As Currencies are one of the most popular assets that are traded online is perhaps no surprise that Forex binary options are big business.
The Foreign Exchange markets or ‘Forex’ as they are referred to, have captured the imagination and traders from around the globe have embraced what has now become the largest financial market on the planet.
The volume of currency exchange each day now numbers over three times that of all global stock markets combined and there seems an ever increasing number of investors looking to take a share of the profits available from these markets.
There are several attractions to trading on Forex as opposed to stocks, oil binary options or gold. It is relatively easy to open an account and started trading. The introduction of ‘mini’ and micro’ lots have made it much more accessible to transact on with only a small deposit.
Furthermore the fast paced and often volatile movements of these markets ensures that there are plenty of opportunities for the trader. This also means that fortunes can be made (or lost) in just a matter of minutes.
Forex is a global market, running through an electronic network of banks and brokers. This makes it possible to trade currencies around the clock. However what many traders fail to realize when starting out is that the traditional ‘Spot’ trading in the markets is a very high risk activity which can quickly catch out the novice Forex trader.
This is one of the main reasons why using Forex options contracts can provide a lower risk alternative for speculate on price movements in these markets.
Trading Forex Binary Options
The process of trading on Forex through the use of ‘all or nothing’ contracts helps to simplify investing on what can be a complicated market. For a start you don’t have to worry about where to place a stop or profit target. With the Forex binary option you are placing a set and forget contact. You are only predicting the direction that you expect the price to move and not the extent of this move.
Given the volatility associated with trading on Foreign exchange an important advantage is the limited risk on each contract. You no fear of being liable for a large loss if the market suddenly turns against your open position. Profit on an open position can quickly turn into a loss. Bear in mind that you are liable for all losses on your account until your order is closed or you reach your accounts ‘margin call’. This is not a problem with a Forex option as your liability is never more than the price of the option.
It is not only is your risk that is known on each contract you place. The other advantage of these contracts is that your profit is fixed. You don’t have to worry about ‘false moves’ , ‘retracements’ or many of the other potential outcomes that occupy the time of the Forex trader. You don’t even need to be able to forecast big moves in order to profit. You are simply looking to forecast a higher or lower outcome which means you can profit if your contract ends only 1 ‘pip’ in-the-money. This makes it much simpler to come up with an effective Forex binary options trading strategy.
Of course you are also not limited to trading only ‘long’ or ‘short’ when using digital options. This is a limitation that is seen with Spot Forex trading.
Forex binary options brokers provide a great range of ways in which to play movements in the foreign exchange markets. You can also trade Boundary Ranges, Touch and No Touch and 60 second options. This provides you with more opportunities to make money from a greater range of outcomes.
Notable Forex Pairs
- EUR/USD – The most traded currency pair daily by total volume. Analysis for this pair is freely available making it a good choice for those starting out with Forex options.
- GBP/USD – ‘Cable’ as this pair is often referred to is one of the most volatile of the major pairs. Movements tend to broadly follow the EUR/USD due to the close tie in between regions.
- USD/JPY – The Yen is often seen as a ‘reserve’ currency. It attracts investment when traders are looking to avoid risk, sending its valuation up against other world currencies.
- USD/CHF – Movements in this pair are often strongly inversely correlated to the EUR/USD. So when that pair goes up, this one will go down is likely to go down and vice a versa.
- USD/CAD – The fortunes of the Canadian dollar are heavily linked to both the price of oil and other hard commodities. It is often used as a hedge against the price of global oil.
- AUD/USD – Another popular commodity currency pair, so called due to the influence that these markets have on its movement. Tends to fair well when the economic outlook is good.