Trading forex in binary options, or simply called as forex binary options, is a way for traders to have a chance in profiting without having to execute orders for the traded pairs. This forex binary options trading is performed by predicting the ups and downs of your chosen pair.

It is not surprising that forex is a market with the biggest liquidity out there, for it is always active 24/7 and has the highest volatility among other markets. Traders are interested to trade in forex market for those reasons, mostly by trading spot forex that enables the traders to execute orders based on their prediction of the next price movement. But there is another way to trade forex in a more simple way, that is through forex binary options.

forex trading in binary options

This forex binary options trading is performed by predicting the ups and downs of your chosen pair. Suppose you trade with EUR/USD, you only need to predict whether its price will go up or down in a certain period of time. If your prediction is correct, then you will be in-the-money (succeed in trading and gain profit). But if you analyze price movement inaccurately, then you will be out-of-the-money (your capital will be lost).

Aside from being able to get profit from only predicting the direction of the next price movement, forex binary options also has an expiry time that sets them apart from spot forex. In spot forex, your position can float continuously unless you take precautions with stop order or close it manually. It can endanger your balance account if you do not have good trading strategy or an invulnerable money management. Things like these will not bother you in forex binary options, because all you have to do is deciding the right expiry time which ranges from only 60 seconds to even months, so that your option will expire in the right place and in the right time.

 

Begin The Trade

Here is a list of what you need to do when you join as a trader in forex binary options:

1. Choosing A Broker

Choosing the right broker has always been tricky, whether it is to start trading in spot forex or forex binary options. In forex binary options, the special things that you need to pay attention for are payouts, trading types, and instrument choices. Surely, other broker features such as regulation, deposit and withdrawal process, and other usual specifications are also important. But in binary options, the three features above are certain things that you need to specifically watch for.

Unlike in spot forex, you can already determine your profit before placing an option. This way, you can have a very simple money management by just calculating your capital and the payout you will receive. Binary options brokers' payout can vary from 20% to 89%. But picking a broker with very high payout can end up with undesirable results in the end.

Trading types are what allow you to vary your trades in forex binary options. Not only predicting a rise or fall in the instrument price, you can also analyze a specific price to be touched or not be touched, or expect the price to stay or not stay in a certain area. It is all possible if your broker provide a wide variety of trading types. However, it is also important for you to understand how the types are traded, as many brokers seem to have different rules in this subject.

Since binary options can be traded with many instruments, you need to ponder about the instrument choices before choosing the right broker. Having many instrument choices means freedom in trading with your favorite market. Don't let broker limits your experience by only allowing a few instruments to be traded.

 

2. Opening An Account

If you are done with choosing the most suitable broker for you, then the next step is to open a trading account. Normally, you only need to fill some application forms with your personal data to have a trading account. But there is one thing to do that is strongly suggested for you before you decide to trade in the real account: learn by trading with the demo first. The best way for you to learn forex binary options is of course from experience. Trading in the demo account can give you a virtual training without risking any of your money.

Now, if you expect to be provided with this feature as easily as what you have in your forex brokers, then you are on the wrong side. Only few binary option brokers offer 'real' demo accounts. Ordinary forex brokers usually provide free demo accounts, with real trading platform and limitless demo account service. But, binary options brokers sometimes only offer a pre-paid demo account or only educational videos for its clients.

 

3. Choosing The Trading Instruments

Binary options provide a wide range of instrument choices for you, including forex. To decide the right pair in forex market, you need to recognize each pair's volatility and suitability  with certain trading sessions.

 

4. Deciding An Expiry Time

The availability of the shortest expiry time in seconds to the longest that is counted in months can help you to adjust them into your trading style. Whether you are a short term or a long term trader, you have all those expiry times to choose so that your trading strategy will fall in place with your choice of expiry time.

 

5. Analyzing The Market

You still need to do serious analysis if you want to profit consistently in forex binary options. Although there are no executions in this trading, predicting the next price movement also needs planning and strategy regarding the possible movements of an asset price in a certain period of time. But you do not need to worry that it will take much time and effort like what you do when trading in spot forex, as you only need to know the next direction and do not need to be weighed down by calculating trading size and market execution.

 

6. Picking A Trading Type

It is safer for you to master a certain trading type first before venturing into other types. If you are a newbie, getting into the forex binary options' basics in one trading type is the best thing to do. You will not be able to learn completely in forex binary option if you change your focus into other types that need different techniques and analysis for each kinds.

Knowing what you want is the best thing to do when picking a trading type. If you want to profit from just a prediction for price movements, then choose a high/low options. If you want to be more specific, touch trading is the right one for you. Meanwhile, you can pick a boundary trading if you want to succeed in a more flexible target price.

 

7. Managing Your Capital and Setting The Payout

You can set you capital from $5 to $5000 in forex binary options. It sometimes depend on the brokers' policy to determine the minimum capital that you are allowed to set.

Brokers have different rules in giving the payout that ranges from 20%-89%. There are brokers that give different but fixed payout for each instrument in diverse trading types. Some of them even allow traders to determine their own payout and refund ratio.

 

How to Trade With Forex Binary Options

Now, it is time to apply what we know from the explanations above into an option trading example, so that you will understand trading process in forex binary options properly. Notice that a call option is chosen when predicting a rise, while put is picked if you predict a fall in the price movement.

Suppose you choose forex as your trading instrument, and pick GBP/USD specifically to begin your binary options trading. The pair is now at 1.57172, and shows the tendency to rise up later. You choose a 1 hour expiry time in case the pair will have different volatility in the next several hours. After analyzing the price movement in GBP/USD, you decide to place a call option  since your analysis says that the Cable will continue its bullish trend. You set a capital of $100, and expect profit from the payout if your option ends in-the-money. Since there are two kinds of payout systems out there, I will give you two possibilities in how this option will end.

Scenario 1:

You trade in a broker with fixed payout system for each instrument and trading type. The GBP/USD is set to have a payout of 85% from your capital if your option is in-the-money, and 0% refund if your option fails to end in the right direction. If the pair moves higher than 1.57172 by the time your option expires, then you will have a total return of $185. However, you will receive no refund if the pair moves lower than the strike price (1.57172).

Scenario 2:

You trade in a broker which provides payout and refund ranges that you can choose by yourself. In this broker, GBP/USD has payout that ranges from 50% to 80%, and refund that is set from 5% t0 20%. The bigger the payout is, the smaller the refund you will get. So, you choose an 80% payout that is placed to have a minimum refund of 5%. If GBP/USD moves higher than 1.57172, you will get a total return of $180. Although the profit may be smaller than trading with the previous broker, but you will still be given a refund of $5 if the pair moves lower than the strike price.

By trading forex with binary options, you can profit big from even the smallest pips. In the example, as long as the pair's price moves higher than 1.57172, your call option will be in-the-money, and the profit you obtain will be fixed in a certain rate. Imagine if you trade in spot forex, you still need to earn at least 81 pips if you want to earn the same profit with a leverage of 1:100 and a $1000 capital.

 

Forex Binary Options Advantages

Due to its simplicity and profitability, binary options has unique advantages that differ it from what you will get in spot forex. Below are the benefit that you can obtain in forex binary options trading:

  • Easy to learn. Beginning a binary options trading is by far the easiest process compared with trading in other markets. You only need to know about the direction, whether it will be up or down, without having to execute any order or thinking about trading volumes. Hence, you only need to learn how to predict market movement, either technically or fundamentally (or both), place it in the right expiry time, and manage your capital by setting the right amount. Although both spot forex and forex binary options have the same basic of analysis in predicting  price movement, but binary options is much more simple and easier as it does not trade the currency, but your prediction of the currency's price movement.

  • Does not need much experience. Trading forex in binary options is open to any kind of trader, from newbie to professionals. Here, the newbies can learn easily before they understand binary options trading, and can win successfully without having to be provided with a lot of experience. Whereas in spot forex, you need to know how to manage their account properly and watch out for the broker comission to calculate your profit.

  • The profit is known beforehand. While trading in spot forex, you may gain a lot of profit if price goes right in the same direction with your order. Nevertheless, you cannot predict how much you will get or how much you will lose in spot forex. This will not happen in forex binary options, as your profit will be determined beforehand, you will know what you earn and how much you will lose, thus giving a stability for your trading emotion.

  • Does not take a long time to earn profit. If you choose a short expiry time, you will gain profit only in a matter of hours, minutes, or even seconds. As long as your option is in-the-money, you can get the same amount of profit as it is determined by your success, not by the option period. It differs greatly from spot forex that needs to wait for further movement from an asset price for you to gain more pips. This process itself can take an unknown period of time.

  • Can serve as a promising hedging tool. If you still maintain your trading account in spot forex while opening a binary options account too, you can take this into your benefit by doing hedging strategy. As there are rules that limit the possibility to perform hedging in spot forex, you can manage your loss by placing an option in your binary options account. For example, you have a buy order in spot forex, but after awhile you begin to suspect a bearish reversal in the price movement. You can cover the loss from this order by placing a put option for the same pair that you trade in binary options. If the bearish reversal really happens, your option will end in-the-money, and is able to cover your loss from buy order in spot forex.

Trading forex in binary options is obviously easier than in spot forex. Both apply the same basics in predicting and analyzing price movements, but binary options does not have the difficulties of deciding the right order and risk management that the spot forex has. Therefore, it can be considered as a good alternative of trading in forex market.