Trading Forex With Binary Options.
Binary options are an alternative way to play the foreign currency (forex) market for traders. Although they are a relatively expensive way to trade forex compared with the leveraged spot forex trading offered by a growing number of brokers, the fact that the maximum potential loss is capped and known in advance is a major advantage of binary options.
But first, what are binary options? They are options with a binary outcome, i. e., they either settle at a pre-determined value (generally $100) or $0. This settlement value depends on whether the price of the asset underlying the binary option is trading above or below the strike price by expiration.
Binary options can be used to speculate on the outcomes of various situations, such as will the S&P 500 rise above a certain level by tomorrow or next week, will this week’s jobless claims be higher than the market expects, or will the euro or yen decline against the US dollar today?
Say gold is trading at $1,195 per troy ounce currently and you are confident that it will be trading above $1,200 later that day. Assume you can buy a binary option on gold trading at or above $1,200 by that day’s close, and this option is trading at $57 (bid)/$60 (offer). You buy the option at $60. If gold closes at or above $1,200, as you had expected, your payout will be $100, which means that your gross gain (before commissions) is $40 or 66.7%. On the other hand, if gold closes below $1,200, you would lose your $60 investment, for a 100% loss.
Buyers and Sellers of Binary Options.
For the buyer of a binary option, the cost of the option is the price at which the option is trading. For the seller of a binary option, the cost is the difference between 100 and the option price and 100.
From the buyer’s perspective, the price of a binary option can be regarded as the probability that the trade will be successful. Therefore, the higher the binary option price, the greater the perceived probability of the asset price rising above the strike. From the seller’s perspective, the probability is 100 minus the option price.
All binary option contracts are fully collateralized, which means that both sides of a specific contract – the buyer and seller – have to put up capital for their side of the trade. So if a contract is trading at 35, the buyer pays $35, and the seller pays $65 ($100 - $35). This is the maximum risk of the buyer and seller, and equals $100 in all cases.
Thus the risk-reward profile for the buyer and seller in this instance can be stated as follows:
Buyer – Maximum risk = $35.
Maximum reward = $65 ($100 - $35)
Seller – Maximum risk = $65.
Maximum reward = $35 ($100 - $65)
Binary options on forex are available from exchanges like Nadex, which offers them on the most popular pairs such as USD-CAD, EUR-USD and USD-JPY, as well as on a number of other widely traded currency pairs. These options are offered with expirations ranging from intraday to daily and weekly. The tick size on spot forex binaries from Nadex is 1, and the tick value is $1.
The intraday forex binary options offered by Nadex expire hourly, while the daily ones expire at certain set times throughout the day. The weekly binary options expire at 3 p. m. on Friday.
In the frenetic world of forex, how is the expiration value calculated? For forex contracts, Nadex takes the midpoint prices of the last 25 trades in the forex market, eliminates the highest five and lowest five prices, and then takes the arithmetic average of the remaining 15 prices. From December 15, 2014, for forex contracts, Nadex has proposed to take the last 10 midpoint prices in the underlying market, remove the highest three and lowest three prices, and take the arithmetic average of the remaining four prices.
Let’s use the EUR-USD currency pair to demonstrate how binary options can be used to trade forex. We use a weekly option that will expire at 3 p. m. on Friday, or four days from now. Assume the current exchange rate is EUR 1 = USD 1.2440.
Consider the following two scenarios:
(a) You believe the euro is unlikely to weaken by Friday, and should stay above 1.2425.
The binary option EUR/USD>1.2425 is quoted at 49.00/55.00. You buy 10 contracts for a total of $550 (excluding commissions). At 3 p. m. on Friday, the euro is trading at USD 1.2450. Your binary option settles at 100, giving you a payout of $1,000. Your gross gain (before taking commissions into account) is $450, or approximately 82%.
However, if the euro had closed below 1.2425, you would lose your entire $550 investment, for a 100% loss.
(b) You are bearish on the euro and believe it could decline by Friday, say to USD 1.2375.
The binary option EUR/USD>1.2375 is quoted at 60.00/66.00. Since you are bearish on the euro, you would sell this option. Your initial cost to sell each binary option contract is therefore $40 ($100 - $60). Assume you sell 10 contracts, and receive a total of $400. At 3 p. m. on Friday, let’s say the euro is trading at 1.2400. Since the euro closed above the strike price of $1.2375 by expiration, you would lose the full $400 or 100% of your investment.
What if the euro had closed below 1.2375, as you had expected? In that case, the contract would settle at $100, and you would receive a total of $1,000 for your 10 contracts, for a gain of $600 or 150%.
Additional Basic Strategies.
You do not have to wait until contract expiration to realize a gain on your binary option contract. For instance, if by Thursday, assume the euro is trading in the spot market at 1.2455, but you are concerned about the possibility of a decline in the currency if US economic data to be released on Friday are very positive. Your binary option contract (EUR/USD>1.2425), which was quoted at 49.00/55.00 at the time of your purchase is now at 75/80. You therefore sell the 10 option contracts you had purchased at $55 each, for $75, and book a total profit of $200 or 36%. You can also put on a combination trade for lower risk/lower reward. Let’s consider the USD/JPY binary option to illustrate. Assume your view is that volatility in the yen – which is trading at 118.50 to the dollar – could increase significantly, and it could trade above 119.75 or decline below 117.25 by Friday. You therefore buy 10 binary option contracts – USD/JPY>119.75, trading at 29.50/35.50 – and also sell 10 binary option contracts – USD/JPY>117.25, trading at 66.50/72.00. Therefore, you pay $35.50 to buy the USD/JPY>119.75 contract, and $33.50 (i. e., $100 - $66.50) to sell the USD/JPY>117.25 contract. Your total cost is thus $690 ($355 + $335).
Three possible scenarios arise by option expiration at 3 p. m. on Friday:
The yen is trading above 119.75 : In this case, the USD/JPY>119.75 contract has a payout of $100, while the USD/JPY>117.25 contract expires worthless. Your total payout is $1,000, for a gain of $310 or about 45%. The yen is trading below 117.25 : In this case, the USD/JPY>117.25 contract has a payout of $100, while the USD/JPY>119.75 contract expires worthless. Your total payout is $1,000, for a gain of $310 or about 45%. The yen is trading between 117.25 and 119.75 : In this case, both contracts expire worthless and you loss the full $690 investment.
Binary options have a couple of drawbacks: the upside or total reward is limited even if the asset price spikes up, and a binary option is a derivative product with a finite time to expiration. On the other hand, binary options have a number of advantages that make them especially useful in the volatile world of forex: the risk is limited (even if the asset prices spikes up), collateral required is quite low, and they can be used even in flat markets that are not volatile. These advantages make forex binary options worthy of consideration for the experienced trader who is looking to trade currencies.
How to Trade Hourly Forex Binary Options.
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.
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.
Click here to see what our expert traders and testers have to say about the top binary options brokers.
When trading with Binary Options earnings can go from 70 to 82%, it will all depends on how much you invest. Generating profits with binary options trading is not an easy task. Finding the right binary options broker is always the hardest part of the challenging quest to high profits. Digital (or Binary) Options are the fastest, easiest and most efficient way, to convert your financial decisions into substantial profits. 777 Binary for me is the most professional and objective platform for trading Digital Options online. They have excelled the binary trading, and made it easy as 1,2,3.
alsimpson December 2012.
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Risk Disclaimer: DailyForex will not be held liable for any loss or damage resulting from reliance on the information contained within this website including market news, analysis, trading signals and Forex broker reviews. The data contained in this website is not necessarily real-time nor accurate, and analyses are the opinions of the author and do not represent the recommendations of DailyForex or its employees. Currency trading on margin involves high risk, and is not suitable for all investors. As a leveraged product losses are able to exceed initial deposits and capital is at risk. Before deciding to trade Forex or any other financial instrument you should carefully consider your investment objectives, level of experience, and risk appetite. We work hard to offer you valuable information about all of the brokers that we review. In order to provide you with this free service we receive advertising fees from brokers, including some of those listed within our rankings and on this page. While we do our utmost to ensure that all our data is up-to-date, we encourage you to verify our information with the broker directly.
7 Binary Options.
The Basic Tools for Successful Binary Trading.
Binary options are complex, exotic trade options, but these are particularly simple to utilize and understand the way they work. The most familiar type of binary option it the high-low option and it’s relatively simple to comprehend. This technique is also referred to as the fixed-return option and provides access to commodities and foreign exchange, indices and stocks.
Trading with binary options is easy, and you do not need any previous experience. Below are some basic guidelines that we have compiled to help you start trading in a few minutes.
To be a successful binary options trader, you need to use more than one broker . Choose one or more from our compiled list of brokers. Register with your chosen trading platform and deposit money to start trading. The minimum deposit for some trading platforms or binary options robots is only $ 100. Select the asset to trade. Trading platforms have assets such as currencies, indices, commodities, and stocks. You can choose to trade in currencies, the popular one being EUR/USD. Decide on the amount to invest. When investing in an asset, you will see the payout or the returns for the asset, which can go up to 91%. Make your prediction on the movement of the price of the asset. If you predict the price of the asset to rise, select Call (up). If your prediction is that the price will fall, select Put (Down). When the trading closes after the given time, for example after 60 seconds, if it is a 60 seconds investment and you have made the correct prediction, then you win . An investment of $ 100 with a 90% payout means that you will have made 90 dollars in a few minutes.
Get started with 3 easy steps:
Choose a broker from the list below.
Binary options trading carries a high level of risk and can result in the loss of all your funds.
( *Amount will be credited to account in case of successful investment)
Register a broker account.
I personally use six different brokers for trading and would recommend all serious traders to open a few accounts with different brokers in order to build up a good variety of assets.
Start trading with four easy steps:
Genres of Trading Options.
Binary trading options vary in type and there are several of them from which one can trade. The High-Low Call Put is recognized as a relatively simple option for trading. A prediction by the investor of if the price will rise or fall within a specified amount of time. Once this sets forth, the investor indicates call if the prediction is a rise and Put if a fall is predicted.
High Low / Call Put.
This is probably the easiest and the simplest option for trading. The investor only needs to predict whether the price of the asset is going to rise or fall within a given time. The investor then selects Call if the prediction is a rise in price and Put if it is a fall.
In this option, the investor predicts that the price of the asset will touch a specific value before the end of the given time.
For example, the trading asset is EUR/USD valued at 1.3500 on Friday. A trading platform such as Banc de Binary or 24Option can give the investors two options. The call option; meaning that the price of the asset will rise and reach 1.3800 at least once in the next week. The put option; meaning that the price of the asset will fall and reach 1.3200 at least once during the next week. In case you use a call option or a put option and the price touches the specified price then you win.
It works the same way as the CALL/PUT option only that in this case, you select the price at which the asset must not reach before the selected period.
Example: Google’s share price is $540 and the trading platform is on the No Touch price of $570 with percentage returns of 77 %. If the price does not reach 570 dollars after the given time, then you have a gain.
30 Second trading.
The option comprises prediction of a rise (Call) or a fall (Put) in the value of the asset in 30 seconds.
It is also offered by some brokers and have the option of being bought back. This is a possibility for options that are termed in or out of the money but both represent major variables among brokers.
Boundary Options.
These options offer boundaries of a lower and upper definition with a rate that can exist inside or outside of its boundary.
Binary options present a unique and easy method of trading price variables in multiple markets on a global spectrum. There are associated risks and it is important that the trader is aware of these risks, as well as the rewards.
Recommended Binary Option Brokers.
IQ Option – a completely regulated platform that offers a wide range of trade options including forex, indices, stocks and commodities. This broker is also one of the brokers in Binary Option Robot. 24option – this platform presents a wide range of option types that are a great fit for any level trader. Available returns for the aggressive trader with an enhanced knowledge of advanced trading tools such as rollover and sell option. OptionFair – offers traders the ability to obtain safe and reliable profits by investing in various assets. This type trading is appropriate for beginner and experienced traders.
References and Further Reading:
John Miller.
Latest posts by John Miller (see all)
Interview of Daria Glazko from IQ Option - July 20, 2016 IQoption Adds New Deposit Feature and Forms New Partnership - July 5, 2016 How Binary Options Changed My Life and Got Me Out of Debt - June 7, 2016.
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10 comments.
Hi John, do you have any information on these 2 brokers Safe-Options and Ukoptions, I have used them last year but I cannot get my money withdrawn.. I look forward to hearing from you. Regards, Jay.
Hello Jay. Sorry to hear that. We don’t really recommend those brokers so all I can say is I hope you get your money back. Choosing brokers from our recommended broker lists would be a much safer option.
From what I have noticed, One Touch options are one of the best ways to make money. I tried No Touch and haven’t had a good experience with it before.
Hi, what broker do you recommend to star trading? I am living in UK.
What is your opinion on WMOprion ?
I heard that they have consultants and helps clients to trade and place orders also assists on trends and possibilities.
Also read through their website that VIP member is having lot of benefits but starts at 100K …
I would recommend IQ Option for a broker. It is the best in the business now. If you are looking for binary option robot – then Option Robot is the best.
You will find full reviews here:
IQ Option —>7binaryoptions/iqoption-review/
Option Robot —>7binaryoptions/robot/
i just joined this today and i am at KwaZulu Natal anyone to assist how to do this.
Wow, so useful! Thanks!
Thanks for these tips, this is invaluable!
Hi, what broker do you recommend to star trading? I am living in Nigeria.
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Binary options.
Up or Down? You decide! With binary options, it’s all about speculation whether the price will be higher or lower than it is now.
Margin-based trading requires only a small investment to make a good profit. But nothing comes easy and that goes twice for leverage investing.
The World’s Largest financial market – Forex offers currency pairs like EUR/USD, GBP/USD. Which economy and its currency will be affected next?
Cryptocurrencies.
High-Risk, High-Reward, that is the case for cryptocurrencies. Bitcoin, Ethereum and other digital coins have so far the best year, where the price can yet skyrocket?
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Binary Options.
The principle of binary options is very easy to understand for anyone. You, as a trader have to only decide, whether the price of an underlying asset will go up, or down. You are not required to speculate how much the price will change. As long as it moves in the direction you chose, you make a full profit. As underlying assets you can, for example, imagine stocks (Apple, Microsoft, Google…), commodities (gold, silver, copper…), currency pairs or indices. In a case of a correct prediction, you will be rewarded with additional 70-91% from your investment, in the opposite case you lose the money you invested into the trade.
Forex and CFD.
With the trading volume worth of 5,3 trillion of dollars, the Forex market has no equal in the world of international finance. Forex and CFDs are margin based instruments. Which means you can trade with a much bigger capital than you have. Unlike from binary options, the trader doesn’t know how much he can win or even how much he can lose. He can earn for example 50 times more than he has invested or even more. But he can also earn way less than that, or he can even lose more money than he invested (in case he didn’t set up stop-loss).
Cryptocurrencies.
You’ve seen those eye-popping 3000% increases in cryptocurrency prices and you want in. You ask yourself every day why you haven’t started investing in Bitcoin a long time ago and you don’t know whether it is too late to try it now. And I have an answer for you „it isn’t. Nevertheless, cryptocurrency trading is no get get-rich-quick scheme that would make you thousands of dollars in a day. Find out more about the game-changing market that always changes and never closes.
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Motivational Quotes from Top Traders.
I learned early that there is nothing new in Wall Street. There can’t be because speculation is as old as the hills. Whatever happens in the stock market today has happened before and will happen again. I’ve never forgotten that.
In this business if you’re good, you’re right six times out of ten. You’re never going to be right nine times out of ten.
The goal of a successful trader is to make the best trades. Money is secondary.
The most important organ in the body as far as the stock market is concerned is the guts, not the head. Anyone can acquire the know-how for analyzing stocks.
TradingBeasts helps individual traders learn how to responsibly trade binary options and CFD. We actively trade, write educational articles, news, we verify and compare brokerage companies and warn our readers about suspicious projects or scam marketing campaigns. We are also a community of traders that support each other on our daily trading journey.
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