How To Use Binary Options To Speculate On Price Movements
Binary options are increasing in popularity amongst traditional forex traders because they offer a unique flexibility in speculating on price fluctuations. The concept of binary options trading is also incredibly simple with price simply needing to close higher or lower than the strike price, by any degree, in order to close in or out of the money. One of the principle appeals of binary options trading is also that both profits and losses are pre-determined prior to purchasing the options, stop losses are unnecessary and traders can simply focus on their profitable exit strategies.
Binary options rely on time, rather than only the extent to which price move in your favor or against you. Traditional forex requires movement in the markets to generate profits whilst binary options can be highly profitable in flat market conditions due to the fact that simply closing 1pip higher or lower will result in an average of 80% profit. Learning how binary options work is not only simple but allows traders to speculate on both long and short term price moves.
Binary options can be applied to most timeframes and brokers offer binary options with expiry times from as little as one minute to one month. This expiry is the point at which the decision is made whether your options are worth anything. Also known as “black-and-white options” this decision will simply be “in the money” or “out of the money”. The expiry time is chosen prior to purchasing the options and this is the most important aspect of any binary options trading strategy. Whether you are looking to base your investment on weekly fundamentals or a 5minute technical setup, choosing the correct expiry is central to your success. Having said this, many brokers also offer a ‘close early’ function which allows binary options to be liquidated before their expiry for a lesser amount of profit depending on where price is in relation to the strike, or entry, price.
Binary options also offer a whole range of other trading possibilities beyond the simple question of whether price will be higher or lower at the end of any given timeframe. These features vary between brokers but the most popular include touch trading, where the options close in the money if price hits a pre-determined price level. Amongst other features, “range” binary options are also popular where you can purchase options based on whether you believe price will close within or outside of a range. Speculating on these price movements makes binary options more exciting and less focused on the traditional pips-based forex trading strategies.
There are literally hundreds of great strategies to use profitably to speculate on price movements using binary options. Whilst the traditional forms of technical and fundamental analysis can still be applied to determine an investment, the profits or losses which are made are dependent on the timing of these movements. For instance, regular forex trading would require a breakout trade to move a certain number of pips to be profitable whilst a 60 second binary option may close 2 pips higher than the strike price and be equally as profitable within just one minute.
Eleonora Marchetti is an expert on financial markets specializing in foreign exchange and trading in binary options. An honorary graduate of the SDA Bocconi School of Management in Italy, she provides consultation services to various economic powerhouses, including the globally renowned binary options trading firm, Banc De Binary.