Forex vs Binary options

With binary options you have a contract where the trader selects its prediction about the future price of a given instrument in a given market, which is called underlying asset.

This prediction states either a higher, lower or even the same price chosen by the trader, known as the exercise price or strike price.

Next to the prediction, the trader chooses a time limit, a run for their prediction. When this period ends, not before or after, you will see if the prediction made by the trader is correct or not.

The Forex market is a spot market, in which contracts of sale are running all the time and the trader pays the market price at one specific time.

In binary options, traders do not invest money in the asset itself, but rather invest in speculating on the future price of the underlying asset.

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One of the differences between the Forex market and binary options is the way profit and losses are calculated.

Gains and losses in Forex are calculated by subtracting the price paid at closing time minus the opening price when you laid your investment; the number of pips is obtained from the calculation.

The value of each pip is multiplied by the number of pips obtained and you get the gains or losses of the transaction.

On the other hand, binary options profits and losses are calculated as a fixed percentage of the invested capital. Traders only care if the final price is higher or lower than the exercise price.

When opening a binary option traders know how much they can earn and how much they can lose no matter how the market behaves. The possible amount of gain or loss remains constant and they know from the moment.