The difference between binary options vs traditional options is in its trade structure. Although there are differences they are also similar in many ways. Underlying assets are traded in both markets and they have a predetermined expiry period or date that is determined before placing a trade. The different types of assets that are traded in both the markets are also similar with some assets not traded in the binary market.
- It is a simple and structured way of trading where traders bet on two possible outcomes in a trade.
- The trader may be able to get a fixed return as all trades must go to the expiry period before the outcome is decided.
- In binary options the traders are obligated to exercise the option when they expire.
In this market complex price quotation systems are not there and instead traders may make use of the market price of the underlying asset to evaluate the performance of the trade they had placed. The basic options include high/low, range and in touch and no touch. You may not be able to buy the asset at a later date in this market.
- The trader is able to make profit in this market depending on how the underlying asset moves during the option period.
- The profit or loss in binary is fixed whereas the profits in traditional market are small.
- You may be able to increase the profit when you understand the trend of the asset before you place a trade.
- Similar to traditional options, binary can also be traded in monthly increments. However the trades are placed in increments that range from 15 minutes to 1 hour.
- Traders may choose the traditional option of buying an asset at a later date (month or years). They may choose to exercise or not exercise the option at the expiry time.
- The option is usually exercised depending on how much the asset has gained in value. You can choose several ways of trading when you choose the traditional method.
As a trader you may also choose to close the trade early. They may not be able to do so in binary options. Some brokers have started offering the option of early close in binary and this enables the trader to hedge.
- Compared to the binary options market, the traditional option market is more risky.
- Leverage, margin requirements and larger commissions increase the risk substantially when you choose to trade in the traditional market.
As trade payouts are displayed before execution in binary market they have reduced risks to the trader. This can help in minimizing the losses easily.
After you become aware of the basic difference between binary options vs traditional options, you can choose any type of investment option you want depending on your individual trading preference.