There many reasons to trade binary options with Forex. The key one is the flexibility that the contracts in this style of trading offer. Forex binaries offer a unique way in which to profit from moves in the currency market which can make them particularly suited to new traders.
The first thing to understand about the Forex binary option is that you are never in the market itself. With spot Forex you are actually dealing in currency exchange in the form of ‘lots’. However with binary options your trading is made against the broker. It is a direct wager where either you or the broker will profit at the conclusion of the transaction.
The binary option is a two way contract that gets its name from the binary outcome at the contract’s expiry time. These contracts allow you to profit from forecasting that the price of a currency pair will end either higher or lower over the duration of the contract. All you have to do in your analysis is decide which way the price of the pair will move and the time at which you want the contract to expire.
The three key variables on each contact are:-
Direction – You need to decide if the price will move higher or lower than your entry price
Expiry – You need to decide when this will have happened by. Common contracts offered include 60 second, hourly, end of day and end of week expiry times.
Wager – How much you want to risk on the outcome. This is the amount that you are comfortable to expend for a positive result. Most brokers allow you to place contracts from just a few dollars.
Once you have carried out your trading analysis you will want to check out the current Forex quote for the pair that you want to trade. A key part of being successful when trading with Forex binary options is timing your entry correctly. Not only do you need to know the direction that you think the price will head, you also need to enter the market at the best price. This will help to ensure that you have a higher probability of success.
A big benefit for new traders is that both the profit and loss on a binary contracts is fixed. You stand to win a fixed amount when trading with these contracts. You also have a fixed loss if things don’t work out as expect. It is also an easy way to trade then regular Forex. There is no need to work out a take profit level or a point to put your stop. These are all part of the trade. As a result you can simply get on with learning the mechanics of trading and carrying out your market analysis to find the best opportunities to take.
Of course, just because the trading mechanics are straightforward, this does not mean that you can ignore proper risk controls. You should proportion your trading capital to ensure that you only use a small amount of your available capital to trade the result of any one outcome. A good level to use is around 2-5% of the capital you have set aside for trading.