Studying Binary Options VS CFD trading gives a good overview of the similarities and differences of these trading options. Most importantly, knowing what the two types of trades entails can help a newbie investor in the stock, commodities and index trading industry.
The way in which CFDs are traded is similar to trading shares and the prices quoted by CFD brokers is most of the time the same as the price of the underlying asset. However, there are some elements that distinguish them from ordinary shares.
A CFD is a contract between two parties and at the expiry of the contract, the difference between the initial and closing prices of the agreement.
With Binary options trading, the investor knows the potential gains and is also aware of the losses incurred if the trade fails. In binary options trading the risk is predetermined, but with CFD trading the equations is significantly different.
Trading CFD’s is complex and because of this the trader has no information on what he might gain or lose from the investment. Binary options trading is simple whereas CFD’s require a deeper understanding of the market conditions. With CFD’s the investor is in the dark regarding how the price action will impact the result of the trade. The investor is forced to wait and see the outcome of the initial investment.
Since there is no real correlation between the investor and the underlying asset, investing in any position does not require the purchasing of actual currency. In a CFD trade a contract is purchased by giving the broker a permission to speculate in the value of the asset.
‘Going short’ is the term used to describe selling an asset and ‘going long’ of course refers to buying the asset. With binary options the two prognosis trajectories are represented by Call and Put buttons.
The main difference between CFD trading and binary options trading is the complexity. Binary trading does not involve several variables whereas CFD’s require a certain level of understanding of the marketplace.
If you are curious about binary options, make sure to check out our list of recommended brokers.