Binary Options vs. CFD Trading – Which one is better?

Binary Options are particularly easy to understand because they are simple financial bets. Unlike CFDs, where the exact profit depends on the amount of the price change, Binary Options only have “cash or nothing”: either the trader makes a profit, the amount of which is fixed in advance, or he loses his bet completely. The fees are already included in the difference between profit and loss and therefore do not have to be calculated separately.

Simple Binary Options method

The trading procedure has also been significantly simplified for Binary Options. When trading CFDs, many different things must be taken into account: The position must be opened at the right time and the decision when to close it must also be made by the trader.

There are also many other points to consider. For example, various order functions can be used to close the position in the event of a certain loss in order to limit the maximum losses. It is also possible to take profits at a predetermined amount. With binary options, on the other hand, the trader only has to open the position and specify the duration.

Everything else is done automatically, so that the trader has less influence on his profits, but the potential for error is also greatly reduced, which is particularly useful for beginners. Professionals, on the other hand, usually prefer CFDs, as they offer them more options for different trading strategies.

See the comparison of the differences between Binary Options and CFDs:

Binary OptionsCFDs
Fixed profit and lossNo fixed profit and loss
You only need 1 point for a profit / lossThe profit / loss is depending on the price movement
Expiry timeClose the trade when you want
No trading feesTrading fees like commission or spread
No leverageLeveraged financial product
Less complexMore complex
You can know the outcome of the trade beforeYou do not know the outcome of the trade

CFDs offer more choices and a cost advantage

When choosing between Binary Options and CFDs, it is often advisable to choose Binary Options because they are much less complex and therefore easy to understand even for beginners. However, we advise you not to decide against CFDs prematurely, because they also have some decisive advantages.

CFD Trading method
  • Choose the position size
  • Choose the Stop Loss
  • Choose the Take Profit
  • Different trade executions are possible (Market, Limit, Stop)
  • Buy or sell the asset

CFDs represent all facets of over-the-counter trading, while Binary Options only highlight a few areas. Thus, they offer more opportunities and the traders gain more valuable trading experience that can be important for the rest of their careers.

The cost advantage is also on the side of CFDs. With Binary Options, only 80-90% of the stake is paid out if you win, while the loss is 100% of the stake. With some providers, the profits are even lower. Thus, on average, a Binary Options Broker makes over 5% profit per trade, which is relatively high. CFDs are usually charged in the form of spreads and are significantly lower than binary options. For some trading accounts, instead of spreads, commissions are charged, which are also significantly lower than the broker’s profit for Binary Options.

With CFDs you can earn more than 90% of profit (no limited profit)

So there are also some good reasons for CFDs. Whoever takes the time here to deal with the more complex of the two products can thus profit from it in the long term through better conditions.

Trading against the broker

Risk when trading with Binary Options Critics of foreign exchange trading often criticize the fact that brokers set the prices themselves. This is the case with almost all Binary Options Brokers and the majority of CFD brokers. Thus, the brokers have the opportunity to make a profit if the trader loses his trade because the broker acts as a direct counterpart in trading.

Trade Binary Options and CFDs on one platform with IQ Option
Trade Binary Options and CFDs on one platform with IQ Option

For this reason, brokers are often accused of manipulation, which has happened repeatedly in the past. The fraud of the brokers is to be prevented by a comprehensive regulation. The responsible regulatory authorities pay attention to irregularities and intervene quickly in case of doubt. Nevertheless, fraud cannot be ruled out, which is why customers should only trade with brokers with good regulation and an impeccable reputation. A dubious broker can offer good trading conditions, even if the traders are cheated out of their money, a registration with this provider is almost automatically a loss.

In CFD trading, the problem of trading against the broker can be circumvented by choosing a so-called STP broker. This broker does not set his own prices, but forwards the client’s order directly to the market, where it is executed between the various participants at the best conditions available at that time. STP brokers are considered by industry experts to be particularly secure and often offer very favorable trading conditions.

In particular, trading in Binary Options carries a high risk of price manipulation, which is why customers should be particularly careful when choosing a broker.

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Not only differences, but also many similarities

Binary Options are modeled after CFD trading, among other things, and are designed to offer newcomers a trading opportunity that, while offering the advantages of CFD trading, is much easier to understand and implement. Therefore, in addition to the Binary Options difference CFDs also have many similarities with them. There are also great similarities in terms of risk.

Therefore, traders should not invest money in Binary Options or CFDs that they cannot easily do without. A loss of the complete deposit is possible at any time. Some CFD brokers even require a margin call, so more money can be lost than the client has deposited in their trading account. These losses must then be compensated by a further deposit.

Risk with Binary Options and CFDs:

  • With Binary Options you can lose the whole investment amount
  • The losses with CFDs can be unlimited
  • Brokers protect the clients with Margin Calls and negative balance protection (CFD)
  • You can limit the risk with a stop loss (CFD)

The variance of Binary Options is even slightly higher than in CFD trading, which is already highly volatile. This is due to the lower decision possibilities because more depends on chance.

Binary Options and CFDs require good risk management if they are to be traded seriously. Otherwise, the risk of a total loss due to variance is so high that sooner or later it will happen. Then the trading balance is lost and trading cannot continue without reinvesting. Even with well-thought-out risk management, traders are not 100% protected from the complete loss of their investment. However, the high risk can be significantly reduced, although it is still a very speculative form of trading.

Switching to binary options or CFD is not difficult

When you have carefully considered the risks involved and decide to open a Binary Option or CFD, you don’t have to worry about making the wrong choice and committing to the less suitable option for you in the long term. Because the two instruments are very similar, you can switch between CFDs and Binary Options at any time. Of course, in this case, it is always important to familiarize yourself with the characteristics of the new product and, if possible, practice with a free demo account first, but the principles of trading are very similar for both products.

When you switch from Binary Options to CFDs, you will need to learn some additional things because CFDs are much more complex. Many brokers offer free training material, and it usually pays to review it. Also, you should deal with the obligation to make additional contributions from the beginning. While it is rare that a position cannot be closed automatically fast enough after a margin call, high volatility can cause CFD traders to lose many times their initial deposit. The last time this happened was in 2015 during the notorious “franc shock”, when many traders not only lost their entire balance but even had to file for personal bankruptcy. Therefore, those switching to CFD trading should familiarize themselves with the Stop Loss function right at the beginning.

However, if you switch from CFD to Binary Options, you already know most of the basics of trading. Note that binary options have an even greater variance than the already highly volatile CFD market. Therefore, even more, conservative risk management is required if you are serious about binary options trading for long-term profit. Choosing the right broker for binary options is also a bit more difficult than for CFD trading, as there are more dubious providers and the payouts can vary greatly. If you want to make a profit with Binary Options, you must make sure that in the event of a win, the highest possible percentage of the stake is paid out.

Find the most suitable financial instrument with a free demo account

If you are unsure whether Binary Options or CFDs are more suitable for you, you should first trade both financial instruments with play money. This way you can compare Binary Options vs. CFDs and through practical experience, you will quickly learn about the similarities and differences.

You should only open a trading account with real money once you have found “your” trading option, as it is not advisable to trade Binary Options and CFDs in parallel. You should rather concentrate on trading one or both and get the maximum profit out of it! Before you open a trading account, compare the different brokers well, because not all of them are reputable. There are also significant differences in the cost of trading, which has a big impact on the potential profit.

Industry insiders prefer brokers that are based within the EU and are therefore regulated according to the strict MiFID guidelines. These offer the maximum possible security so that traders do not have to worry about the profits being paid out safely and can concentrate fully on trading.

Conclusion: Binary Options vs. CFDs

Check-in advance exactly which trading variants are suitable for you. Before you decide to invest money in a financial product, you should take a detailed look at its features. A comparison of Binary Options vs. CFDs has shown that CFDs are much more complex, but also offer more opportunities to actively influence your own opportunities. Both products are highly speculative and carry a high risk. The entire capital can be lost, and due to the obligation to make additional contributions, even significantly higher losses are possible without appropriate security measures.

Therefore, only trade CFDs or Binary Options if you have the financial means to do so. Although the minimum deposits are usually relatively low, you should only deposit money that you plan to use exclusively for trading and whose loss you also allow for.

Before you register with a broker, compare it with other providers, and make sure that it is an absolutely reputable provider with reliable regulation. Even if the general terms and conditions are long, you should read them in full before registering, as this is the only way to avoid the broker setting dubious conditions that are not or only with difficulty compatible with professional trading.

Facts about Binary Options and CFDs:

  • Binary Options are easier to understand
  • Both financial products have advantages and disadvantages
  • Binary Options are limited in time, profit, and loss
  • CFDs are not limited, you have to manage the trade
  • With CFDs you can earn more profit (depending on the market)

(Risk warning: Your capital is at risk)

See my other articles about Binary Options:

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