Trading Forex with Binary Options
What is Forex trading?
Forex trading is the simultaneous buying and selling of two currencies based on a trader’s view of which direction the price is going in the future. In today’s world, currencies are traded through an electronic broker or dealing platform and prices fluctuate depending on the number of buyers or sellers at any particular time.
The forex market is the largest and most liquid market of them all, with around 5 trillion US Dollars per day changing hands between market participants, which include the likes of central banks, banks, corporations, hedge funds and currency speculators. The forex market is pure and responds instantaneously to news and events, creating volatility and opportunity every day.
Traders in the forex market are connected via a decentralised electronic network, allowing them to buy and sell most global currencies. Each currency has different characteristics, costs to trade and driving factors influencing it, which a trader needs to understand before placing a trade.
Currency traders also have the unique ability to profit from both a rising and falling market by buying or selling a currency, and unlike trading stocks, you don’t have to wait for the opening or closing bell. The forex market is open 24/5, between 5am Monday morning in Sydney and closing in New York at 5pm on Friday. This allows traders to choose their own schedule and trade around the clock from anywhere in the world that has an internet connection.
Binary Options and Forex
Forex trading can be very complicated due to the high volatility within the market. Before placing a forex trade, ask yourself these questions –
The list goes on and on…..
The difference between forex trading and forex binary options is that there is no leverage, no tricky order types, no obscure lot sizes and no guessing when to close a trade. There is a predefined profit or loss on any given trade, knowing throughout how much you have at risk.
An appealing aspect of binary option trading is the fast turnover rate, giving successful traders the potential to compound their returns in a very short space of time, particularly with products like the Zentrader On-Demand Options which can provide a potential pay-out of up-to 195% in just 30 seconds. As with any binary options product, there is always a defined amount of risk which must be managed. Zentrader binary option pay-outs are fixed, and are not subject to change with market volatility like other option types. You can be as little as 0.1 pip in the money and receive a full pay-out.
How to trade Forex Binary Options
The process of placing a forex trade on the Zentrader platform comes in these few steps: choose your asset, enter your investment amount, select “HIGH” or “LOW” and “INVEST”. The Zentrader platform has been designed and developed over many years to streamline and make the trade execution process as simple as possible.
However, there are other components to successfully trading forex binary options, and much of this has to do with planning and developing a trading plan. This aspect is often deeply personal. Developing and refining your own trading style is often a process or trial-and-error, study and commitment to the markets over many years. Here is an example of how a trader may use forex binary options to trade a central bank announcement.
It’s 12:25pm in Sydney, 2:25am in London – 5 minutes until the Reserve Bank of Australia (RBA) interest rate decision. Economists and the market are expecting no change. A trader holds the view that the RBA will surprise the market with an interest rate increase, and that the AUD/USD forex currency pair will appreciate in value as traders begin to factor in the higher interest rates paid in Australia relative to the United States.
The trader intends to scale into this particular trade. Minutes prior to the RBA decision the trader purchases a AUD/USD 1-day Zentrader Classic option on the Zentrader platform. This option pays out 2.00x their invested capital if the AUD/USD closes higher on the day. As the trader had predicted, the RBA surprised the market with a 25 basis point interest rate increase. Split seconds after hearing the decision and following their trading plan, the trader purchases another AUD/USD option. This time they purchase a Zentrader On-Demand option which expires in 1 minute. Due to the shorter duration and no spread, this option pays out 1.95x the trader’s invested capital.
The trader has made two forex binary option investments. If the trader’s prediction is correct, they will have 1.90x their capital invested on the Turbo option credited to their account after the 1 minute expiry. The longer term 1-day Zentrader Classic option will be paid out at the end of the trading day. The trader also has the ability to sell their option early to lock in profits or cut losses as part of their risk management plan.
The above example focuses on using forex binary options to trade a major central bank announcement, many traders will also use and blend in other tools such a technical analysis (charting), indicators (MACD, RSI, Moving Averages) or market psychology to place their binary options trades. There are hundreds of different trading opportunities at any given time in markets around the world. Up late in London and want to trade the USD/JPY or Nikkei in Japan? You can on the Zentrader platform.
When to trade Forex Binary options
Like each currency pair, the time of day or each trading session in the forex market is different. It is important for traders to understand each trading session’s unique characteristics and driving forces in order to be a consistently profitable trader.
The three main trading sessions are broken down into Tokyo, London and New York, and are closely tied with open and close times of their respective equity markets. The time of day will determine which currencies are most active, mainly to do with economic data, news and current events in each of the major financial centres. Traders in Tokyo will be closely following the Bank of Japan (BoJ) and the Japanese Yen, while traders in London will be listening for cues from the European Central Bank (ECB) and the Bank of England (BoE), trading the Euro and Pound Sterling for example.
Understanding why a currency is moving or likely to move is critical to successful trading, and as discussed above there are many aspects to consider. While traders will generally focus on what currencies are most active and volatile during the session, the right time and which forex asset to focus on is again often a very personal aspect a trader and one that should be considered in a trading plan.