Until the end of the 20th century, spot foreign exchange trading was largely a domain of professionals. Meanwhile, those traders holding futures accounts were able to buy futures contracts and options on futures to make bets on currencies. Then, at the turn of the century, online forex accounts became widely available to retail traders to enable spot trading. Finally, a few years ago, binary options trading involving currencies became possible.
Why choose a binary options account for currency trading
When trading forex online at spot prices, amateur traders compete with professionals, and are also exposed to wide swings in their accounts equities. After all, trading forex involves large margin and swings of only few percent can wipe out traders’ accounts. At times, unexpected moves in currencies not only wipe out accounts but produce negative equity, meaning the traders can end up owing money to their brokers.
A disaster such as this happened in January 2015 when the Swiss National Bank said its currency will no longer be capped in relation to Euro. The move was unexpected and resulted in Swiss Franc gaining 30% against Euro and much against other currencies. Those traders who were short Francs at that time were wiped out.
With forex trading, a leverage of 10-1, or even more, is actually quite common. With 10-1 leverage only 10% unfavorable move wipes out the account. With sudden moves, the stop orders designed to protect traders’ accounts, get activated, but then get executed at lower prices as the violent moves continues. That’s the inherent risk with traditional forex trading.
On the other hand, with standard binary options offered by companies such as UltraTrade, traders only risk the amounts of their bets. So, no negative equity is produced. What’s more, these bets still can produce considerable returns, some of which are 85%.
Another positive thing when it comes to betting on forex with binary options is that there’s no interest charged on carry trade- when traders sell one currency and borrow to buy the other.
More advantages of binary options
Binary options can be quite flexible. The bets can be placed for varied periods of time. There are also different kinds of bets. Some need to expire at a favorable price to be profitable, while others only need to touch a certain level during option’s time without having to close at a specific price. Bets can be made on currency’s upward or downward move, and multiple currency pairs are available.
What’s more, some currency trades can be placed with only several dollars, something unheard of several years ago.
When trading forex with binary options, traders still rely on the same tools as currency traders with standard forex accounts. Good online binary options brokers provide charts, analysis, and trading signals to assist their clients. And for many trades, payouts are known before bets are placed- something that doesn’t exist with other trading accounts.
Access to multiple markets
Binary options brokers offer access to multiple markets. So, not only currency pairs can be traded but also stocks, indices, and commodities. And access to multiple markets is something that those who understand currencies can use for their benefit.
Let’s say, the U.S. Dollar is gaining and a binary options trader sees that the trend is likely to continue. With such knowledge, this trader can bet against other currencies and even commodities. It is a fact that commodities are priced in American Dollars, so if a dollar rises, their prices tend to fall (and vice versa) in order to keep the price of commodities the same in other currencies.
Commodities such as precious metals and oil are known to be inversely correlated to the dollar. So, here with binary options account, the knowledge of currencies can help a trader to make bets on commodities. What’s great is that these trades, whether involving currencies or commodities, can be made with ease from the same binary options account.
Trading forex with binary options account is simple
Many new traders are intimidated when it comes to forex trading. Yet, with binary options the process of making a bet is simple. A trader must first select a currency pair to make a bet such as EUR/USD (Euro vs. Dollar), and then with analysis decide to either bet on Euro going up (with a Call) or down (with a Put, which is also a bullish bet on the dollar).
On top of it, a trader selects a bet amount as well as time period for the bet. At that moment, the payout amount and percentage (in real time) is shown by the system. Then, this trader only needs to wait to see if the bet is won.
This kind of simplicity, limited risk, and small capital requirements make it attractive to trade forex with binary options. Very new traders can open accounts with only few hundred dollars at online binary options brokers such as UltraTrade, and then test forex trading right away.