Forex binary options refer to the currencies that are listed for trading in the binary options arena. Another way of defining this is the practice of trading forex as binary options.
Some important points stand out here:
- The assets to be bet on are currency pairs.
- Several kinds of bets can be used, according to the fixed odds contracts listed on the broker’s site.
- Forex binary options are listed on a 24-hour basis to correlate with the trading hours in the spot forex market.
Currencies are naturally volatile assets, so the best way to trade them would be to adjust the trades to suit the behavioral pattern of the assets themselves.
A Typical Forex Binary Option Bet
The first step is to select the appropriate trading platform on which the bet is to take place. A choice can be made from any of the numerous brokers in the market place. The platforms available in the market place are those from SpotOption, Tradologic, Tech Financials and proprietary platforms (e.g. IGMarkets, Nadex and Betonmarkets). These binary platforms have different trade types, different expiry times and different trade conditions.
The next step would be to structure a trade using your preferred platform. We will use the example of a High/Low trade. The High/Low trade is found on all digital options platforms and will therefore serve as a suitable example. Before trading the High/Low option, the trader must ask: what causes an asset to head higher or lower than entry price? The factors that are responsible for currency price movements are either technical or fundamental in nature. News releases (the fundamental factors) are unpredictable and not very suitable for trading binary options. In contrast, technical analysis provides a more composed and reliable way of predicting asset direction. One way of trading technically on a forex binary option is by using chart patterns. A typical chart pattern to use is a rising wedge.
A rising wedge is a bearish pattern which will eventually see the asset ending lower. The trade should be taken at the break of the lower trend line as shown in the chart below:
Once the setup is complete and the asset breaks lower, the trader should select LOW, using the appropriate investment amount that is commiserate with the proper risk management profile for the account size. The expiry time must be such that the trade is allowed time to move solidly into profit territory within the time allocated.
The 24-hour nature of forex enables traders to bet on these setups round the clock. As long as the markets are open, there is an opportunity to make money. Forex binary options assets are the only assets in the digital options arena that can be traded at any time of the day.