Forex vs Options, What’s Better for Me?

Both markets offer the potential for serious profits, but which one is best suited to your investment goals and appetite for risk?

Do you want to know the difference between forex vs options?

When trading options, you invest in the contracts that can move stocks, ETFs, or index products. When trading in Forex, you're seeking to profit from fluctuating currency rates. Both markets offer the potential for serious profits, but which one is best suited to your investment goals and appetite for risk?

Forex vs Options

Learn the differences between forex vs options to determine which trading instrument may be right for your trading style.

The world’s financial markets offer a number of opportunities for traders looking to turn a profit in a day, a week, or even in a few months. Forex traders speculate on the rise and fall of one currency against another. For example, popular currency pairs include GBPUSD and EURUSD. You can buy/sell currencies or try options trading in order to make profitable investments.

What Are Options?

Options are contracts that give you the right, but not the obligation, to either buy or sell an amount of some underlying asset at a pre-determined price at or before the contract expires. Options can be purchased using brokerage accounts and investing apps like Robinhood.

In simple terms, options offer a variety of options in the financial markets. They are in a class known as derivatives but don’t let this put you off. The value of options depends on the value of the underlying asset.

Traders use options as a way to hedge against losses. They can also generate recurring income in a well-balanced portfolio, and in the case of forex, as a way to speculate on which way a currency will move. Options can be combined with exotic and binary options to create custom outcomes.

Call and Put Options

The two main terms you need to know are Call and Put. Call and put options, which give their owners the right, but not the obligation to buy or sell an underlying asset, comprise an option.

Traders buy Call options if they think the market will rise. They buy Put options if they believe the underlying asset will lose value. Options have expiration dates; the longer the expiration date, the higher the premium. Traders can easily buy or sell options from popular brokerages and investing apps. You can also do more advanced options trading like selling covered calls for monthly income.

Here’s what you need to know:

Market Volatility. Options are affected by market volatility. The more volatile the market is, the higher the premium.

Strike Price. The strike price is the price at which the trader chooses to execute the option.

Premium. When a trader buys an option, he pays a premium. When he sells an option, he receives a premium.

What Is the Forex Market?

Currencies are traded on the foreign exchange market. This market has no central marketplace for trading, the currency trades is done over the counter (OTC), all over the world on different exchanges.

According to Investopedia, the market is open 24 hours a day, five and a half days a week, and currencies are traded worldwide in the major financial centers of London, New York, Tokyo, Zurich, Frankfurt, Hong Kong, Singapore, Paris and Sydney—across almost every time zone.

As such, the forex market can be extremely active any time of the day, with price quotes changing constantly.

The Difference Between Forex and Options?

  • Availability: The main diffence between the two is the access to the markets. Forex markets are open 24/7 while options are lmited to normal trading hours (9am to 4:30pm).
  • Quick Trades: Forex trading is done much more quickly than option trading. You can get your orders confirmed at the price you want versus some options having low volume or huge big bid/ask spreads. You'll likely benefit from using one of the best trading laptops that are reliable.
  • Leverage: With forex trading you can use 50 to 400 times the initial investment with leverage. The options-related leverage ratios are much smaller. This means you can make greator amounts of profits (or loss all your money faster). I will go more into this later in the article.
  • Commissions: Now in 2021, you can trade forex without data exchange fees and you can also trade options without fees on most brokerages.

The Verdict?

Options trading is definitely helpful for the active trader who uses apps like Acorns or Betterment. Options are highly regulated and profits can be made when the market is up, down, or even sideways.

But with forex trading, you can earn a ton of money without a lot of money to start using leverage. But forex markets aren't as regulate and your broker always takes the opposite side of the trade when dealing with currency exchanges.

When choosing what is best for you just think about if you want access to trading 24/7 or simply during business hours. The choice is yours.

My Opinion

The following is my opinion on why I personally prefer options trading over forex trading.

The simple reason? 96% of Forex day traders lose money.

A commonly known fact is that most forex traders fail. You have to manage capital for any business in this world, especially if your business is trading in the Forex market.

Around 96% of day traders lose money and end up quitting. I've actually traded for a living and ended up blowing up my trading account. I've learned a lot along the way and wanted to share some of my secrets learned over the years.

Here are some tips you should keep in mind in order to not lose money while trading forex.

Make trades with confidence

As we said in the beginning, the first problem starts with managing your money so you are successful when trading. As you will be investing in your trading account with your own money, there will some emotions into play.

You can start by setting up rules and only make trades that have pre-set exit strategies. This also includes only willing to risk a certain amount of your funds so that you do not blow up your entire account.

Learn to control your greed

If you truly intend to become a profitable trader you must learn to control your greed. Start trading with demo accounts and see how the market works at different conditions. No matter how good your trade setup is, you must lock your emotions and play safely in the Forex market.

Taking excessive risk will always result in a heavy loss.

Think twice before you execute any trade. Forget about the short term gains and try to develop a long-term trading strategy. Stop being aggressive and never risk more than 3% of your account balance in order to recover your loss.

Be confident in your trading strategy

After dealing out with the trading capital, the system also creates headaches for the trader. After learning about all the things needed for a trading business, the mind of a trader mostly thinks twice about joining. It seems too tough to keep up with the markets. The trading process also seems busy to a novice trader. So, he or she loses confidence over himself. And the money tension amplifies this confusion a lot.

So, traders get distracted from thinking properly and making proper trading approaches. So, you now know, it is required to overcome the fear and confusion of the trading business and concentrate on the right things like the trading edge, approaching plans and Forex money management, etc. If you design the process according to your own preferences, it would be much easier.

Don't be greedy

When you finally get the courage of trading and managing everything in an organized fashion, the greed problem starts. This is the influence of all the information we learn about his business regarding money. We hear mostly about how much money is involved in the trading business and in daily transactions. So, the target is already set according to how much money a trader wants to make per week or month.

When you overcome the first two obstacles and start running your own trades smoothly, that money target gets increased accordingly. However, traders should not fall for that mistake, as it only causes harm to the trading edge and causes them to lose concentration which in turn causes them to lose money.

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Brian Meiggs
Brian Meiggs
Brian Meiggs is a personal finance expert, and the founder of Gabcast, formerly SavingExpert, a personal finance site helping you make your money work for you. He helps readers bring in passive income in order to increase their saving potential and start building wealth for the future. He regularly writes about saving, budgeting, investing, and general personal finance topics aimed to help anyone save more, pay off debt, and reach financial freedom. He has been quoted as a top personal finance blogger in major publications including Insider, Yahoo! Finance, NASDAQ, Discover, MSN Money and more.