A Tale of Two Traders: Forex vs. Binary Options
While online Forex trading has been around a long time, Binary Options is like the new kid on the block. As the leading supplier of automated retention software for both industries, we were interested in uncovering any interesting insights that may shed light on the similarities and differences between them. These insights can help brokers improve their customer retention strategies, and perhaps to help brokers active in one field to decide whether or not to enter the other field.
In order to better understand the differences between Forex traders and Binary Option traders, we asked our data scientists to take a break from their regular work and see what they could dig up for us. Our goals were to get a deeper understanding of how trader behavior differs between these industries and try to establish benchmark metrics for each one.
What We Found
The bottom line we see in the metrics is that while Forex traders are less likely to convert initially, they are more likely to remain more engaged and for a longer period of time. This leads to a higher customer lifetime value among Forex traders. On the other hand, Binary brokers enjoy a higher initial conversion rate and are less dependent on a small percentage of VIP traders.
Let’s take a look at the individual metrics:
The conversion rate (from registration to first deposit) of Binary Option traders is 34% higher than that of Forex traders.
Forex traders who made a first deposit are 14% more likely to make second deposit (39%) than are Binary Option traders (34%). This is an important indicator of trader engagement over the short term.
Active Binary Option traders trade 30% more frequently (once every 3.3 days) than active Forex traders (once every 4.3 days). This is an important indicator of trader behavior and overall engagement.
Forex traders are 154% more likely than Binary Option traders to remain active traders six months after their first deposit. This is an important indicator of trader engagement over the long term.
The customer lifetime value (LTV) of Forex traders is 11% higher than that of Binary Option traders. This is the most telling indicator of the full potential value of each customer.
Dependence on VIPs
The top 10% of Forex traders (in terms of total deposits) represents a 29% higher share of all deposits (80%) than the top 10% of Binary Option traders (62%), making Binary Option brokerages less dependent on a small group of VIP customers.
These results are not surprising. Binary options is a much easier field for beginning traders to enter, so it makes sense that more demo traders end up converting to real-money traders. On the other hand, because traders who get involved with Forex managed to get through a longer and more difficult learning curve, it is reasonable that they will continue trading longer: they have more interest in leveraging what they already know and in further improving their trading skills.
Our data scientists examined 18 months of granular customer behavior data from a score of online Forex and Binary Option brokerages in order to calculate a set of predefined metrics. They then calculated and compared the averages of each metric for each group (Forex traders and Binary Option traders). The metrics presented here are all statistically significant (p-value < 0.05); other researched metrics with non-statistically significant differences were omitted from this article.