Let’s get a deeper insight into what binary options are and how to trade them on Forex.
Binary options are also called fixed return options. The bottom line is that a trader needs to choose whether the price of an underlying asset will go up or down. In terms of forex, а trader buys a currency at a certain price and then decides whether it will rise or fall against the other currency.
Thus, each trade on binary options has only one of two possible outcomes: win or lose. In case your trade is in-the-money, you will get back the cost of an option (option’s value) plus your profit, an amount determined by your broker’s return rate (usually, 60-80% of an option’s value). Major forex brokers with a large customer base offer 1.8 profit coefficient or 80% return.
So the primary advantages of binary options over other forms of trading are high payouts and pre-defined limited risk exposure. Unlike traditional options, the profit of binary ones depends only on whether the price goes up or down and not on how much it changes.
Binary options have a fixed return rate. It does not matter whether traders go long or short – in case they guess the price direction at the moment of an option’s expiration time, it is considered in-the-money. The option expiring out-of-the-money means that traders made an incorrect forecast and lose the option’s value. Consequently, investors are always aware of how much they can win and lose, down to the cent.
However, rarely when the closing price equals the activation price, the option is considered neither winning, nor losing with the option’s value safe in a trading account.