There’s a lot that needs to be weighed up when deciding what sort of financial vehicle to invest in.
You need to consider suitability to your trading style, potential profit, risk, and how well it fits the rest of your portfolio. CFDs and Binary Options have a lot of similarities, being financial vehicles which track the value of an underlying asset, rather than you purchasing the underlying asset, but they are very different in terms of what they are suitable for.
What’s the difference?
The big difference between CFDs and Binary Options is that investing in CFDs means that your potential profits or losses depend how much the underlying asset varies from its initial value, whereas binary options will always display either a predefined profit, or predefined loss, depending whether the asset appreciates or depreciates beyond points decided at the time of making the trade.
Binary Options
Whenever you make any trade with any financial instrument, you should be an expert in the field your trading in. This holds doubly true with Binary Options, where the consequence of a trade that doesn’t meet your expectations is the loss of the majority, if not the entirety, of your investment. In your portfolio, Binary Options should be reserved for the trades you are most confident in, if you are comfortable with the risk. They should make up a relatively small part of your portfolio, as to avoid a bad loss impacting your ability to make trades.
CFDs
In contrast, CFDs can make up a much larger part of your portfolio. Using Stop Loss and Limit Orders, you can reduce a large amount of the risk, and any losses that are made won’t be as extreme as losses made when trading binary options. Equally, the gains made aren’t likely to be as high as the ones you make through binary options. On top of this, CFDs are much more flexible – you can exit whenever you like, rather than waiting for a predefined date for the derivative to expire as with binary options, meaning if you unexpectedly need to free up capital, you can.
The choice is yours!
So, should you trade Binary Options or CFDs? Well, really, you should consider trading both. They complement each-other well, with the high-risk, high reward nature of Binary Options giving you a way to increase the return on investments that you are confident in, and the Stop Loss/Limit Orders of CFDs providing a comparatively secure base from which to work. A lot of traders will refuse to work with Binary Options due to them having a poor reputation due to dodgy brokers and people getting involved seeking to ‘get rich quick’, and if after evaluating the benefits and drawbacks of Binary Options you decide they aren’t for you, then CFDs are still worth trading.
