Trading Forex With Binary Options in 2022: What You Need to Know
Published February 8, 2022.
Over the last couple of years, online investing has exploded in popularity, thanks to the growing number of options available for digital trading. Be it zero-commission trading or the myriad of features provided by these platforms, many people have been persuaded to engage in the digital trading bandwagon.
In the aftermath of the first wave of the COVID-19 pandemic, armchair traders, who were confined to their homes, hopped on Robinhood and started buying and selling meme stocks. Once they turned a handsome profit and became confident in their investing abilities, these same individuals expanded their horizons and delved into the world of commodities, cryptocurrency, and binary currency trading.
But what exactly is binary currency and binary forex trading?
What Is Forex Trading?
Forex trading involves the buying and selling of currency pairs, such as the USD/CAD, GBP/JPY, OR EUR/CHF. When you execute a forex trade, you sell a currency and purchase another currency, speculating that one will outperform the other.
This is the most liquid and actively traded market globally, even more than stocks, commodities, and cryptocurrencies. All you need to do is find a source from the long list of forex brokers.
What Is a Binary Option?
A binary option is an investment strategy whereby you decide if a security is traveling up or down, also known as a yes/no proposition at a pre-determined period. Essentially, it is an all-or-nothing investment endeavor.
When it comes to binary options trading, there are three key elements you need to know:
- Underlying market This is the online binary options exchange, such as Nadex, where you place these types of trades.
- Strike price The value of the asset that it must equal or surpass for the trader of the binary option to turn a profit.
- Expiration date The time when the binary option will expire. Brokers will generally offer hourly, daily, and weekly expiration dates, but some brokers will even provide 60-second options.
For example, will shares of Acme International hit $20 by 3:35 p.m. EST on June 29?
Difference Between Binary Options and Options
Options and binary options might seem the same because of the term "options". However, the two investment styles are notably different from one another.
The biggest differentiation between the two is time. Binary options maintain short expirations, while real options provide long expirations.
Moreover, in binary options trading, there is no real asset, and you are trading against a broker. However, in the real options market, you have an actual asset whereby you are trading against other traders.
5 Steps to Trade Binary Options
Now, how do you start trading binary options? First off, you need to know that you can trade binary options any time the market of the underlying asset is open. So, for example, if it is a stock on the Dow Jones Industrial Average, you can trade the security between 9:30 a.m. EST and 4 p.m. EST. Or, if you are engaged in binary forex, you could invest Monday to Friday at any time of the day.
After that, we have compiled a list of five steps to help you begin this exciting heads-or-tails investment journey:
- Analyze market trends As time goes by, you will eventually notice trends and identify market patterns. This is a crucial component of binary options since you need to be confident where a security is going.
- Choose your market Are you more adept at forex or stocks? Whatever the case may be, it is vital to only invest in the markets you are comfortable with; otherwise, you will be speculating on indexes, metals, or currency pairs you know nothing about.
- Choose strike price and expiration Select your strike price and then select your expiration. For example, if you are partaking in binary options currency trading, you would pick USD/CAD climbing above 1.2501 in 46 minutes and 23 seconds. This is a part of how you sign off on binary trades.
- Execute Once you have picked your investment, selected your strike price, and chosen your expiration, you can process your trade. It will show up on your account.
- Wait for expiration Between now and expiration time, monitor your position closely and act accordingly. If it looks like the market is working against your trade, it may be better to exit the position ahead of time, even if your profits are lower.
Benefits of Binary Options Trading
Despite warnings from regulatory bodies about binary options, there are several advantages, many of which can reduce your risks. The risks dissipate if you are an infrequent patron of the binary options market as investors need to be correct a greater percentage of the time to cover the losses that are more likely to happen. Indeed, losing trades can cost the client much more than they can gain by winning trades.
Here are some of the significant benefits:
- Access to all kinds of markets What is great about binary options is that you can take advantage of all sorts of markets: up, down, and even flat. This applies to stocks, indices, cryptocurrencies, or binary options currency trading. You just also need to monitor binary options forex signals and employ the right forex binary options strategies.
- Simplicity For many novice retail traders, the talk of puts and the broader options market can be confusing. The binary options realm simplifies the investment process.
- Fees Once again, the advancement in digital trading has allowed fees to come down, even in the binary options community. You can buy a contract for as little as $1, limiting your risks.
- Easy access In the end, the barriers to entry are minimal, particularly on the financial side. You do not need to lay down a sizable amount of capital to trade, making the entire investment strategy more attractive and reasonable.
- No concern for liquidity The trader does not possess the underlying asset, while brokers will provide multiple strike prices and expiration times or dates.
Maximizing Forex Volatility With Binary Options
The forex market is perhaps the most volatile aspect of the broader financial markets. With trillions of dollars traded every day worldwide, it makes sense why there is so much volume, but while it might seem like a chaotic and risky market, you can balance it out with binary options.
You can combine forex with binary options. You apply the same strike price and expiration date for, let's say, the EUR/CHF currency pair.
This is certainly an investment strategy that experienced traders should consider. Once today's younger generation of investors becomes more familiar with the ins and outs of the markets, then they, too, need to think about incorporating forex binaries into their trading arsenal.