Forex, binary and crypto trading are often mentioned together online, especially by influencers promising quick money.

But they are not the same thing. They differ in what is traded, how profit or loss happens, how risky they are and whether they look more like investing, speculation or betting.

Forex trading means buying one currency while selling another

For example, someone may trade the US dollar against the Kenyan shilling, euro, pound or Japanese yen.

The aim is to benefit when one currency strengthens or weakens against another.

In simple terms, forex is like saying, “I believe this currency will rise against that currency.” If your prediction is right, you may profit.

If wrong, you lose. The forex market is global and huge, with currencies traded in pairs. The spot forex market involves exchanging currencies at the current rate.

Forex trading

Forex can be used by banks, importers, exporters, travellers, investors and speculators.

A Kenyan importing goods from China, for instance, cares about exchange rates because a weaker shilling makes imports more expensive.

Retail forex traders usually trade through brokers. They do not always physically exchange money.

Instead, they speculate on price movement. Costs can include spreads, which are the difference between the buying and selling prices offered by a broker.

Forex is risky because currency prices can move sharply due to interest rates, inflation, politics, central bank decisions and global news. Leverage can also make small market movements create big losses.

Binary trading

Binary trading is different. It is usually an “all or nothing” prediction.

A trader may be asked to predict whether gold, a currency pair, a stock or crypto will go up or down within a short time.

For example, a platform may ask: “Will EUR/USD be higher in five minutes?” You choose yes or no. If right, you get a fixed payout. If wrong, you lose the amount staked.

That is why binary options are often compared to betting.

The North American Securities Administrators Association describes binary options as all-or-nothing contracts, while the US CFTC has warned that many online binary options platforms have been linked to fraud, withdrawal problems and manipulated trading software.

Binary trading is especially dangerous for beginners because it looks simple.

In reality, short-term predictions are extremely hard, and many platforms make money when users lose.

Crypto trading

Crypto trading involves buying and selling digital assets such as Bitcoin, Ethereum and other tokens.

Unlike forex, where you trade national currencies, crypto involves decentralised digital assets whose prices are driven by demand, supply, technology news, regulation, hype and market sentiment.

A person may buy Bitcoin hoping the price rises, then sell later. Others trade short-term price movements.

Some use crypto exchanges, while others use crypto CFDs, which allow speculation without owning the actual coin.

Crypto can rise quickly, but it can also crash quickly. The US SEC has warned that crypto asset investments can be highly volatile and speculative, and that some platforms may lack important investor protections.

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