Stock market, Forex and Binary Option: what are the differences and commonalities?

Stock market, Forex and Binary Option, all these terms seem technical but it is necessary to learn to differentiate them since there may be similarities a priori but this has nothing to do with it.

For the 3 markets, these are platforms where asset swaps are carried out to hope for gains.

First of all, let’s define the 3 terms to make sure that everything is well defined.

Definition of the 3 financial markets

The Stock Exchange

It is an institution, private or public, that makes it possible to exchange standardized goods or assets and thus set their price. We will speak here of stock exchanges, these are exchanges where company securities are traded (as opposed to commercial exchanges where it is commodities that are traded).

The primary role of the exchange is to finance companies. It is also an investment place where securities are traded.

The 3 largest (or 3 best-known) stock exchanges in the world are:

  1. Euronext Paris, Europe
  2. London Stock Exchange
  3. New York Stock Exchange

The Forex

The word “Forex” comes from the contraction of the English term Foreign Exchange.

Forex is the foreign exchange market on which so-called convertible currencies (Euro, Dollar, etc.) are traded against each other at exchange rates that change over time. Trading in the Forex market consists of combining two different currencies, the euro and the dollar being the most traded currencies. The purpose of the speculator is therefore to trade his euros for dollars in order to make profits.

Binary Options

As indicated in the article about binary options,

The binary option is a means of trading that is based on the rise (call) or fall (put) of a product’s price such as a stock or currency over a specified period.
It is called binary because only two outcomes are possible:

  • or the option ends favourably “in the money” and you receive the fixed amount that depends on the initial investment,
  • or the option ends unfavourably and you lose your entire investment.

What are the differences or similarities between Forex, Stock Exchange and Binary Options?

The Stock Exchange is a highly regulated market. Forex and Binary Options are 2 very trendy investments that have attracted many neophytes since they are very easy to understand. At the same time, unscrupulous brokers wanting to recover a lot of money from investors.

Binary options offer investors the opportunity to speculate on a wide range of financial assets (including currencies), unlike Forex, which is only interested in currencies.

In the stock market, assets are highly diversified, ranging from commodities to corporate equities. In Forex, we only speculate on international currencies.
When investing in the currency market, the quotation is done in pairs, it is a question of predicting the rise or fall of one currency against another. On the stock exchange, transactions concern unit assets listed according to supply and demand.

Forex and Binary Options are continuously opened via the web allowing the trader to invest in everything. This is different for the Stock Exchange where orders can be placed via the bank or the Internet but at defined time slots depending on the Exchange.
In France, the pre-opening of the market takes place from 7:45 a.m. to 9:00 a.m. where buy and sell orders accumulate in the central computer managing the orders of the betting exchange. The latter calculates the opening price. The market opens from 9:00 am to 5:30 pm where supply and demand are directly compared on the market to determine the price of the shares. Finally, from 5:30 pm to 5:35 pm, the closing price is calculated.