CFD Trading vs Binary Trading: Which is Better & Why?

Traders are often too spoilt for a choice when it comes to picking a trading market. Forex trading, options, CFDs - the possibilities lie in plenty! Often times, after a lot of deciding, many traders find themselves at crossroads, unable to pick between CFD trading and binary options. Both of these markets are profitable in their own way and come with a set of pros and cons. While amply lucrative, there are certain subtle similarities and differences that spark a debate as to which domain is better!
 

CFD Trading:
 

CFD Trading vs Binary Options Trading

Known as a contract for difference, CFDs are an agreement between the trader and the broker to pay each other the difference between the price of a commodity during the time of making the contract and its closing. As a CFD trader, you only speculate on the hike or drop of an asset's price, there is no owing of the underlying asset.
 

Binary Options:
 

A simple yes or no trade, binary options have a very elementary procedure in theory. If you think that an asset's value will rise, you predict "yes" and buy the option; similarly, if you think it will drop, you predict "no" and sell the option. What makes binary options an incredible market is the fixed and affordable price of a binary contract, which costs no more than $100. Hence, winning will give you $100 while losing will give you $0.
 

How CFD Trading and Binary Options are similar:

• Both CFD trading and binary options are derivative, meaning the underlying asset whose value is being speculated upon.

• Trades go no longer than a few weeks at the most.

Differences between CFDs and Binary Options: 
 

Risk:

• Binary options trading have a cap to its risk, which traders on both sides are aware of. The contract value is the limit; there can be no loss or gain greater than that value.

• In CFD trading, however, risks can climb limitlessly. While CFDs do allow for exposure to higher profits, the potential losses are just as large.

Capital Requirement:

• Options’ trading doesn’t have any hidden charges, spreads or commissions.

• CFD trades, on the other hand, require traders to pay a fee for each transaction - be it a profitable one or a lost one. The rates levied vary from one broker to the other.

Versatility:

Binary trading doesn't give you too many options to trade on.
CFD trading allows you to trade Forex, indices, options, shares and many other financial assets.
 

While the argument of which domain is better is at a standstill, you can find out for yourself! Get yourself a demo trading account today and go down the path of your choice - Binary options or CFD trading in Sri Lanka. Reach out to WesternFX today, and talk with our experts to know more.