Forex Binary Options

Filed under: Learn Forex Trading |

 

Screen shot 2013-07-04 at 10.58.39There are a number of ways of trading the forex markets, namely via traditional brokers trading lots, by spreadbetting, or a much lesser used way to trade the forex markets is via something called ‘binary options’.

 

Binary options involve predicting the price movement of a currency pair (either up or down) from the current price over a predetermined period of time. So, the current price of the GBP/USD pair might be 1.56678, and you think that after 1 hour, this rate will be higher than 1.56678. It is a little bit like making a bet on a sporting event. It is a win or lose kind of bet, and the ‘odds’ are predetermined before you buy the option. So, for example, the broker might offer you a 70% return on your investment if you are correct, but if you are not correct, you will lose all of your invested money. Let’s say that you bet $100 that the rate of the GBP/USD will go up in the next hour. If you are correct, you will get $170 back. If not, you will lose $100.

 

Binary options offer high profit returns while using minimal capital in a short space of time. However, for the uninitiated, binary options can be dangerous and can be used like a casino. Moreover, the odds you get are usually less than evens, with around 70-80% profits being the norm. That means that the risk-reward ratio is not positive, and you are risking more than you can expect to profit by. This means that you really need to know what you are doing in order to be profitable. However, on the plus side, there are generally no spreads and no commissions to deal with, and you only need to win by 1 pip to make your profit at the expiry time.

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