Why Binary Options Can Prove A Good Fit For Forex Traders

Why Binary Options Can Prove A Good Fit For Forex Traders

The Foreign Exchange markets have proven to be one of the most popular markets for trading online in recent years. They have captured the imagination of traders from around the globe who have embraced what is now the largest financial market on the planet. The volume of currencies exchanged each day is now over three times the value of Stock Market trading combined. Each day an ever increasing number of investors look to these markets as they attempt to carve out a share of the profits that can be made.

There are several attractions to trading currencies. The fast paced movement of these markets certainly provide the big moves from which profits can be made. Furthermore the global nature of Forex means that it is possible to trade around the clock. The flip side of course, and what many new traders fail to understand, is the inherent risks when trading these markets. Fast moves and overtrading are just two of the pitfalls that can quickly catch out the novice foreign exchange trader.

Forex trading is far from simple. It is in fact quite a complicated business. For many, just the actual process of trading on these markets can be difficult to grasp. There is ‘margin’ and ‘leverage’ to think about and also orders to manage. This is before you have even attempted to start your analysis in an effort to find a move worth trading.  For this reason simple financial instruments such as Binary Options are proving an increasingly popular way to speculate on these markets. In contrast to Spot Forex they offer a simple and understandable way of trading the price movements of currency pairs which can yield profits if carried out correctly.

Binary Options a relatively new financial instrument which offer a different approach to trading. They are digital options contracts which are purchased through a dedicated online broker. They allow the trader to speculate on the price movement of an underlying asset over a time based contract. Rather than offering a direct investment in the underlying asset they are considered Over the Counter (OTC) with the contract existing directly between the trader and the broker.

When it comes to trading on Forex, these contracts offer a number of key benefits. The most notable of these are the fixed payouts and fixed risk on each contract. The fixed payouts for ‘in the money’ contracts allow the trader to make a leveraged return even from small movements in the underlying asset.  The same profit is made if a currency pair moves 1 or 100 pips. As a result it is easier to make profits in all market conditions as the strongest trends are not needed to produce a significant return.

The fixed nature of binary options contracts does not only extend to the profit you can earn. It also relates to the risk on each contract. Your liability can never be more than the price to purchase the contract – something that is welcome given how quickly currency markets can move. Furthermore you can place contracts from just a few dollars at a time so there is no need to overexpose yourself on any trading opportunities that you identify.

Trading on Forex with binary options is one of the easiest way to participate in the Forex markets. The returns and risks are easy to understand and you don’t need large amounts of capital to get started. This is why binary options can be considered as a good introduction to the world of Forex for traders.

By Alexander Slavchev
With an allround knowledge of the financial markets, I've covered European and American markets for years - providing detailed technical and fundamental analysis of the forex markets.

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