Are Binary Options Riskier Than Forex?

In the world of trading, the ultimate goal is to make as much money from the market as humanly possible. As a result, we’ve seen several high risk, high reward trading vehicles rear their heads over the past couple of decades. Two of the most popular of these are binary options and forex trading. So naturally, one of the biggest questions that seems to be popping up is, which of these trading vehicles is more risky. The reality is that binary options trading is the more risky process. However, it just so happens to be the most profitable. So today, we’ll talk about what makes binary options more risky and how to successfully trade using this trading vehicle.

What Makes Binary Options Trading More Risky Than Forex?

In the forex market, the risk comes from high volatility. Essentially, currency is the most in demand asset in the world. As a result, we tend to see quite a bit of fluctuation in price, much of which is unpredictable. However, in the world of binary options, the risk isn’t necessarily derived from volatility. Instead, much of the risk associated with binary options is based around loss exposure. That’s because, when trading forex, it’s very rare that a trader will lose the entire principal investment associated with a trade. In binary options, this is common practice. Essentially, when trading binary options, traders make predictions with regard to which direction an asset is likely to move. If those predictions are correct, the trader stands to receive returns of around 80%. However, if those predictions are incorrect, the trader will lose his or her entire principal investment. As a result, to break even, binary options traders have to be correct between 55% and 60% of the time.

It Is Possible To Turn Large Profits Trading Binary Options

While trading binary options is a relatively risky process, it’s not one that’s known to be less than lucrative. In fact, successful binary options traders have the ability to realize massive gains. The key is following a plan for loss exposure and applying the right binary options trading strategies. There are two key factors involved in a solid plan…

• Loss Exposure Management – Because loss exposure is the single largest driver of risk in the binary options trading industry, it’s important to use loss exposure management strategies. These strategies ensure that you don’t have too much of your trading capital tied up in any single trade or at risk at any given time. One of the best loss exposure management strategies is the 5/15 rule. Using this rule, traders ensure that no more than 5% of their entire trading funds are used on a single trade and no more than 15% of their funds are used in active trades at any given time. As a result, if losses are realized, the trader still has money left to work with.
• Strategies For Stronger Returns – Another big key is using strategies that are designed to maximize your earnings. These strategies are designed to ensure that when you realize gains, the gains are big! One of the best of these strategies is known as the correlation strategy. This strategy takes advantage of the fact that some assets move in tandem with each other and some move against each other. As a result, when one piece of news is released, multiple trades can be made to maximize on the trends resulting from the news.

Final Thoughts

While binary options trading can be risky business, it can also be overwhelmingly profitable. By taking advantage of solid loss exposure techniques and using strategies designed to maximize your profits, you are likely to be profitable.