Binary Options Comparison with CFD Trading

Binary Options Comparison with CFD Trading

Submitted by adil on Wed, 10/22/2014 - 23:30

Binary Options Comparison with CFD Trading

A number of methods have been devised to take advantage of the price fluctuations in the financial market. Contracts for difference, which are commonly known as CFD’s and Binary options are amongst the most popular. Both of these investments are very profitable and have unique features to offer. Given below is a comparison between these two financial instruments, which might be very helpful for a new trader.

Trading through Binary options
A fixed rate for payout is offered at the expiry. The rate of the payout is determined by comprehended price fluctuation or movement of your money in accordance with the entry price. The simple digital contract serves as the agreement between the trader and the broker.
 

In Binary option trading if the trader is successful in estimating the fluctuations in the price movement at the expiry time, then payout will be made. This is referred as ‘contract ending in money’. On the contrary, the wager is lost if the trader is not successful in predicting the direction of price movement, which is referred as ‘contract ending out of money’.

A good example of binary trading can be considered if, the traders chooses a much higher contract. The trader makes a prediction that the value of Microsoft’s stock will go UP, when the trading day ends. The trader can open a contract with value of $200 with a 50% payout. The price will get closed above the level at which the trader entered the contract, so in turn the trader will earn a fixed amount on the entry investment. i.e. $200 * 50%=$100.

Contract for Difference (CFD) Trading
In comparison to Binary option, CFD trading does not involve any deduction from the asset or shares of the trader. The agreement is made between the two concerned parties, to interchange the difference among the opening and closing price of the contract.

As with the binary option, a CFD does not involve a direct investment in the asset to be traded. The contract is made between two interested parties who agree to exchange the difference between the opening and closing price of a contract. CFD’s are either ‘long’ or ‘short’. Contracts are mostly used by traders and brokers to privet the departing positions, which are possessed by them in any asset. Traders are able to take advantage by using contracts in a way, where they only have to invest a very small amount of the total value of the contract. The risk factor lies in the fact, that they trader might lose much larger values than the investment asset.

Comparison
A number of things are common between CFD’s and Binary options. One such is the fact that both these financial instruments give you the ease to start trading at relatively smaller amounts. You don’t need to put up larger amounts for starting trading.
On the contrary, both these financial instruments offer completely different levels of Reward and possible Risks. In Binary option the rate of reward or risk is fixed and the trader has an idea of both the outcomes, whereas in CFD the liability and payout value is not known.

Both of these financial instruments are an excellent way to increase your profits and traders are exploring the new possibilities for gaining maximum returns by mitigating their risks.