The forex market is one of the most active and volatile markets when it comes to price action, which makes it the most liquid market for traders. One of the most simple and less risky methods of trading as compared to conventional forex trading is forex binary options. Like other options this type of trading also has an expiration date and strike price but what is different is that traders receive a fixed payoff. This could be $0 if the price of a currency pair doesn’t reach the strike price by the time of expiration or a percentage as high as 60 to 85% or more if the price does reach the strike price. We recommend 24Option for trading forex binary options who also offer a nice demo account for newbies.
A simple yet profitable way of trading
This type of trading is offered on a number of exchanges such as the broker Banc de Binary. Forex binary options for major currency pairs such as the EUR/USD, USD/GBP, USD/JPY and more, with intraday, daily, and weekly expirations. It can be used as an alternative tool for stop loss and to hedge currency positions. All you need is to determine whether the price of a currency will finish below or above its current price level over a specific period. If you predict correctly by the time your option expires and the price reaches its expected level you finish ‘in the money’ or else you finish ‘out of money’. Watch Lotz of Botz execute a fricking awesome EU Spot Trade:
http://www.youtube.com/watch?v=TGvZEIazOsI
Benefits of trading the options forex market
One of the biggest advantages of options trading in the forex market is that brokers are flexible and allow you to trade variations. Moreover, you can achieve high returns as much as 80% or more in a matter of minutes simply by predicting the price movement of a currency pair. Brokers like Anyoption offer payouts as high as 71% with a 15% cashback if you happen to lose your contract. They also offer attractive bonuses on the first deposit. 24Option is another broker to offer as much as 81% in payouts and many other promotions.
Make the most of your trade
A typical trade involves choosing a currency pair. For example, you choose EUR/USD and decide whether the pair will end above or below its current price over an hour. You would choose a ‘Call’ option if you predict the price will move upwards or a ‘Put’ option if you feel the price will fall below the current price. If the closing price is above the price you purchased with the ‘Call’ option, you will be ‘in the money’ at the time of expiry. If you choose a ‘Put’ option and the closing price is below the price you purchased, you will also be ‘in the money’ and make as much as 60 to 80% or more on the trade. Even the smallest fraction of a pip over or under your strike price can fetch you as profits in less than an hour. However, in traditional forex trading you will need to gain at least 81 pips on a $1000 x 100 leverage trade.
A powerful hedging tool
With short expiry terms you can take advantage of any news event that can trigger market fluctuations rather than place a stop-loss. One of the most interesting applications of forex binary options is that they can be used as a powerful hedging tool. It allows traders to transfer any risk from below the buying point to above it. If you take a traditional long position EUR/USD with a stop/loss and also purchase a binary ‘Put’ option, you are likely to cover any losses or even profit in the event of an unsuccessful long position trade. The risk is transferred from below the stop/loss to above it. If a rally continues in the right direction you can end up with a successful trade. This makes investing in binary options more fun, exciting, and less stressful for the novice trader as well. For more about hedging, read this great article by Mifune.
Further reading:
- Lotz of Botz on Spot Forex vs Binary Options Trading
- Mikko on the fundamentals of Binary Options FX trading
- Spot Forex Brokers
