The Profitability Factor: Binary Options vs Forex Trading

Simply put, the profitability factor of a trade is the ratio of how much money can be made versus how much money is lost in that trade. Even though this concept is used to basically describe trading systems, we will adapt this a little to compare the profit factor in the binary options market versus other conventional markets such as the forex market.

When deciding on what financial market to invest in, the profitability factor is definitely one of the key points that must be taken into consideration. After all, the whole essence of investing in the financial markets is to make money, and the more money that can be made from an investment, the better. For instance, if you could put $1200 in one market and make $300, but if there is another market that can take $800 to make $300, the latter would obviously be more profitable because an increase in the invested amount would deliver more returns assuming the same level of profitability is achieved.

This is where the appeal of the binary options market lies. Using some of the trade types such as the Call/Put options with short expiry times that start at 60 seconds or 15 minutes, it is possible to achieve a level of compounded returns that gives this market a higher probability factor than the other financial markets. Let us take the forex market and the binary options market as markets that can be compared on the basis of the profitability factor.

Theoretically, can someone with $500 in the forex market make $5,000? In theory, he can do this if he is able to make 250 pips from 2 trades, staking all his money in the trades. But in practice, we know that this is not possible. There are leverage and margin requirements to consider, and staking all your money in one or two trades in order to hit it big is not going to work in the forex market. Generally, it is accepted that traders must not risk more than at most 5% of their accounts in the market at any one time, so a trader with $500 in the forex market is going to need at least 50 to 100 profitable trades to make $5,000 out of his money. This is surely going to take quite some time to achieve, as the profits in forex are purely a function of how many pips the trader can achieve in a trade. If the trader makes only one pip in his favour, all he goes home with is the financial equivalent of one pip.

Now let us examine the case of a trader with $500, seeking to make $5,000 in the binary options market. One key point to consider is that profitability in the binary options market is not a function of how many pips the asset has moved in the trader’s favour. Unlike in the forex market where a pip in a mini-lot trade is equivalent to $1, a pip in the binary options market in the trader’s favour is equivalent to the entire payout for that trade. Consider this. A trader looking for a quick scalp, stakes $100 in a trade in the forex market, and makes five pips profit. He goes home with $105 (profit + capital). Another trader stakes $100 in the binary options market for a trade with a payout of 80%. The asset ends the trade with one pip in his favour, and he walks away with a payout of $180 (profit + capital), $75 more than the forex trader. By the time 10 of such trades have been taken on an intraday basis, the forex scalper goes home with just $25 profit while the binary options trader would have gone home with $800 profit. This is a profitability factor of X32 in favour of the binary options trader for every day both traders are in the market, assuming profit-making frequency remains constant. With such astounding figures, we really wonder why retail traders are flocking to the forex market in droves when they really ought to be trading the binary options market.

Another point we can use to illustrate the profitability factor in the binary options market is the fact that a trade like the Call/Put trade can be concluded in as quick as 15 minutes. Unless you are a master scalper, it is hard to make any real money in forex in just 15 minutes, unless you are probably trading the news. Trading the news is not a piece of cake and many more will lose money than make money on it, so a forex trader cannot really count on that as a source of making money in 15 minutes in the market. But for binary options traders, this is how the market is structured. You can actually trade 15-minute trades several times a day on several different assets for great results.

It’s clear, therefore, that the profitability factor of the binary options market outstrips that of the forex market by a mile. Not only is this the case, but a trader with little money in the forex market will find it really hard to get going because the same effort required to trade a $500 account is the same required to trade a $10,000 account. In contrast, a binary options trader can take the little money that he has and make it go a long way.

Binary options traders must be adequately prepared to wring out maximum profitability from the binary options market by setting themselves in position to receive proper training and by using an assemblage of tools that will make their job worthwhile, check out our binary options blogs by professional traders to learn what to do.