Trading
Binary Options is a much more simplified process than trading
conventional Forex: you simply choose the market that you want to trade,
for example Currencies. Then you choose the asset, for example EUR/USD.
Finally you decide whether the EUR/USD will end above or below its
current price at the end of the hour. If you decide above, choose a Call
Binary Option. If you decide below, choose a Put Binary Option.
There
are 2 cases in which you can win your trade. You will be “In the Money”
if you choose a CALL Binary Option and at expiry the closing price
closes above the price that you purchased. You will also be “In the
Money” if you choose a PUT binary option and at expiry the closing price
closes below the price that you purchased.
Forex
binary options offer several obvious advantages that attract
conventional Forex traders. Binary Options only need to close within the
smallest fraction of a pip over or under your strike price and you
immediately win up to 81% profit in less than 1 hour. By comparison, a
conventional Forex trader with a maximum leverage of 100x placing a
$1000x100 leverage trade would have to gain 81 pips to create the same
profit! This is an amazing difference.
Another interesting feature of Binary Options is that expiry occurs hourly, like European style options, with no possibility of exercising before expiration. This can be very advantageous because conventional Forex traders are forced to place a Stop-Loss which can be easily shaken out. Particularly in the case of a news event in which volatility is very high, it can be advantageous to use the risk management of the hourly expiring Binary Option, rather than place a Stop-Loss.
Another interesting feature of Binary Options is that expiry occurs hourly, like European style options, with no possibility of exercising before expiration. This can be very advantageous because conventional Forex traders are forced to place a Stop-Loss which can be easily shaken out. Particularly in the case of a news event in which volatility is very high, it can be advantageous to use the risk management of the hourly expiring Binary Option, rather than place a Stop-Loss.
Perhaps
the most interesting application of Binary Options to conventional
Forex traders is as a hedging tool. Conventional Forex traders are
accustomed to taking losses when their Stop Loss is hit. Lately it has
become customary to transfer the risk from below the buy point to above
it by using Binary Options.
For
example, if you take a conventional EUR/USD long position combined with
a Stop/Loss and simultaneously buy a Put Binary Option, you can cover
your losses or even be profitable in the event that your long position
fails. This effectively transfers the risk from below the Stop Loss to
above it. This can be very advantageous if you believe that your trade
will succeed if a rally continues in the right direction, as is often
the case for rallies.
