How to Trade Forex Binary Options14 Apr 2013, 08:00
Trading forex on the binary options market is simpler than trading them on the traditional forex market. There are several advantages to this approach. The binary options market works in a simpler way than the forex market. You can choose between different available markets. Let’s say you are interested in currencies. All you have to do is to decide which asset from this market you want to trade. If you want to go for EUR/USD, you only need to focus on predicting whether the price will go up or down in the next hour. A Call option is necessary if you consider that the price will increase. On the other hand, if you think the price will go down, you need to trade a Put option.
There are two possible scenarios in which you can be profitable. If you traded a Call option and at the expiry time the price of the asset was above the initial price, than you will be in the money. Similarly, you will also be in the money if you placed a Put option and the price at the expiry time is lower than the initial price.
One of the main advantages of trading forex on the binary options market is that only a fraction of a pip above or below the initial price is enough for you to make profits. Payouts can reach 81% and in order to obtain the same profits on the forex market you would need leverage of 100x and a gain of 81 pips. It is definitely easier on the binary options market and the difference in profits is pretty spectacular.
The expiry times on the binary options market are usually of one hour or even less. You can’t exercise before expiration and this removes the need of placing stop-losses. There are numerous cases in which the absence of a stop-loss you would be forced to use on forex market proves advantageous. In case the market suddenly becomes highly volatile, short expiry times favor you more than stop-losses.
Players on the traditional forex market would find the possibility of using binary options trading as hedging tools very attractive. On the forex market, once a stop-loss is hit, the trader loses money. The risk can be transferred above the buy price if traders use binary options.
Let’s say you take a EUR/USD long position on the traditional forex market and you also use a stop-loss. If you also trade a Put option on the binary options market in the same time, in case your long position is not generating any profits, you can minimize your loses and still earn something. The binary options transfer your risk above the stop-loss.
If you consider that the binary options market can be successfully integrated in your traditional forex strategy, you can choose a reliable broker and enter this market with ease.