How are binary options used to cover Forex investments?
Binaries can be used two ways: one is to trade the Forex market, and the other as a “cover” or “hedge” on your current trades. The idea behind a hedge is to buy insurance and reduce your position risk. The hedge exists because you are buying the opposite side of your main trade. The best time to buy the hedge is before an official communiqué. The market”expects” a certain outcome, and if the announcement is different, prices explode to cover the new level of risk. Your main trade collapses in value, but your binaries make up for some of the loss. The binary options, in this case, provided the insurance.
Let’s look at this situation. You buy a EUR/USD at 1.5432. A few days later, the financial ministry announces the GDP for a Euro member country, or information about the country’s national debt is released. The markets start to discount this information, and the price of Euro is dropping. You are unable to recoup this loss with a classic Forex platform because a new trend has emerged. The solution is to open a position with your binary option’s broker and trade the EUR/USD trend down. This allows you to manage the loss, and protect your original capital investment in the Forex trade.
Under this scenario, you should enjoy the advantages of binary options because the return on investment is much higher than in Forex because you are hedging your original position and making additional profits.
For those of you without a Forex account, then examine the advantages of trading with binary options because trading them is a bigger boon. Consider that with binary options, you can trade multidirectionally the market since you are not intrinsically purchasing assets. The art is in speculating on the future price of the asset. This speculating on future probabilities is what makes it easier for the beginning binary option trader.
Now relating back to the established Forex trader, the ability to purchase cheap and reliable hedges is a game saver because Forex trading is high risk. A lot of trades can go wrong, and it is great to be able to use a new safety net that before was not existent in the market.
Given that now all platforms provide binaries in Forex, Stock Market indices, raw materials, and Stocks, the opportunities to “layoff” risk have increased significantly, and hopefully, you can so integrate your platforms that they will give you a great indication of your money accounts.