Many traders think of the stock market when they hear about binary options. However, the Forex also offers retail traders great opportunities to make some high returns. Binary Forex options trading allows you to limit risk and see profit in little as one hour. Here we’ll discuss what Forex binary options are, how they are used and which strategies you can use to profit.
Let’s begin with a short explanation about the Forex before we get into binary Forex options trading. A global, decentralized over-the-counter financial market for the trading of currencies, the Forex, or Foreign Exchange Market, allows banks and other institutions to easily buy and sell foreign currencies. Financial centers around the world act as hubs for trading between a large variety of buyers and sellers day and night, except for weekends. For example, it enables an American company to import products from South Africa and pay in Rand even though its income is in dollars.
The exchange rates of currencies on the Forex fluctuate (floating currencies) according to the market. A currency’s value rises if the market demand for it surpasses the available supply and drops in the opposite scenario. This is where binary Forex options trading comes in – a new type of investment that allows the average person to be active on the Forex. Binary Forex options trading via an online platform offers you a tool to purchase Call and Put positions on chief currency pairs like the US Dollar against the Japanese Yen and the US Dollar against the Euro, among many others.
Online Binary Forex options trading enables the middle or amateur investor the chance to trade on the Forex with smaller amounts of capital but with the same high yield returns as any other method. Plus, returns can be collected in just one hour. What you are doing with this form of trading is attempting to predict whether or not one currency in a pair will trend up or down against the other.
Let’s look at the Forex options trading available at online binary options trading platform anyoption.com – a leader and pioneer in the field. They offer trading on the following pairs:
- Australian Dollar (AUD)/US Dollar (USD)
- Euro (EUR)/British Pound (GBP)
- Euro (EUR)/Japanese Yen (JPY)
- British Pound (GBP)/ Japanese Yen (JPY)
- New Zealand Dollar (NZD)/US Dollar (USD)
- Euro (EUR)/US Dollar (USD)
- US Dollar (USD)/British Pound (GBP)
- US Dollar (USD)/Japanese Yen (JPY)
- US Dollar (USD)/ South African (RAND)
- US Dollar (USD)/Canadian Dollar (CAD)
- US Dollar (USD)/ Swiss Franc (CHF)
Each Forex options trading currency pair has an expiry level calculation. Let’s look at AUD/USD as an example. This currency pair, like most, has hourly, end of day, end of week and end of month expiry times. The expiry formula is the sum of the ASK value and the BID value, divided by two [(ASK+BID)/2]. The result is rounded up if the fifth decimal digit is 5 or higher and rounded down if the last decimal digit is 4 or lower.
Let’s say you have $2,000 in your binary options account and you decide to take up Forex options trading on the AUD/USD. Let’s use the recent rate of 0.91721 for this example and a 70% return rate. Earlier this week, you read that the AUD/USD fell from 0.9206 to 0.9145 and settled under 0.9170 after the Australian government released some disappointing growth figures.
So you predict that the AUD will continue to drop against the US dollar. You purchase a Put option for $500 with a one hour expiration. If your prediction is right and the price falls at the end of the hour, even if only by 0.001 below the strike price, you will collect $850 ($350 in returns plus your initial investment). So in the end, a $500 trade could easily earn you $350 in profits and you could repeat the same binary options trade a few times in one day.