The Foreign Exchange market is the largest financial market in the world and the destination for many would be traders looking to make substantial investment returns. They are fast paced, offer a number of opportunities and can be traded around the clock. This makes them particularly attractive to those individuals who demand instant profits from their trading.
For this reason they are a popular asset class to trade via binary options. Indeed Forex options are perhaps one of the most traded assets at many brokers. This is despite the fact that the currency markets, with the possible exception of commodities. are perhaps the most volatile and difficult to trade of all assets offered.
Why Trade Forex Options?
There are however good reason to trade on foreign exchange. It is well documented that there twenty four hour nature means that a wealth of trading opportunities can be found and for this reason, traders around the globe can all participate in the markets at times that suit their particular investing window.
While binary options are a great way to trade on many markets, they do I believe, offer several advantages for those wanting to trade on foreign exchange. Here I provide my reasoning as to why I believe that the use of Forex binary options offer one of the better ways in which to play the currency markets.
Control Your Risk
As well as offering the potential for earning high returns, one of the key things that the Forex market is synonymous with is risk. The risks are high and so are the associated rewards. It is for this reason that so many people try their hand at taming these markets in the belief that they will find holy grail to the profits of offer.
However the high risks to your trading capital when trading on foreign exchange are exactly that. This is why most people who trade these markets invariably end up losing money. Now while binary options trading is not going to totally safe-guard your funds, it does at least offer you an easy way in which you can control and limit the level of risk involved.
Trading with ‘controlled’ risk with a Binary options broker means that you know exactly your risk and reward potential on each trade you take. There are no unknowns or any potential for forgetting to place a stop loss. Your risk is your investment amount placed on the contract and you know this even before your purchase the contract.
Known Fixed Profit
Just like the fixed risk you undertake when placing a digital binary contract, you will also know your level of profit. This is a fixed amount which is agreed with your options broker at the time of placing your trade.
Why this is particularly good for trading on currency pairs is that you can earn very high returns on even short term moves. Therefore ‘scalping’ strategies that would normally only target a move of a few pips, suddenly become much more profitable when using the 70%+ returns which can be generated from even the shortest FX options trading.
The ability to ‘rollover’ your contract and even be awarded a rebate from some binary options trading platforms, will if used sensibly, also help you to swing the probability of marking profits in your favor when using these contracts.
Trade Different Outcomes
With ‘spot’ trading in the currency markets you ‘long’ or ‘short’, which is binary options trading terms is the equivalent of going ‘long’ or ‘short’ on a currency pair. However while most trading vehicles will limit you to either one of these calls, there is an ever increasing range of binary options contracts being made available which will allow you to profit from a range of different market outcomes.
The variety of different binary options contracts now includes the Touch, Boundary (range) and even Pairs contracts. Each of these offers a different way of earning a profit from a different set of conditions perpetuating until the end of the contract. For example, with a range contract you can set a market range consisting of an upper and lower level that you expect the asset price to either finish Inside or outside at the end of the contract.
The key benefit to having access to these different binary option contracts is that you are no longer reliant on strong trending foreign exchange markets to make money. You can also profit from volatility (touch/ Boundary) or even non-trending markets (No Touch/boundary). In effect you can shift your contract type and therefore strategy to fit in with the current market dynamic.