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Binary Options on Forex Trading Explained

October 17, 2011 · 6 comments

in Forex Trading

When it comes to forex trading, there is a plethora of options available to you. Of these options, binary options forex trading has become quite popular among investors in recent years, because of the low level of investment needed and the potential to score higher profits is there. As such, this realm of forex trading is particularly useful for novices who are just getting started in this investment practice and want a little more experience and knowledge building before dumping larger amounts of their money into forex accounts.

Unlike traditional models of investing, such as purchasing stocks or bonds, binary options are contracts in which your income relies on the direction of the given asset within a certain time frame. This is known as a less-risky option in forex trading, as you, the investor, get the same set income regardless of how much the value rises in the contract. The only thing that matters in binary options forex trading is that you were correct in your predictions. Before entering binary’s world, just as in forex, you should first open a binary options demo account which will give you a good practice without any risk taken.

To simplify matters even more, there are just two options in binary forex trading that you need to be concerned about: put options and call options. A put option is an investment made when you believe the price of the contract will be below the original price upon expiration. Meanwhile, a call option is the exact opposite, with you expecting the overall price to rise above the original value upon the expiration date.

This can easily be applied to forex trading. For example, if economic indicators are looking bad for the European Union, you could purchase a put option on a Euros contract, with the expectation of the currency’s value to drop by the time your contract is up. Likewise, if the value of the US dollar looks like it could be rising in the near future, the best way to capitalize on this while minimizing personal risk would be to purchase a call option on the USD and profit when the value does in fact, go up. Your leverage would not be as high as, say, a traditional forex trader relying on the currency’s consistent value and no set asset ceiling to be gained (or lost). However, binary options are essentially one of the safest bets you can make as a forex trader.

In a highly volatile market such as forex trading, it’s quite beneficial for newer or short-time investors to have the binary options available in order to minimize the risk on their investments. This allows them to learn the ropes of forex market practices and learn to read forex trading signals without suffering heavy losses along the way. It has all of the same currency pair mechanisms of traditional forex trading, but with smaller caps and less risk factor.

 

Written by Kelly Abellon

Kelly writes about forex trading online for ForexTradingFinder.com.au where you can compare foreign exchange brokers to get the best forex reviews.

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