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Thursday, 16 April 2015

Binary Trading on Forex Options – The Money Market explained

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Basic Trading Concepts Defined

Binary Trading on Forex Options – The Money Market explained.

The forex market is the biggest and most liquid market in the world and offers great opportunities of high returns for those who trade in it.
Historically speaking, small time investors were not able to trade in the forex market, the minimum transaction sizes and strict financial requirements being too high for smaller investors to consider, leaving forex trading to banks and major currency dealers. As such, they were the only ones who could take full advantage of the incredible liquidity of this market. Fortunately for us nowadays, new technology has allowed the barriers to be broken down for smaller traders to grab a piece of the action.

Binary Option Traders

This is obviously great news for binary option traders who can now take full advantage of these high yield return forex options and with the bonus of trading with smaller amounts within short-term expirations.
Let's take a closer look into the forex, the motherboard of forex options trading and learn a little more about this exciting market that is unlike any other market you might trade in. Forex, also known as the FX market or the foreign exchange market runs 24 hours a day, five days a week and connects the world with financial transactions, allowing banks and other institutions to easily buy and sell foreign currencies.

The exchange rate of currencies rises and falls according to the state of the market so a currency's value will rise if the market's demand for it exceeds the available supply and will fall if the demand is lower than it.
So when you trade binary forex options, you can purchase Call or Put options on leading currency pairs such as the US dollar against the Euro. The difference when trading in the forex is that you are predicting one currency's rise or fall against another's, rather than the rise or fall of a single stock or commodity which comes with other trading.

Pairs

As currencies always trade against one another, if one currency isn't doing well it means that the opposite currency is doing that much better giving headway to a profitable outcome. So if you do your research and follow the market, you could put yourself in a good position to strike while the iron is hot and come away in the money.
The forex reflects how much of one currency is needed to purchase a unit of the other currency. So let's take the Euro (EUR) against the British pound (GBP) for example i.e. EUR/GBP. The first currency (in this case the EUR) is known as the base currency and the second one the quote currency.

Base Currency

The stronger the base currency, the higher the number of the quote currency (i.e. It will take more GBP to buy Euros). The way the expiry level of the pair is calculated is the total of the ASK value and the BID value divided by two and rounded up or down at the fifth decimal digit.
Here's an example of how trading in binary forex options is a safe bet when investing in the forex. Let's imagine that you decide to trade on the EUR/GBP after reading some news the other day that the Euro is expected to fall. So you predict that the EUR will continue to fall against the GBP and purchase a PUT option of $200 on a one hour expiration option which currently stands at 0.83570.
If the pair expires even 0.001 below the strike price then you will walk away with $340 ($200 your original bid and $140 profit). To cover your back further you could hedge the trade with a CALL option alongside the PUT option. So if the pair was to expire above the strike price you will not be at a complete loss.

Further information on the calculation of the profit can be found in the definition of Binary Option in Wikipedia:

 http://en.wikipedia.org/wiki/Binary_option

Reference: Trading made easy.

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2 comments:

  1. Hi, thank you for your advices… I believe 24option is an excellent auto trading product for binary options currency trading. What is your opinion? I would appreciate if you could review this for everyone. Many thanks…

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  2. Informative… Trading binary options can be highly rewarding. However, to profit in the long-run, besides a robust strategy and sound risk management, one needs a reliable broker, who is fair and transparent in his dealings. Since the number of Binary options brokers has increased exponentially, choosing a broker can become a rather difficult job. But Binary options brokers, provides a list of licensed holder brokers with their complete past record.

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