Forex Binary Options – A Basic Understanding Of What They Are

Forex binary options help traders to protect themselves against the volatility that is part and parcel of the currency market. With the hassles related to making investments in the currency market removed, forex binaries allow the traders to exploit the advantages offered other aspects that are associated with forex trading.

If you are planning to get into traditional forex trading, there are a number of terms that you have to become familiar with and learn about prior to starting your career as a currency trader. Some of the key terms used are pips, leads, lags, spreads and cross-rates, among others. These may take many days or even a few months, perhaps, to get familiar with. In the case of forex binary options, however, the whole trading process is simple as the trader has to just predict whether one currency will strengthen or weaken against the other within a specified time limit.

Forex Binary Options – Is It Profitable

It is indeed profitable to trade in forex binary options. In addition to the simplicity that it offers, you can earn high returns. The current growth of forex binary options market is clearly indicative of the popularity that it enjoys. A trader cannot lose any more money than what he has invested in the binary options contract. Therefore, the risk is predetermined and the trading process becomes more enjoyable. This is yet another major reason why traditional forex traders are shifting to forex binary options trading.

Another major difference is the availability of leverage in the currency market and non-availability of the same in the binary options market. Leverage allows you to invest much more than your original investment. However, this also increases the risk multifold. Sometimes it may cause your entire portfolio to be wiped off when there is a bad trade. In binary options trading, the amount of risk is fixed and always known at the time when the contract is purchased. This is a major relief for traders.

Forex Binary Options Trading Tips

Given below are a few tips that you can keep in mind when trading forex binary options. Though trading in forex binary options is not very different from trading in traditional assets such as commodities, stocks and indices, using the below mentioned tips may help you to achieve success in a majority of your trades. At this juncture, it may be recalled that in forex binary options trading, all that you have to do is predict whether one of the currencies in a pair will move up or down against the other. For example, in the case of EUR/USD pair, the trader has to predict whether EUR will move up or down in value against USD. You can choose to trade with as many currency pairs as you want provided by the broker on the platform.

Tip #1: Do not make guesses

When trading with currency pairs it is a good idea not to make predictions using guess work. Though this may work in the case of binary options on other underlying assets, it is rarely the case when trading currency pairs. This is mainly because the current values of two assets need to be studied when trading currency pairs. You have to know what events have caused the value to remain where they are, impact of current events on their values and the direction in which they are likely to move. Even in other cases, guess work may not produce desired results in the longer term. Strong analysis is essential to successfully trade forex binary options.

Tip#2: News about the economic conditions of other nations is important

The movement of the value of a nation’s currency depends to a large extent on the local events that occur within the country. Therefore, it is important that you keep yourself abreast of all the economic news reported from that country from time to time. Only then you will be in a position to judge as to how the news will impact the value of the currency. The current economic condition of a country can be understood by studying the prevailing unemployment rates, GDP data and other economic growth indicators. All these impact the exchange value of a nation’s currency.

Tip #3: Political Situation of a country is also important

The news relating to the current political scenario of a nation is equally important for making successful trades in forex binary options. If a country is currently experiencing political unrest, the exchange value of the currency is negatively impacted. This should be kept in mind by forex binary options traders so that they can make better predictions which would turn the trades to a favorable direction.

Tip #4: Work with a broker who offers many currency pairs for trading

As a trader of forex binary options, it is important that you work with a broker that offers many currency pairs and also different expiry times on their trading platforms. As price movements are seen to occur at high speeds in the case of currencies, you should be in a position to choose a currency pair that is the most favorable to trade on at a particular point. You can then purchase Call or Put options as you deem fit and earn profits. It is also crucial to choose a broker that offers higher payouts for your investments.

Wrapping up, it is of great importance for you to realize that whereas a forex binary options trader stands the chance of winning up to 90 percent of the investments for in-the-money trades, he/she can lose only up to the amount invested in a trade. The strategies that are used in the conventional forex currency market cannot be used to execute forex binary options trades. However, fundamental principles such as discipline, knowledge and analytical skills are required to succeed in both traditional currency trading and forex binary options trading. To achieve your financial goals using forex binary options trading you must be ready to learn, implement and duplicate the habits of successful traders.

Leave a Comment