Traders who have already dealt with forex-trading but who are looking for another alternative should start dealing with binary forex-options. For newcomers, trading with these specific options is definitely interesting. In general, binary options offer the possibility of gaining high returns within a very short period of time. Though, potential losses limit themselves to the purchase price of an option- in contrast to ordinary forex-trading.
As a trader you should consider that with binary options primarily fast decisions are required. You have to predict the development of a price correctly in order to obtain the relatively high returns. It depends on each option and broker how high these returns are going to be, usually the returns are between 60 and 80 percent. It is not important how high the price gain or loss is; with classic binary options, it is just important to predict the direction of the price correctly. With regard to this aspect, binary options clearly differ from ordinary forex-trading.
Binary options as a new alternative on the market
In general, when trading with binary forex-options, the same things as with forex-trading are important. It is about the trend of two currencies related to each other, that means the analysis of the currency rate. With some brokers, only relatively few currency pairs are offered, others provide very many alternatives and even have exotic currency pairs such as Australian dollars and the Japanese yen on offer.
Compared to binary options – being on the market for a short time – forex-trading is clearly more popular with investors. For more than 10 years now, it is possible to profit of the development on the international currency market via Internet. Whereas, binary options were introduced to the market not before 2008 for the first time which explains why many investors still are relatively sceptical about them. However, this image is changing more and more.
Advantages compared to ordinary forex-trading
Unlike normal forex-trading, when trading with binary forex-options the risk is limited a priori.
Since you only invest and leverage a certain amount when buying foreign currencies it can happen that when there are unexpectedly high exchange losses you need to pay call liabilities and as a result, extreme financial losses can occur.
The functionality of binary option differs from that. Here, the buyer’s investment is not leveraged, instead you know at the purchasing point how high the possible return is. In case your own prediction of the currency pair’s price trend is wrong your invested amount is lost but at the same time, the loss is limited to this amount. In plain language, that means as an investor you should only invest amounts whose loss is tolerable if the worst comes to the worst.
On the other hand, there definitely exist analogies between ordinary forex-trading and binary forex-options. Both trading ways are possible around the clock. For binary options there is an underlying asset required that is constantly being updated on the currency markets worldwide.
Moreover, for the buyer it is important in both cases to have detailed knowledge about the market. Besides economic data, you should also follow the political development and the general newsflow because completely various parameters can affect the development of two different currencies.