Binary options are becoming an increasingly popular way of trading options in the forex market. They are an expensive alternative as compared to leveraged spot forex trading and have been labeled by Forbes as gambling but they tend to be an easy and fruitful medium of trade when the right strategies are employed.
WHAT ARE BINARY OPTIONS?
Binary options also known as the all or nothing options are financial trading options that offer fixed monetary payoffs or nothing at all depending on whether the underlying asset is trading below or above the strike price by the time of expiration.
The maximum potential loss in trading binary options is fixed and known in advance which gives it a great advantage as it provides traders with a clear choice as to whether they want to trade or not at the given strike price.
This method of trading can be useful in speculating the outcomes of various situations in the market.
BINARY OPTIONS ON FOREIGN CURRENCY
Exchanges such as Nadex offer binary options on forex for popular pairs such as USD – CAD, USD – JPY, EUR – USD, etc. The expirations on these options can be intraday, daily, or weekly.
Forex binary options simplify the otherwise complex forex market. They allow traders to capitalize on the core idea of forex without them having to deal with the complicated and elaborate investment structure. This method also reduces a traders exposure to the changeable forex market.
SOME USEFUL STRATEGIES
It is believed that binary trading can only be done with prior experience and thus, people hesitate to venture into the field. But is this true? The skill set required for binary trading can be developed in a short time span. Here are some useful strategies for binary tradingThe most basic strategy is to be able to predict the direction the price of the asset will take. An increase in price is known as call and a decrease in price is known as put.
- Using a reliable broker is of utmost importance to avoid fraud and to get the best trading opportunities. Some examples are IQ Option, 24Option, and Automated Binary.com.
- DO NOT invest the entirety of your capital at once so as to avoid risk.
- A money management strategy will help you maintain a balance between investment, gains, and losses and help you get through rough patches.
- Markets change and a successful trader must keep themselves updated on these changes. Constant analysis of the market is useful in coming up with improvement strategies.
PROS AND CONS OF BINARY FOREX TRADING
Just like everything else, binary forex trading has its pros and its cons.
- The most appealing pro is the quick payoff that comes with binary forex trading. If in case one guesses wrong, there is a possibility of a rebate percentage amount.
- It is simple and easily executable. Binary forex trading does not involve complex decision making and research. One simply needs to set variables, pay attention to the direction in which other traders are betting, and set an expiration date.
- The beginners do not need to face the stress of picking a point of ending sales as binary options have a fixed expiration date/time.
- The learning curve is constant and one can become more and more successful as time goes by.
- The high payoffs make the risk high as well. In other words, consistent predictions of market movements cannot be made due to the short timeframe.
- Even if the strike price increases, the reward one earns will be limited. · Impulsive decision making becomes a risk factor as the primary dashboard lacks trading tools.