A binary option lets you predict the price movement of a currency pair over a set period of time. For example, if you are speculating that the European euro (EUR) will rise in value against the U.S. dollar (USD) in the next minute, you can invest in a call option for the EUR/USD currency pair. If you are right, your binary option contract will settle for $100 and you get your money back with an earned profit of $100, minus the price of the contract.
Forex binary options are the epitome of the high risk-high returns proposition. It is an apt investment strategy for active traders who expect fast results in the forex market. Here’s what you need to get started.
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Step 1: Choose an Online Forex Broker
Before you begin, you need to have an account with a forex platform that allows binary options trading. You can compare different online forex brokers before signing up. Some things to consider in an online forex platform for binary options include minimum deposits, minimum trade value, payout percentage and the number of currency pairs available to trade.
Step 2: Pick a Currency Pair
Most online forex brokers will have a list of at least 80 currency pairs to pick and choose from. Common currency pairs traded in the forex market are EUR/USD, GBP/USD, USD/JPY, AUD/USD, USD/CHF, USD/CAD
Step 3: Pick a Binary Option
Online forex platforms let you pick the type of binary option you want to buy. Depending on your choice, the payout percentage on the binary options will vary accordingly. The most-traded binary options are listed below.
- High or low: You can predict if the price will rise above or fall below the strike price of your currency pair. For instance, if the EUR/USD is valued at 1.1134, you can buy a high or a call option at 1.1139. Likewise, you can buy a low or a put option at 1.1131.
- Range or boundary: You can predict if the price of the currency pair stays within the strike price or if it will exceed it. For instance, if the GBP/USD is valued at 1.2452 and you expect it to reach 1.240, you can buy a range option. Likewise, you can buy a boundary option if you expect it to reach 1.259.
- One touch: You can predict the price a currency pair is likely to reach. For instance, if the AUD/USD is valued at 0.6147, you can buy a one-touch option at 0.6150.
- No touch: You can predict the price a currency pair is not likely to reach. For instance, if the AUD/USD is valued at 0.6147, you can buy a no-touch option at 0.6140.
- 60 seconds: You can predict the rise or fall of a currency pair value within 1 minute. For instance, if USD/CAD is valued at 1.3997 and you expect it to reach 1.3999 in the next 60 seconds, you can buy a call option.
Step 4: Set the Option for a Call or Put
Once you’ve decided on the type of forex binary option to trade, you can choose to buy a call or a put contract. If you expect the value of the currency pair to rise, buy a call option. And if you expect the value of the currency pair to fall, buy a put option. This does not apply for one touch and no touch binary options.
Step 5: Set an Expiry
You need to set a time duration for the forex binary option to trade. The expiry on a forex binary option contract can be anywhere between 30 seconds to 1 day or even 1 week. Many traders indulge in intraday binary options to make a quick buck. Be careful while following in their footsteps; you could burn your fingers on a binary option just as fast.
Step 6: Reap the Rewards
Unlike forex trading, binary option contracts are purchased for a fixed rate and a fixed reward. Both the buyer and the seller of the binary option contracts will have to put in their money beforehand. So, you can cash in on your earnings as soon the currency pair hits the strike price.
Recommended Forex Binary Options Broker
Foreign exchange trading does not have a physical marketplace. You have to open an account with an online forex broker to be able to trade in currency pairs. Since global economic and political news has a drastic impact on forex, you have to explore the full set of analytical tools that an online broker provides with a registered account.
Based on crucial factors such as pricing, trade fees, trade execution speed, ease of use and regulations, Benzinga recommends the following online brokers for trading forex binary options.
FOREX.com is an industry-leading online broker for foreign exchange trading. It offers tight spreads on over 90 currency pairs. You can open an account on FOREX.com with a minimum deposit of $100 or 100 units of your preferred currency. With it, you can trade forex on desktop, internet browsers or on its mobile application. It has an impressive average execution speed of 0.05 seconds per trade.
FOREX.com provides powerful market analysis tools such as the economic calendar, advanced charting, pivot points and daily updates from current events and geopolitical news. It is regulated by the Cayman Islands Monetary Authority. For more information, you can read our full FOREX.com review.
Founded in 1974, IG is the preferred online forex broker for over 178,000 traders worldwide. You can open an account on IG with a $0 minimum deposit. You can also open a demo account to practice forex trading with limited risks. The demo account provides you with AUD $20,000 in virtual funds to help you try your hand at forex trading without any capital investment.
IG offers over 80 currency pairs to trade with. IG’s proprietary technology ProRealTime allows you to filter binary options by strike price and expiration date. It has a round-the-clock customer support facility to answer any queries you have. It is regulated by the Commodities Futures Trading Commission and is a member of the National Futures Association.
3. TD Ameritrade
TD Ameritrade is a commission-free online forex trading platform. You can open an account on TD Ameritrade with $0 minimum deposit. It offers over 70 currency pairs to trade with. The paperMoney tool helps you experiment with new forex trading strategies without risking your own money.
TD Ameritrade’s thinkorswim platform gives you access to professional-grade tech tools to heighten your forex trading experience. With this integrated platform, you gain access to global forex charting packages, currency trading maps and real-time breaking news from CNBC International. TD Ameritrade is regulated by FINRA.
Sink or Swim
Trading forex binary options can feel a bit like cliff diving. When you hit the waters, you either sink or you swim, and for forex beginners that thrill can be all the more alluring. Similarly, when the contract expires on your forex binary options, it can either settle at $0 or $100. Your hard-earned money is either going to go in or swim out of your pocket, so you should consider this forex trading strategy only if you have a high-risk tolerance.
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