I was introduced to forex binary option a few weeks ago by one of my friends. After listening to his explanation about how forex binary option can work hand in hand with my current trading, I decided to find out more about it and started an account with a binary option broker.
So What is Forex Binary Option?
If you have traded options before, you will have some understanding on how it works. However if you do not have any experience with options like me, this is not rocket science.
What you do in a binary option is to either decide whether the currency pair you are interested in is going to rise or fall within the next hour. If you think that it is going to rise, you will choose a CALL option. If you think that it is going to fall, you will choose a PUT option.
Let says that you have enter a CALL option and the currency ends one pip higher than your entry, you will make a profit based on the percentage given. Do note that different currency pair has different payout.
The EURUSD pair is having a payout of 81%. If you enter $200 to purchase a CALL option as you believe that the price will rise above the current level for the next hour and indeed it ends up higher. You will make a profit of
81% of $200 = $362
Is Forex Binary Option Suitable For Beginner
In fact, the binary option suits both the new traders who has no experience as well as those experienced forex trader. As a experienced trader myself, I will do an analysis on my chart and I will use the binary option together with my trading.
For example, I saw a valid trend line break on the hourly chart and I decided to enter a LONG trade. After I have place my stop loss and target profit, I will go to my binary option account to choose a CALL option.
If it is a valid trend line break on the hourly chart, it will always move above the trend line for the next hour before it may comes back to retest the level.
At the end of an hour, even if the price has not hit my target profit on my forex platform. I will still make money from the CALL option that I have purchased as there is no target profit with the CALL option, as long as the price is higher than my entry level, it will make a payout.
With the profit made, I am now able to cover the trade even if the price came back to stop me out.
Advantages of Forex Binary Option
No Stop Loss – I understand that new traders tend to have problem with the placement of stop loss. With binary option, you do not have to worry about placing stop loss as your loss is being fixed to a certain amount. From the picture below, you can see that there is a “Out of the money” statement and that is the amount you will get back if you are wrong in predicting the direction of the market.
No Target Profit – Unlike normal trading where you have to worry about your target profit. With binary option, there is no target profit. As long as the price close one pip higher than your entry, you will make money if you enter a CALL option.
Good Payout – Although the payout is not as high as what you will get from your normal trading which can sometime vary from 1:2 or 1:3. It is considered a good payout as you will make 73% profit even when the market closes one to two pips in your favor.
Higher Probability of Winning – In the case of normal trading, we will only make money when the price moves and reaches our target profit. Let says that I enter a trade and place a target profit at 100 pips, even if the price moves to 90 pips, we will not make any money.
However if we enter a CALL option and the price ended with 5 pips higher than our entry, we will still be making money.
Selecting the right binary option broker is very important for a trader.
If you are interested in trading binary option, I do have a set of effective binary option strategies that I have been using for years. Simply email me a [email protected] and I shall share with you more about the strategies