The foreign exchange market provides action packed volatility on a daily basis as central banks, market makers, hedge fund traders and retail investors battle for each pip in order to generate income in the world’s most liquid market. Making money in the FOREX market can be difficult despite robust leverage offered by many brokers. The issue for many retail investors is that to really experience solid returns within the world of FOREX, you need substantial leverage and a robust nest egg, unless you decide to trade forex binary options.
FOREX Binary options are options that allow you to speculate on the direction of currency pairs, and offer a substantial payout if you are just correct about the direction by 1 pip. When trading binary options you will receive your payout regardless of whether the price of the EUR/USD is 1 pip in the money or 100 pips in the money. Here is how it works.
The most popular FOREX binary options are “above or below” options. These types of binary options give you two choices. Either the price of your selected currency pair is above current levels or below current levels. If you are right, you will receive a payout as high as 85% of the capital you put up to place the trade.
Binary options on currency pairs do not require you to be heavily in the money to receive your payout. You receive up to 85% on your capital if the price settles just 1 pip above your strike price. One of the tricks is to pick the appropriate period, which reflects the expiration of the option.
The question for investors is what period gives them the best chance to be right on the direction of a currency pair. For example, do you think you would have a better chance of guessing if it was going to rain in the next minute or next 10 minutes? The FOREX market is similar. If you think that given the current momentum of the movement of a currency pair will give you a better change at determining the direction over the short term, then 60 second or 5-minute FOREX binary options are right for you. If you believe that you have a better chance over the long term, than weekly or monthly binary option are a better fit.
The forex market moves around based on a number of factors including central bank policy, economic data, and global macro flows. Although many of these factors will not affect the direction of a currency pair over the short term, it might be a robust guide for the long term. Many traders also use technical analysis, which is a better guide for short term FOREX moves.