Forex Binary Option

Diagram of Forex Binary OptionThe Forex binary options are an excellent way to diversify your trading strategies by using various investment timelines as well as hedging spot positions. Forex (short for foreign exchange) options deal with the underlying assets of foreign currencies and their behaviors. Just like regular binary options, the potential payout(s) and initial cost paid are fully transparent and visible before the trade is even placed.

In Forex trading, there are two main strategies that work using binary options: the long shot and the time vault.

In the long shot strategy, the investor buys an option in the hopes that the currency pair will move a very long distance. You risk a small amount of money with the prospect of a large payout. The gains will be large, yet your losses small. However, this strategy has a low chance of success. The idea is that it only needs to have a success rate of 20% to see a real profit.

In the time vault strategy, the investor buys an option in the hopes that the currency pair will stay within a small range, relative to its current price. In this Forex strategy, time works in the investors favor. You will pay a lot more than you will make in profit, but you’ll have a very high chance of success on most trades. A large percentage of these trades will succeed in profit.

Playing trades in the middle of these two strategies will rarely succeed. The strategy of buying at the money (currency now at the strike price) for $50 and trying for a profit will rarely succeed over time. Your gains and losses will be the same size, and you will need to be right most of the time.

In trading forex options, it is better to stick with one of the extreme ends of the forex trading spectrum: far out of the money or deep in the money binary options trades.

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