Binary Options Trading

We are all familiar with the basics of trading – a trader studies the market and buys an asset at certain price, hoping that its price will rise and he will sell the asset at the new higher price and profit from the difference.

In binary options trading though this is different. Yes, the trader, otherwise known as the buyer, will look into the market and yes he will decipher which way he thinks the market will move, but the outcome and method of profiting is somewhat different.

Forex options trading

The word ‘forex’ is an acronym of Foreign Exchange. So, the term Forex Trading is the act of exchanging or trading currencies from different countries against each other. It’s important to first understand how the currencies are represented to learn how forex option trading works.

Currency rates are represented relative to one another and are quoted in pairs e.g. USD/CHF = 1.06
Whichever currency is quoted first, is known as the ‘base’ and it is always written has a value of 1. The second number is the ‘quote’ currency and it represents the price for 1 unit of the base currency i.e. how much of one currency is needed to buy a quantity of the other. In the example above, it costs 1.06820 Swiss francs to buy 1 US dollar.

Where forex options trading becomes more interesting, is when the strength of currencies begins to change relative to one another. Continuing with the same example, there are two possible scenarios:
1)Or the US dollar becomes stronger so the quote currency rises e.g. USD/CHF = 1.07 – therefore it will take more Swiss francs to buy 1 dollar (or for each 1 US dollar, a buyer will receive more Swiss francs)
2)Or the US dollar weakens and the quote currency decreases e.g. USD/CHF =1.05 – therefore it costs less in Swiss francs to buy one US dollar (or for each US dollar you will receive less Swiss francs)