More people are discovering the advantages of binary options. Forex binary options, in particular, are growing in popularity very fast. This trading instrument is both easy to handle and to learn: You just have to predict the price development of a certain currency and you don’t necessarily have to understand the fairly complicated Forex trading language. The actual price movement must be your only concern.
Forex Trading Tip
The British company 24Option is an outstanding broker for forex binary options trading. The software is easy to use, no slippage and you can choose between many currencies.
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The Forex Market
We talk about Forex (Foreign Exchange) everytime one currency is traded against another one. The Forex market is by far the biggest financial market in the world with a trading volume of more than 4 trillion dollars every day. Huge banks, central banks, speculators, multinational concerns and governments are trading against and with each other.
The currency market is an OTC market (over the counter market). This means that brokers and traders are negotiating directly and that there is no central place like in the stocks market. Therefore, there isn’t one price of a currency but there are many slightly different prices depending on the market maker or bank one is trading with.
The major dealer centers and time zones are those of Tokyo, London, New York and Singapore. When the Asian trading session ends, the European trading session starts. After that the American session starts followed by the Asian session again. There is no break except on weekends – the Forex market is a 24/5 market.
The market is split up into several levels. On the top, there is the interbank market where more than 50% of all transactions take place. Central banks and smaller banks are the next big players followed by multinational concerns, investment funds and hedge funds. The last link in the chain are the Forex retail brokers.
Binary Options and Forex Trading
Binary options are perfect to trade the Forex market. If you want to invest in the normal Forex spot market, you have to learn the special terminology like pips, lots, etc. before you can even think about starting. Besides, it is very difficult to calculate your potential rewards and your losses.
Not with binary options. You can start immediately because they are so easy to handle. You believe the EURUSD is going up until the end of the day? Simply buy a call option which is expiring at the end of the day and you are good to go. If the price goes up you will get a fixed payout, normally between 70% and 90% of your investment. If the price goes down you will lose your investment. You always know the exact amount of money which is on the line. Basically you are betting on the price development of an underlying asset, in this case the EURUSD.
Binary Forex options have another huge advantage: The Forex market is known to be very volatile. When trading the spot market it is common to put stop loss orders in place to protect yourself against an undesirable price movement and huge losses. If the price turns against you, the position will automatically be closed when reaching the stop loss mark. This is a good thing and absolutely necessary to limit your risk. However, because of the volatility in the currency market, stops are triggered regularly even though the price might finally move in your favored direction.
When trading binary options you know your potential profit and you know your risk exactly. You don’t need to put stop marks in the market and you can’t get stopped out because of the volatility.
One of our favorite brokers offering Forex binary options is the English brokerage house 24Option. Continue to read more in our 24Option review.