The angle resolution and accuracy of magnetic position encoders with a diametric magnet and central scanning Hall sensor IC are limited by the feasible depth of interpolation and available field quality. By scanning many sine periods per revolution, the resolution of optical position encoders is much higher. If magnetic pole wheels are used, this approach can also be applied to magnetic systems, but which system is better? This paper describes the key parameter of a magnetic and an optical one-chip encoder, the tradeoffs for both solutions and compares the performance of both encoder designs.