What are the differences between crypto and binary trading? There are lots of different ways in which you can make money with your crypto assets. One such is trading them over a crypto exchange.
Well, if you do not want to take this traditional route, you can go for binary options trading.
However, it will be unwise to jump into the bandwagon without knowing the difference between the two, which is what this article is all about. There is also a ‘Which is better’ section in the end that will help you to make the right choice.
Cryptocurrencies, as it is known, have crashed in the past and have risen again in value, both in the financial market as well as in their investment activities.
In spite of that, cryptocurrencies have been one of the most attractive investment options for people who want to make handsome profits, in a considerably quick time.
However, most investors look out for alternative investment options in this specific field choosing between crypto trading and binary options trading.
This is primarily due to the high cost of cryptocurrencies. If you want to make a choice between the two, it is recommended that you choose the best trading alternative that suits you the best and know the underlying principles of both, first and foremost.
6 Differences Between Crypto and Binary Trading
If you are not confident with your trading option, you will not be able to make high profits while dealing with cryptocurrencies. Check out Differences Between Crypto and NFT.
Here are the differences between the two of the most common trading practices followed by the big players in the crypto industry namely, crypto trading and binary options trading.
When you know these differences it will be easier for you to choose the one according to your trading style, risk appetite, your portfolio, and the potential profit.
Typically, trading crypto over the exchanges traditionally is far more accessible to the average trader. The digital wallets and crypto exchanges are most suitable for private investors because everything here operates on the fundamental principles of crypto trading.
The binary options trading, on the other hand, are contracts released by the American financial regulars on the main crypto trading platforms such as CBOE and CME in the end of 2017.
These offer limited access because these speculators or tools of the financial market are accessible only to the large system investors.
A large capital is required apart from the citizenship of the specific country to access these tools which the private investors rarely consider as primary tools for investment.
2. Trading Approach
Typically, being an exchange contract, the binary options do not follow the traditional rule of making a profit in a financial market. According to these contracts, the traders do not need to purchase an asset directly in the true sense.
Instead, there is a rate position that is time limited. This position is based on the direction of the price movement of the asset held by the trader. This rate position or price rate is used for directional price movements in the future.
The trader, put simply, does not need to sell off the base asset or close a purchase but needs to close the trade at the right moment considering the specific market movement. They have to follow a proper time frame for binary options movement.
On the other hand, trading crypto on an exchange in the traditional way is quite simple as it involves buying a crypto asset when the price is low and selling when it is high. The profit earned by the investors is in the difference between the cost price of the assets and the price when it is sold.
Binary options allow the traders and investors to make more profits while dealing with their crypto assets. According to research, the profitability of this specific crypto trading option is about 85% on an average which can easily go as high as up to 90% when the forecast for the price rate is accurate.
However, along with that comes the risk of losing the entire sum of money if the market participants make a wrong prediction about the movement direction.
The good thing about the binary options is that it will always display the predefined profit or loss depending on the appreciation or depreciation of the price of the asset beyond the point that was determined during making the trade.
However, as for crypto trading, not all investors or traders can take the full advantage of the resources in spite of the comparatively simple function of the trading algorithm.
The primary reason behind it is the dramatic increase in the growth rate of the crypto assets which is not affordable to most of the traders and investors.
When it comes to making profits in this form of trading, it entirely depends on the variance of the value of the underlying asset from the initial value. Add to that, there is also the risk involved in it as well as the high costs associated with the exchanges which make things more disenchanting.
These costs come in the form of exchange spreads, commissions on trade, transaction fees, and withdrawal charges. In total, it can go as high as 12% of your total investment capital. This is a significant amount of loss.
As said earlier, binary options trading is for specific investors and traders. It needs different trading strategies to follow according to the varied approaches and formats.
For that, you will also need to have some knowledge about the legal as well as economic regulations. There are lots of indicator strategies to follow as well so that you can analyze the market well and forecast precisely to place your rate positions on the market.
All this means that binary options trading is for those experienced crypto traders.
On the other hand, crypto trading is suitable for any trader and investor with basic knowledge in crypto trading.
With the use of several tools, charts and indicators available on a crypto trading platform the users can easily determine the resistance and support level and develop a trading strategy according to it.
This is enough to know the mood of the market and the players and to open and close a position based on it. Knowing the market trends and the trading signals is enough for an average trader to make minimum profit from crypto trading most consistently.
The common crypto trading option is much more flexible than binary options trading. This is because you can enter or exit the market according to your wish and judgment of the price and market movements.
Just make sure that you determine these points based on thorough research so that you do not repent later on if you miss out on an opportunity.
In contrast, in binary options, you will not have that flexibility as you will not be able to leave the market or your position till the time the predefined date for the derivative expires.
This means that you will not be able to free your capital even if you want it or during the time when you need it the most.
6. Range of Assets
Finally, it comes to the range of tradable assets available in both the trading options. If you want to have a significantly wide range of tradable assets then go for traditional crypto trading over an exchange.
On the other hand, binary options will not offer such a wide range or bases because it needs an underlying asset to exist and the average index as well as the currency in such cases cannot be negotiated.
Which is Better – Crypto or Binary Trading?
Frankly speaking, both the two options in crypto trading are different and therefore the choice is entirely yours.
Binary trading is good for the experienced traders while traditional crypto trading is good for the beginners and learners.
In binary options trading, there is all the chance of a disastrous consequence of your trade if you do not predict things accurately.
There is no margin for error because the output of the trade will surely fail to meet your expectations. In such a situation, you can lose the majority, if not the entire amount, of your investment.
However, if you can develop an accurate and productive trading strategy then binary options can provide much higher returns than traditional crypto trading.
However, for that, you will need to do the math correctly to determine what success rate you need to make a good profit. Never let guesswork creep into your calculation.
According to experts, you should not follow binary options if you ‘think’ that the math is correct. You should instead be ‘sure’ that it will work in your favor.
Therefore, if only you are fully confident in it, you should include binary options in your portfolio. And yes, you should also be comfortable with the risk factors.
Apart from that, you should also be okay with trading for the short term with small price changes, a typical feature of binary options.
Ideally, experts say that binary options trading should comprise a very small portion of your portfolio in comparison to crypto trading.
This will help you to avoid incurring a bad and irrecoverable loss that may eventually impact your ability to trade. As it is said, binary options surely come with a unique high-risk high-reward nature.
However, there is one more thing that you should consider and be aware of. There are lots of traders, even experienced ones, who will refuse to opt for binary options trading.
This is due to the fact that it has got a very poor reputation in the crypto market especially due to a specific sect of people involved in it.
There are a few dodgy brokers who take advantage of the less-informed class. They allure these people by making tall, and often false, promises of offering high leverage and profits.
On the other hand, there are also a few people involved who want to get rich quickly, falling prey to these dodgy brokers. Both these kinds of people are not acceptable.
Also, according to the rules of binary options, you will not be able to create more complex positions. On the other hand, you can do so in traditional crypto trading by buying different tokens at different times.
Ideally, the experts say that a larger portion of your portfolio should be invested in crypto trading over the traditional exchanges to trade in the traditional method.
Properly use the Stop Loss and Limit Orders, trading signals and indicators, price analysis charts and tools and you will be good to earn some handsome profits by mitigating most of the characteristic risks associated with such trades.
The losses made, if any, will not be as extreme and impactful as the losses that you may make in binary options so as to leave you incapable to make trades anymore.
Though the gains will not be as high as you would have made in binary options, it will not be extremely low as well so that you won’t be able to sustain yourself. Therefore, this is a more secure way to trade with your cryptocurrencies.
However, there are also significant issues in crypto trading which you should take into account while making your choice.
These issues include and are not limited to the extreme volatility of the market, questionable policies and rates of the crypto exchanges, the need to convert cryptocurrencies to make use of the profits, and more.
If you want to choose either of the two trading options, then simply make your choice based on these two factors:
- If you, as a trader, want to make speedy wins in 60 seconds, then you are game for binary options and
- If you are a patient trader and want to trade safely to retain good trading for longer, choose the other way round.
Therefore, it is all up to you and your risk appetite as well as your affordability to lose. However, the best option is to implement both in your trading strategy since they will complement each other quite well.
As you can see, binary options trading is more accessible and profitable in cryptocurrency but it all depends on the accuracy in price forecast and procedural effectiveness. However, traditional crypto trading is good for the novice.