How to Trade Binary Options in Forex Market

Binary Options trading is becoming popular among traders due to its simplicity and high returns. Traders confuse Forex trading with Forex Options as the same thing. It is pertinent to note that Forex trading is different from trading Binary Options.

Before starting to trade in options it is necessary to have an in-depth analysis of these contracts. We will discuss this in detail about Binary Options Trading to give you a clear picture. It would enable you to decide through our research whether it is worth exploring these contracts or not. 

Not all Forex Brokers provide the facility to trade Options nor do all trading platforms support options trading. Execution of trades can be complicated sometimes. Below is the complete guideline to start your journey with Options Trading. 

What is Binary Options Trading

It is predicting how the prices of the currency pairs would move, in the upward or downward direction over short intervals of time. It is based on a simple “Yes” or “No” rule. The price would either go up or down in a short period. 

In Forex Binary Options trading going short is called a “PUT” and going long is called a “CALL”. Before placing the order a trader can set an expiry time limit for the trade. This time limit can be in seconds, minutes, or hours. Options with longer expiry timeframes are rare. 

An option is a derivative of a currency pair that is being traded. When the order time limit is ending, if the trader selects a PUT “P” and the price has moved in the downward direction you would make money. Otherwise if the price moves in the opposite direction, the trade ends with a loss. 

If a trader selects CALL “C” and the price moves in an upward direction on the expiry time. It is a profitable trade. Instead if the price moves in the downward direction, the trade ends with a loss. 

How Binary Options Contracts Work

The profit or loss in binary options is well-defined and time-limited. A trader is expecting the price to go up or down and choosing any one side. Buying a “call” gives the right to buy a currency price at certain price in future. A “Put” allows you to put that Currency Pair to someone at a higher price if the price moves below the current price.

The option trading is time-bound. Every trade has an expiration time with profits and losses calculated at the time of trade. With predetermined trade time, profits, and losses, it gives full control to the trader to decide whether to enter the trade or not. 

Generally, option contracts range from $0 to $100 making it easier to calculate the risk involved before the trade. Option contract gives you full control of the trade giving exact amount of profit with execution time. 

Early exit from an Option Contract is also possible. If the price is not going in your way you can exit the option contract. You can also book profits early by exiting the Option Contract before the expiration time. 

Difference between Options Trading and Forex Trading

Binary Options	Forex Trading
The Volatility is low as compared to trading in forex Currency pairs	The Volatility is high
No Leverage	High Leverage
Trade are time bound. Having expiry date	Trades are not time bound
Predetermined losses and profits	Losses and profits can stretch
Fixed return on right or wrong basis	Strategy depends on the price movements of currency pairs
No extra cost involved.	Cost of Brokers spreads and commissions is involved

Advantages of Options Trading in Forex

1. There is always an expiry date for Options, so risk can be managed efficiently. The Options Contract has an expiration date making it possible to avoid huge losses. 
2. As the Forex Market is the biggest Trading Market in the world there are plenty of choices, ways and opportunities to trade options.
3. The market is active 24 hours a day making it flexible for the options traders to manage the trades.
4. It is an excellent way to hedge the Forex Trades through Forex Options. 
5. The trading strategies can be easily developed and implemented in Options and can be combined with diverse possibilities for potential profits. 

One of the key advantages of forex options trading is the ability to control risk. Traders can limit potential losses to the premium paid for the option, which can be significantly lower than the potential loss in outright forex trading. Moreover, options trading offers versatility. Traders can employ various strategies, such as straddles, strangles, spreads, and combinations, to capitalize on different market conditions. For instance, a straddle involves buying both a call and a put option simultaneously, anticipating a significant price movement in either direction.

Disadvantages of Options Trading in Forex

1. Options are not easy to understand for everyone and can be complex. 
2. The value of Option is depending on another asset such as a currency pair, commodity or stock. 
3. The Options of some Currency Pairs can lack liquidity due to the low interest of retail and institutional investors. 
4. The spreads in Forex Options are higher when there is low liquidity, resulting in higher trading expenses.
5. As long you hold the Options the value keeps on losing due to time-decaying phenomena of Options. 
6. Can be addicting as there are only two choices the trade would go up or down. People can over-trade and lose money. 
7. Unfortunately, not all Forex Brokers provide the facility to trade Binary Options. It may be possible you need to open a new account with another Broker to trade Options.

Platforms for Options Trading

Binary Options can be traded on different trading platforms provided by the Brokers. Generally, Meta Trader 4 (MT4) and Meta Trader (MT5) are considered reliable Platforms for Options. There are multiple options of Trading Platforms available that are only used for Binary Options Trading. 

Conclusion

Binary Options can allow a trader to diversify their Portfolio. The Portfolio can be hedged by trading in Options. Money can be generated even in range-bound sessions by effectively managing the Options trade. 

Options can be traded in very small amounts making it possible to take initiative with minimal investment.  There are two choices in Binary options, that is either the trade would be bullish or bearish. This easy decision-making can cause over-trading and result in high losses. 

Emotional Traders need to be vigilant and have to control their emotions with patience. Traders can grow their investments in a short period. This can be done by developing a winning trading strategy for options.