I get this question every so often “Which do I prefer Spot Forex or Binary Options trading” and my answer is a simple one. BOTH! They are two different distinct beasts, traded with two different psychologies. One is more TIME centric and the other is more PRICE centric. They both work in time/price but the focus you will find from one to the other is an interesting split. In my opinion most spot forex traders overlook time as a factor in their trading which is a very very big mistake where the average binary options trader has a more balanced view of time/price, which in turn simply makes him a more well rounded trader. Binary Options by their nature force one to exit a position within a given time frame win or lose which instills a greater focus on discipline and risk management. In forex trading this lack of discipline is the #1 cause for failure to most traders as they will simply hold losing positions for longer periods of time and cut winning positions in shorter periods of time. In binary options that is not possible as TIME expires your trade ends win or lose. Below are some examples of how this works.
Above is a trade I made on the EUR/USD buying in an under 10 minute window of price and time. As a Binary Options trader this focus will naturally make you a better trader then the below example of PRICE a spot forex trader who focuses on PRICE which they will totally ignore the TIME element to their demise ultimately. This psychology of being able to focus on limits and the dual axis will aid you in becoming a better trader overall, regardless if you trade spot or binary options.
The very advantage of spot is its very same failure. The expansion of profits exponentially from 1 point in PRICE. This is to say that if you enter a position that you believe will increase in value and the price does not increase yet accelerates to the downside the normal tendency for most spot traders is to WAIT it out or worse add to the losing positions as they figure it will come back. This lack of focus on the fact the acceleration in TIME to the opposite desired direction causes most spot traders to be trapped in unfavourable positions all because they do not plan time into their reasoning and this leads to a complete lack of TRADING DISCIPLINE.
As my trading is based on Computational Fluid Dynamic Modelling I have to note many different variables encapsulated by the two primary variables of TIME/PRICE. I have never had the luxury of just buying/selling and holding for sunny days! The nature of binary options force one to have a more complete mindset of trading off both Y = Price Range and X = Time Range as limits are applied. Binary Options will simply make you a better overall trader from the START. Conversely on the flip side there are some caveats that just like spot trading FAILS you have in Binary Options. Binary Options by their nature require a greater then win rate as each bet is factored 70-90% gain vs 100% loss or a # close there in of. So this means that you need to achieve as a Binary Options trader a win rate above 50% on average 54%-58% to just break even. This imbalance causes many binary options traders to overtrade or revenge trade which is just as bad as holding/adding to losing positions as a spot forex trader. The automatic 1 to 1 trade basis of a loss between 50/50 causes your mind to find a factoring of needing to win which can cause the above negative psychologies if not kept in check with Money Management and EMOTIONAL control.
In conclusion my feeling is starting out as a TRADER that Binary Options offer a better FOUNDATION to learn trading PERIOD. The simple reasoning is that the focus on TIME/PRICE combined is like looking both ways when crossing the street. The average spot forex trader only looks at PRICE which means he is only looking at one side of the traffic and all I can say to that is SPLAT!!! The ability of learning to trade Binary Options with TIME and PRICE would aid in making one a much better spot forex trader. This is why If starting out in trading, that Binary Options offers the lowest cost best training entry to the trading arena over traditional spot forex brokers. There are also advantages tax wise and such with Binary Options that I will discuss in the future! Till next time this is Lotz of Botz saying have a great day!