Binary options are a commonly used item in several markets of the brokerage world. While you can easily invest in the Foreign Exchange Market or Forex, binary options present an alternative way to get involved. While this is viewed as the costlier way of trading in the forex compared to the leveraged spot Forex trading that is widely used today, it does have its own advantages. So technically, with a binary option you are speculating on the position of an exchange rate, rather than investing in one or the other currency.
Let’s Break It Down
When it comes to FOREX based Binary Options, you are investing your money in a form that has maximum potential loss capped and the amount you will lose is determined before the purchase. This allows traders to make their gambles, or predictions with exact knowledge of what they will invest, win, and lose. Since you either win or lose your entire investment this form of trading is seen as a type of online gambling on the currency market. Do not be fooled, binary options in the forex market are a tough way to make money. The movements of a currency depend on so many factors, its truly hard to make confident predictions. Having the odds stacked in the favor of the house, you will be playing a game with a low ceiling, but it does present a certain thrill to its madness.
Another thing that makes binary options trading in the forex an interesting and appealing choice is the low amount of capital required to get started. So, let’s say you buy a binary option at $60 for the EUR to finish at 1.4 to the USD, now, if the EUR starts the day at 1.35 and ends the day above 1.4 then you win, and you get a payout of $100, which means that before commissions you will receive $40, a gain of 66.7%. Now on the other hand, if you lose, you will lose the entire $40 at a 100% loss. This is why the widely unregulated, binary options trading in the forex carries a wide risk. Majority of the options purchased have shorter expiration periods, usually ending within hours of being made, opening the door for people to make trades continuously without having to follow an abundance of information.
It’s always worth remembering no market offers the abilities to trade at such a wide time frame, as the forex. This is one of the biggest draws of leveraged spot trades or binary options trades on the forex, the ability to do it without stopping if you would like. Trade at 2 pm in London then switch over to US at night time and continue, with such an abundance of time, it really is a tempting market.
In Conclusion
Binary options by any other name…, are a useful tool in your forex trading arsenal, with a limit on how much you can lose, it is great for starters, and a fun way to get into the flow of the forex. While they do carry a different kind of risk, they do present a number of benefits, which make them useful in the volatile world of forex. Get in with your low capital or collateral and take the risk at the prices you want to take, this is one form of speculation that can be interesting, and economically beneficial for your time and bank account.