What are Binary Options?

The Forex market can be extremely confusing and dealing with all of the components that comprise the Forex industry can be difficult. You need to take into account the bid and the ask prices, as well as the nuances of perfectly sweating out a trade in order to milk it for all that it’s worth. Traditional Forex trading is difficult and requires a good eye for timing trades just right in order to maximize your profits. It also entails being able to know how to use leverage to your advantage. A tiny mistake can mean big and unexpected losses if a trade does not go the way you envision it. In short, Forex trading requires a good deal of skill and a lot of luck if you want to be perennially successful.

Binary options eliminate a lot of the guesswork that is associated with Forex trading. A good binary options broker will have all of the same major currency pairs that you would find on a reputable Forex broker’s site. The major binary options brokers all cover the major currency pairs, the Euro, the U.S. dollar, the British pound, and the Japanese yen—and pretty much all of the combinations that can be made with these four currencies—are covered by major binary options brokers and are available for you to trade.

In order to be successful with Forex binary options, you still need a thorough understanding of how currency prices work. Binary options do simplify the process for you, though. The best part about trading currencies as a binary option is that you don’t have to worry about overcoming the spread. When you trade currencies in the traditional Forex marketplace, you will not make money unless the bid and the ask fluctuate enough for you to make a profit. For example, if the bid price moves, but not enough to offset the ask, even if the trade moves in the right direction, you will still lose money because there simply was not enough movement to make the trade profitable for you. This is the toughest part about trading in the Forex marketplace; when you are right with your prediction, but not right by enough.

Binary options erase this difficulty for you. Even if the price only goes up by a fraction of a penny, you will still be on the profitable side of things.

Additionally, there are no leverage factors that you will need to take into account. Leverage is, of course, a great tool for successful Forex traders. When you are right, your profits will be multiplied by a larger degree than just using your own money would accumulate for you. Leverage works in the opposite direction, too, though. When you are wrong, if you are not careful, you can lose a lot more money than if you were just trading with your own money. In fact, if you are not careful, you can drain your entire trading account by misusing leverage. This happens when the amount that you have leveraged falls below the amount you have available in your account. The Forex broker will automatically close out your positions for you and your money will be lost. This is an unfortunate part of Forex trading, but if you are using leverage, it is something that you might have to deal with from time to time.

Binary options eliminate the uncertainty and guess work that is a standard byproduct of the traditional Forex market. You know exactly what your risks are, and you know how much you stand to profit if your predictions are in fact correct. The only thing you don’t know for sure is which direction the market will move in. Even this can be derived in a fashion that is better than random chance.

There is a lot of difficulty associated with trading binary options. As simplified as they might be, they still require a great amount of skill in order for you to be successful while trading them. Think about it this way, with currencies, you need to be right, and you need to be right by a certain amount of pips in order to overcome the spread and make a profit. Binary options operate on a similar level, except rather than trying to eke out a certain number of pips, you need to have a higher than average correct trade rate. This is because you don’t earn back as much when you are correct as you do when you are on the losing end of things. You might lose 100 percent of your risked amount when you’re wrong, but it is rare to earn back more than 80 percent of your initial investment when you are right. This immediately puts the average trader at a disadvantage. Overcoming this deficit is the binary option equivalent of a Forex spread.

Also, binary options have another disadvantage that the Forex market does not. You are working with a limited timeframe. When trading currencies, you might have set a prediction that your trade will finalize within one hour. If that time approaches and you want to extend the trade’s life for another hour, there is no one standing there saying that you cannot do this. As long as you have a sufficient amount within your margin account, you can hold onto a trade for an extended period of time beyond your own estimates.

Binary options are limited in their timeframes. If there is a one hour expiration time, when that time is arrived at, your trade is over, even if things look like they are starting to move in your direction. This concept is starting to change, though. Many brokers have realized that this is a big disadvantage of binary options trading and they are starting to make some concessions in order to attract people into this style of trading. Some binary options brokers now all traders to extend the life of their trades simply by doubling up on the amount that they are trading with. This obviously increases the amount you are risking, but the added benefit of time is gained. This is a tradeoff that you will need to evaluate for yourself on a trade by trade basis. Sometimes having extra time will be worth the added risk, sometimes it will not.

The same set of skills that allows you to be successful trading currencies will help you to trade Forex binary options. If you can analyze a currency and its future price movement on a correct and consistent basis, incorporating binary options into your trading routine can have big rewards. Binary options pay out more per individual trade than most other types of trading. If you gain 10 percent over the course of a trading day selling stocks, that would be an amazing day for you. But with a single binary options trade, you can sometimes make as much as 80 to 85 percent profit. As you can see, there is a lot of potential within this marketplace. Of course, you will not be right every trade, but if you pick and choose which trades you do enter on a selective basis, you are increasing your chances of a correct trade.

This is the secret of binary options trading. More trades is not necessarily a good thing, but brokers play up this feature in order to help them achieve better profits. Binary options can last as short as only 60 seconds, so in theory, you can fit dozens upon dozens of trades into a single day. This might seem like a good idea, but in reality, this is not going to help you out at all. Being selective and targeting only the very best trades will be your best friend. If you make 10 trades per day and you are right on 8 of them, you will be much better off than if you made 50 trades and were right on 25 of them. More trades and even more correct trades are not necessarily good things. Instead, you want to target your correct trade rate.

This is quite similar to trading Forex, actually. Rather than trying to have a lot of small trades, having a few higher quality trades will prove to be a lot more beneficial to you. Everyone wants to be successful in their trading, but pumping more money into your trades and spending more time doing so is not always a good solution. You want to pinpoint which trades will actually be the most beneficial to you and focus on those ones rather than trying to get dozens of trades under your belt each day. The smarter you approach your trading the better.

Binary options present a unique opportunity to Forex traders. They are certainly not an easy type of trading, but if you have the right mindset and put the proper amount of work into your analyses, there is a lot of potential for profits. These types of trades have big rewards, and if you can overcome the risk associated with them, you can make a lot of money.

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