If you’re new to the trading world, you could easily mix up binary options and options, especially because they sound similar. Both of these trading options allow investors to predict the price movements of underlying assets. In this article, you’ll get clear insight into the differences between traditional options and binary options.

Key Differences between Binary Options and Options:
Binary Options: | Options: | |
Regulation | FCA, CySEC, ASIC, CFTC, IFSC, FSB, and more | SEC, FINRA, CFTC, NFA, and more |
Yield | Fixed and set during purchase. | Varies, depending on the price movement of the underlying asset. |
Risk | High risk of investment loss if the prediction is wrong. | Moderate to high, depending on the strike price, volatility of the market, and the underlying asset. |
Fees | Early exit fees. | Commissions and option contract fees. |
Complexity | Low only requires knowledge of one price movement. | Relatively high and requires knowledge of option pricing. |
Underlying Assets | Stocks, commodities, stock indices, forex, and events. | Stocks, indices, currencies, and exchange-traded funds (ETFs) |
Availability | Not available in some countries due to regulations. | Available in most countries. |
OTC: | Yes (mostly) | Yes |
Traded on the stock exchange: | Yes (only CBOE, NADEX) | Multiple in any country |
What Are Binary Options?
Binary options are a type of derivative where traders can predict the price movement of an underlying asset to earn a fixed payout. The term “binary” refers to the possibility of two different outcomes – either the prediction is correct or wrong. When the prediction is incorrect, the trader loses their investment.
In a binary options trading session, the trader must make a correct decision on whether an asset will go up or down within an hour or a day. Since traders only have to choose between the up or down market movement, it’s not too complex for new traders.
All binary option trades have an expiry time or date. Once the trade expires, the price of the underlying asset (stocks, cryptocurrencies, forex, etc) must be on the right side of the strike price, which is the price a security was sold. Traders must correctly predict whether a trade goes above or below a strike price before entering the market.
When the option expires based on the previously set time, the trader receives a profit or loss, depending on its outcome. Expert brokers typically advise using technical analysis tools like price charts to accurately predict the market.
As with any investment or trading option, it’s important to remember that there are risks to trading binary options. Even though it’s profitable as well, always invest amounts you can afford to lose.
What Are Options?
Options are financial instruments that give the holder the chance to buy or sell an underlying asset, like currency, at a predetermined price on a future date, unlike when trading futures, the holder doesn’t need to buy or sell the asset if they are against it.
Similar to binary options, traditional options contracts have expiry dates. Before that date, the holder needs to exercise their option. All option contracts usually take place through online or retail brokers.
Options are highly versatile and involve a buyer and seller, where the buyer pays a premium to the seller of the contract.
There are two major types of options — the call and the put options. Call options allow the holder to buy the underlying asset at a set price within a specific time. On the other hand, put options let the holder sell the asset at a specific price within a period.
Options can also be American or European. Traders can exercise American options between the date of purchase and expiry. However, traders can only exercise European options on the expiration date. You should note that American options also carry a higher premium than the European ones because they can get exercised earlier.
Options vs Binary Options: Risks
Understanding the financial market trends can help you correctly predict price movements, which can be rewarding in binary options. However, it’s also imperative to remember that a wrong prediction could make the trader lose all their investment.
Apart from the risk of wrongly predicting the binary options market, there’s also a risk of using the wrong brokerage firm. Some firms claim to be regulated and licensed for binary options trading, but they are not. To confirm this, cross-check their license and registration details with that of the official regulator’s website.
In binary options trading, many fraudsters run deceptive promotion schemes. So, it’s important to always look out for the track record and licensing of any broker you plan to trade with. If you apply all the necessary risk management techniques, you shouldn’t experience any significant losses and reduce the risks of binary trading.
Options have a varying yield with a moderate to high-risk level. In most cases, options risks are called the Greeks and are categorized as follows:
- Delta: Describes the price sensitivity of options to the price changes in the underlying asset.
- Gamma: Signifies delta’s sensitivity to price changes in the underlying asset.
- Theta: Represents price sensitivity to the passage of time.
- Vega: Shows option’s price sensitivity to changes in market volatility.
- Rho: Describes the option’s price sensitivity to change in interest.
Options vs Binary Options: Yield
Options trading is highly lucrative, and traders could earn 20% to 50% in profit per trade. Call option buyers make a profit if the underlying asset rises above the strike price before expiration. On the other hand, a put option buyer only makes a profit if the price falls below the strike price before expiry.
In options trading, your profit depends on the difference between the stock price and strike price at the date or time of expiration. Call option writers make a profit if the underlying asset, like a stock, stays below the strike price. But, a put option writer only makes a profit when the price stays above the strike price.
Binary option trading could help you earn between 70% to 85% profit on trades. However, the exact amount you stand to make depends on the asset, brokerage firm, and market conditions. Even though binary options offer a large profit margin, the risks are higher than that of options.
If you learn the appropriate risk management strategies like choosing the right broker, emotional control, and position sizing, you’re less likely to lose on most binary options trades. As long as you win more than you lose and your win percentage is significant, your binary options strategies work for you.
Options vs. Binary Options: Capital Requirements
Options trading doesn’t require a lot of capital, and according to the Federal Reserve Bank of St. Louis, the SEC’s capital requirements are based on various strategies. The required capital usually falls between $100 to $200.
It’s important to start trading small when starting with a small capital for options. To do this, you must leverage fewer options contracts and low-cost strategies like call-and-put options. You must also know your risk tolerance and follow the 1% rule of not risking more than 1% of your trading capital on a trade.
Depending on your binary options broker, the minimum capital requirement is between $5 to $250. However, some brokers require higher investment amounts of $250 to $1,000. As a beginner, it’s understandable if you don’t want to risk a lot of capital. Consider signing up for brokers like Pocket Options, with a minimum deposit of $50.Before investing in binary options, you should ensure that your capital is modest and comes from your disposable income. It’s advisable to view that capital as an educational expense that allows you to gain experience while growing towards attaining financial stability.
Which Financial Instrument is Better for Beginners?
Trading options is typically complex for beginner investors, especially when they aren’t good at limiting their risks. Options contracts can be difficult to price, so many consider it an advanced investment choice for veteran investors. In recent years, retail investors have begun to adopt options trading despite a high possibility of losses.
Due to the complexity of options trading, investors categorize it into different levels. Below are the different levels:
- Level 1: Covered calls and protective puts when the trader knows the underlying asset.
- Level 2: For long calls and puts.
- Level 3: Options spreads, including buying one or more options simultaneously or different options of the same asset.
- Level 4: Selling naked options, which are unhedged, increasing the risks of unlimited losses.
Unlike options, binary options are great for beginners because it’s easy to learn. Binary options offer only a few limits to entry, and anyone can deposit trading. Once you can predict price movement correctly (up or down prediction), you’ve made a profit.
To stay profitable trading binary options as a beginner, you must understand that every trade poses a 50/50 chance of winning or losing. So, all beginners need to master the basic binary options strategies to stay profitable.
Brokers for Binary Trading
In binary trading, your broker greatly determines your experience. They are integral to your trading process; choosing the wrong broker can lead to severe losses. Here are some of the top choices for beginner and expert traders:
- Welcomes International Clients
- Offers High Payouts: 90% – 97%+
- Professional-grade Platform
- Swift Deposit Process
- Enables Social Trading
- Provides Free Bonus Incentives
- Min. deposit $10
- $10,000 Demo
- Fast Execution
- High Profit up to 95%
- Fast Withdrawals
- Free Signals
- Welcomes International Clients
- Offers High Payouts: 90% – 97%+
- Professional-grade Platform
- Swift Deposit Process
- Enables Social Trading
- Provides Free Bonus Incentives
- Min. deposit $10
- $10,000 Demo
- Fast Execution
- High Profit up to 95%
- Fast Withdrawals
- Free Signals
Pocket Option
Pocket Option has an intuitive user interface offering many assets, including stocks, commodities, and cryptocurrencies. You can deposit as low as $5 and take trades from $1 without deposit or withdrawal fees. If you’re new to trading, Pocket Option offers a demo account to master your strategies.
Once you begin trading with Pocket Option, you can withdraw your winnings anytime. The broker offers an impressive range of withdrawal options, including:
- Bank Transfer
- WebMoney
- Jeton
- Perfect Money
- Maestro cards
- Visa
- Master Card
Pocket Option is regulated under MISA with license number T2023322. Apart from MISA, Pocket Option also falls under IFMRRC’s regulation. Both of those regulatory parties ensure that the services provided by the broker are quality and reliable.
Quotex
Quotex is another broker in the binary options industry known for its ease of access and legitimacy. On the website, traders can access as many as 300 trading assets, including commodities, stocks, and cryptocurrencies. Like Pocket Option, Quotex is also registered in Seychelles as a member of the IFMRRC.
The minimum deposit on the platform is $10 and you can deposit it in dollars, pounds, euros, and bitcoin. You can try the available demo account if you don’t want to start trading with real money. Quotex gives you $10,000 to practice your binary trading.
Brokers for Options Trading
Besides the security a good broker offers, picking the right broker for options trading increases your chances of getting a better investment return. Below are some of the best brokers for options:
Trade Station
Trade Station started as a broker only for high-level traders, but now, the company gives access to tools for beginner traders. Compared to many other platforms, Trade Station also has many fees, including a $35 IRA annual account fee, a $50 IRA account termination fee, and a $125 outgoing account fee.
Signing up to Trade Station also gives you access to the broker’s community, offering beginner brokers a chance to grow.
Interactive Brokers
Interactive Brokers is a well-trusted multi-asset broker for experienced traders. They provide advanced trading tools, and Meta Trader is not an option on the website. Interactive Brokers offers two major programs – IBKR Pro and IBKR Lite.
IBKR Lite is geared towards individual and recreational investors, while IBKR Pro is for institutional investors. IBKR Lite users get charged 2.6% to finance margin trades, but IBKR Pro users only get charged 0.75% to 1.6%.
Conclusion: Huge differences between both financial products
Binary options offer a great chance for new investors to grow, but they also come with great risks. Most brokers for binary options traders are easy to use and are packed with various trading tools to help risk management. Options, on the other hand, are for traders willing to play the long game. There are so many complexities to trading options and it’s also significantly risky, but not as binary options.
Most asked questions about the topic:
Is Trading Binary Options Better than Options?
No, binary options and options follow two different trading structures with varying risk levels. Binary options are not bad if you can afford to take 50/50 chances on your trades. It’s also a more suitable option for beginners. Options can also be rewarding, but the payouts are typically lower than binary options.
How Much Can I Make Trading Options?
You can make as high as 20% to 60% per trade on naked calls and put in options trading. On a credit spread, you could take profits close to 50% or more, but they could also take profits around 10 to 5% for debit spreads.
Do Binary Options Pose a Lesser Risk to Trading Options?
Binary options don’t pose a lesser risk to trading options. Trading binary options requires more risk management than a standard options contract. For instance, you must choose reputable brokers like Pocket Option to avoid getting scammed.
Can I Use the Same Broker to Trade Binary Options and Options?
Using the best broker for your preferred trading option is generally advisable. This allows you to make the highest possible return on investment and also helps you diversify risks.