Concepts such as binary options and CFDs are on everyone’s lips, and it is not uncommon for the broad masses – especially beginners – to think that there are no major differences between these two types of trade. There are certain similarities, but basically binary options and or Social Trading at CFDs can not be thrown into one pot. Especially beginners should be extensively informed about the differences in the different types of trade so as to decide which is best suited to the achievement of the personal financial objectives.

Binary options: advantages and disadvantages

Binary options are the so-called exotic options and belong to the category of terminations. Traders can, in principle, place themselves on rising or falling prices (call and put options) of an underlying (eg currencies, equities, indices, etc.). In the case of trading with binary options, therefore, only a directional decision is taken with regard to the price development of a particular underlying. In the end, it is only important whether or not the option for the time an more info of the trades determined by the trader is in the when IQ Option come money. For example, whether the underlying is doubled or tenfold at the end of the expiration time, does not play a role in binary options, or the profit or loss is not affected. This also means that the profit chances and the loss are fixed in advance. The returns are between 65 and 85 percent.

It is important to note that binary options are not market-quoted capital market products, but a so-called OTC (over the counter) business. This is a direct transaction between the trader and the my plus500 go broker. Binary options were created in 2007, which is why they are still quite “young”. For the first time, Forex broker IG offered this type of curb speculation and after the big successes, brokers specialized in trading with binary options and began to offer appropriate trading platforms.

Due to the fact that binary options can be traded in comparison to classic options with little capital use, this type of trading is particularly interesting for beginners. It is also advantageous that the losses are limited to the respective use. However, some brokers also offer a so-called loss guarantee of up to 15 percent.

Advantages of binary options:

  • Simplicity of the financial instrument
  • Speculating on rising and falling rates
  • Determining the runtime
  • Return on up to 85% in a short time
  • Low Capital Usage
  • Speculating in different markets
  • Speculative repertoire on many asset a 24option with classes around the world

Disadvantages of binary options:

Contracts for Difference – in short CFD – means as much as difference contract. When dealing with these derivative contracts, the trader does not have the relevant financial product (eg currencies, shares, indices, etc.), but speculates only on its course. It is particularly advantageous that no costs for know anyoption which the possession of the financial product are incurred, such as, for example, account management fees or commission fees.

Originally derived from investment banking, they were developed at UBS in London in the 1980s. The UK stamp duty (0.5 per cent to the state for each transaction transaction) should be avoided. However, the differential contracts allowed for off-exchange trading.

The CFD trading is therefore also unregulated, since the trade does not take place on the stock exchange, but takes place via certain CFD brokers. Traders can benefit from rising and falling rates when trading with CFDs, which is not possible with the shares or currencies traded on the spot market, since only the price increases are counted here. Running times do not exist with CFDs, so traders can decide when to buy or sell. As CFDs are highly speculative derivatives, trading is not suitable for if etoro with beginners, but only for well-informed investors.

CFDs are so-called “leveraged products”, so that a certain percentage of equity which Copy Trading say must be deposited with the respective broker to open a position. Depending on the product, these margins are between one and ten percent. The remaining amount “borrows” the broker the trader, as soon as the sufficient margin of security (margin) was deposited. Since a loss can exceed the amount originally invested, traders should be aware of the risk and use the risk minimization tools offered by the broker (eg take-profit orders or setting price limits).

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