What to Choose: Forex, Binary Options or Stock Market?

Published:4 October 2017 Updated:4 January 2024

An unambiguous answer to this difficult question is interesting for many beginning traders, so we decided to deal with it in our article. So, stock market, Binary Options Trading and forex – These are different markets with many advantages and disadvantages.

 

What to choose, forex or binary options?

In forex, as in options, traders gain income on price differences of the same instruments (currencies, stocks, commodities), but the working methods are different: in options to gain income you only need to determine the dynamics of the asset, using market analytics and risk management system. Forex trading takes into account the following parameters (leverage, lot size, number of open trades, type and size of spread, orders).

What to Choose: Forex, Binary Options or Stock Market?

Thus, a binary trader earns on the dynamics of quotations (all that is required is to specify the dynamics UP or DOWN), a forex trader earns on the number of points of closed trades. If options contracts allow you to know in advance the amount of your income, on Forex all depends on when the deal will be closed; if in options for trading you only need the buttons KOLL and PUT, then on Forex there are more of them, different types of orders are used. Binary trading can bring profits up to 80% at 100% risk of loss, on forex the profit can be 6 times the loss. Comparing these markets, we note that option trading is easier, it requires less knowledge, more often speculators trade options first, then move on to forex. Both forex and options are accessible markets for a small capital, but they have a higher risk which is why they are so popular today.

 

What should I choose, forex or stock trading?

Forex, like binary options, gives you the opportunity to make money on both falling and rising rates. With the stock market everything is more interesting. If you don’t have money, but you want to work on the exchange, you can use borrowed funds which Stock Broker is ready to make available to you to buy the right number of shares. You can also take advantage of Short sales, where, unlike borrowing money from a broker, you can borrow shares from the broker, which you can then work with according to your stock market trading strategy.

Learning forex, options, and trading in these markets is easier than in the stock market, and they are more accessible to a wide range of interested parties due to the low entry threshold. To buy stocks on a stock exchange, you will initially need more capital. The stock market also imposes restrictions on leverage, investors trade with small leverage or for their own money, which makes trading accessible only to wealthy investors. forex, as we know, is ready to provide leverage of 1:100, 1:500, this market gives the opportunity to earn a decent income with a minimum entry threshold, which is especially attractive. In the stock market, an investor must buy a stock with his own money before he can earn income from it, a forex trader, on the other hand, trades assets that are not available. By acquiring company assets, the investor becomes a co-owner of the organization and can actively participate in its management.

Forex is a volatile market, it allows you to earn more and in the short term, the stock market is focused on long-term transactions. Forex offers round-the-clock trading, traders trade both day and night, when it is convenient for them, the stock market operates within the trading session. As for the predictability of the market dynamics, the situation here again is on the side of Forex: all events that will affect the dynamics of quotations are happening according to the schedule, traders know the list of news in advance, to get a good profit it is enough to have a good analysis.

The stock market works differently: share prices can be influenced by factors that are difficult to predict (personnel changes, orders of a specific company), these are mostly microeconomic and individual reasons that one should be able to notice and foresee. The advantage of the stock market is stability and lower risks.

What to choose in the end: Forex trading, binary options trading or stock market opportunities, everyone decides for himself, because these options start with the investment of funds by the trader, who would like to get income. However, it is possible to use these types of trading together, let’s look at how exactly.

 

Insurance of risks on the stock market

Risk insurance in the stock market is a serious measure that will prevent you from losses and damages. It is worth remembering that assets on a broker’s account are not insured. In this case different risks are common on the stock exchange: non-market risks (force majeure, which do not depend on the market), the risks of direct losses during the transactions, the risks of a sharp fall of the ruble against major currencies, which leads to losses. To reduce the percentage of risks, choose a reliable broker in advance. In Russia the activities of stockbrokers is regulated by the CBRF and regulated by laws. One of the main tasks of an investor is to create and follow a stock market trading strategy.

Optimally combining risks and returns. In many respects, the classic way to reduce risks and achieve the necessary returns is the competent compilation of an investment portfolio, which includes different assets with different collateral and risks.

In addition, insurance companies in the stock market, one of the main participants of the exchange, which hedge transactions, which is especially common on U.S. exchanges, can help reduce the risk of loss. The cost of insurance depends on the reputation and experience of the company. Hedging most often serves as a necessary tool for protection against risks. For insurance to be most effective, companies draw up a hedging program, study past risks and make future forecasts.

Insurance companies on the stock market must have a professional staff, so, they include economists, analysts, insurance agents. By carrying out risk miscalculations, such companies do important work, having made wrong forecasts, they lose money and reputation. The insurance function is little used by investors in the Russian stock market, but many studies suggest that this situation is already changing. Risk insurance has a favorable effect on the development of the securities sector as one of the most high-risk sectors and supports the economic stability of the country as a whole.

Insurance of risks on the stock market

 

Hedging as a way to reduce risks

The concept of hedging (from English hedge – “insurance”) is quite widely used as an effective strategy to minimize risks in the binary options market. It is, quote Wikipedia, “opening trades in one market to offset the impact of price risks of an equal but opposite position in another market. Today, binary options market participants are particularly active in using hedging in trades by opening positions with opposite bets (UP and DOWN). Or otherwise, Koll (buy) contracts are hedged with PUT (sell) contracts.

This strategy is simple, understandable and convenient for Internet traders of any level and experience of stock trading, makes the work in the market more calm, especially for those players who are not ready to risk their capital. Hedging guarantees a hundred percent stable income even if one trade turns out to be correct and the other is unprofitable.

In general, all financial markets are characterized by increased risks. To protect its funds from losses, the stock market also uses the concept of hedging, which acts as an agreement between two parties to buy and sell goods at a specific price in order to insure its value against possible price fluctuations. The role of hedging is difficult to underestimate here. It is a reliable way to preserve your capital and reduce the risk of losses. According to Wikipedia, the most popular type of risk insurance is transactions with stock futures contracts, because the futures exchange is characterized by the absence of agent risks, the contract will be executed in any case, which is guaranteed by the exchange itself. When hedging by buying futures, the buyer is insured against rising prices; when hedging by selling futures, the stock is insured against a possible drop in value.

Hedging can be full or partial. With full hedging, the participant protects the entire transaction amount from risks with the help of futures. Thus, the hedger adheres to a passive strategy, which enables stable trading, but the risk remains of not making a potential profit if the market starts to rise. With partial hedging, which is more common today and is considered more modern, the hedger acts more actively by selling his assets piecemeal. This strategy has several types of hedges. In cross-hedging, transactions are made with futures that have different assets, the hedger trades those instruments that are currently rising in value.

In a continuous hedge, contracts are purchased for the amount of assets that need to be insured for a specific time. After the contracts are executed, new futures are purchased according to similar rules, etc. In the case of anticipatory hedging, futures are traded before the trade is executed. In selective, flexible hedging, assets can be partially insured.

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