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Binary options provide only two eventualities. Either you will receive a profit if your trade wins or you will lose your deposit but collect a rebate in the case of losses. Your trade finishes in-the-money at expiration as price is well beneath its strike price as identified on the above chart by the label ‘in-the-money’. Subsequently, you receive a profit equating to $500*80% = $400. To capture the same return by trading Forex directly, price must have advanced by over 250 pips in your favored direction. As the EUR/USD could take many hours to achieve such a result, your position would remain very vulnerable to many volatile events during that time. Consequently, as you can conclude after analyzing this example, binary options can definitely reduce the complexities of trading Forex directly. This is primarily because your profit objectives will be much better defined and far more obtainable. In addition, your decision-making will be greatly simplified. However, binary options have one major downside compared to reading Forex directly. This is that you must devise a strategy exhibiting a win-to-loss ratio of 55% or higher when utilizing binary options in order to merely breakeven over any designated time-period. This is because you will only collect between 65% and 85% when your positions expiry ‘in-the-money’ but will lose 80% to 100% when they closed ‘out-of-the-money’. This very important feature implies that implementing a gambling attitude over any specific length of time will only generate sizeable losses. As this approach is seriously flawed, professionals stress that you must utilize well-tested strategies and tools in order to capture consistent and worthwhile profits. In contrast, you do not need 100% of your positions to be winners in order to be successful at Forex trading. In fact, you can even lose a larger percentage than you win. However, under such circumstances you must ensure that the size of your wins is constantly larger than the size of your losses in order to record a profit over the long-term. For example, your trading strategy can generate profits with a win-to-loss ratio of just 1:1 as long as its reward-to-risk ratio is at least 2:1.
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