooner or later. Then the trade balance is lost and the trade cannot continue without new investment. Even with good risk management, traders are not 100% protected from losing their entire deposit. However, the high risk can be significantly reduced, although it is still a highly speculative form of trading.

 

Switching to binary options or CFDs is not difficult

If you have carefully studied the risks and now choose binary options or CFDs, you do not have to worry about making the wrong choice and now making a long-term commitment to an option that is less suitable for you. Since both financial instruments are very similar, you can switch between CFD and binary options at any time. Of course, in this case, it is always important to familiarize yourself with the peculiarities of the new product and, if possible, to practice first with a free demo account , but the trading principles are very similar for both products.

Now open a trading account on IQ Options 

 

If you switch from binary options to CFDs, you need to learn some additional things, because CFDs are more complex. Many brokers offer free training materials, which will usually be paid for. Even with additional financing you have to deal from scratch. Although it rarely happens that positions for margin calls are not fast enough to be automatically closed in high volatility but it can happen that CFD traders lose divided by their real contribution. So it was the last time in 2015 the famous “Franken shock” when many traders not only lost the entire balance, but also had to declare personal bankruptcy. Therefore, traders need to familiarize themselves with the stop loss function in CFD trading from the beginning.

If you are converting from CFDs to binary options, you already know the basics of trading. Note here that binary options have higher variance than CFD markets which are already volatile. Therefore, more conservative risk management is required if you want to be serious about long-term profits trading with binary options. Even choosing the right broker is even more difficult with binary options than with CFD trading, because there are more dubious providers and the payout amounts are sometimes very different. If you want to make a profit with binary options, you must ensure that the highest percentage of the stake is paid in the event of a win.