FXLORDS Increase Your Profits
You’ve decided to become a Forex trader and after reading FXLORDS reviews and analysis, you’ve visited a few brokers’ websites to see which one you like the most. Whilst initially you are set on Forex trading, you’re likely to see brokers offering other financial instruments to trade. Plenty of those brokers offer CFDs, bullion and futures but you’ll now increasingly see them offering something called Binary Options
Traders who are seeking a simple way to make money on foreign exchange may be tempted by Binary Options, which simply are the equivalent of trading based on tossing a coin to decide whether an event will happen or not – a little like calling heads or tails.
We’ll now explain further.
Binary options are available across a wide range of financial instruments but the two simplest ones to understand are those relating to shares and to currency.
Binary Options are simply a promise to buy or sell an asset on a certain date at the price a share or a currency will be at in the future, which might be above or below the value at the beginning. The payout will be determined at the entry into the option, . They are called Binary Options because they only have two likely outcomes, either you win the payout or you loss the amount you entered the option with. For example:
You think that the exchange rate of the USD against GBP will be above $1.7000 on the 01 September. You purchase an option contract that will pay out $1000 if that proves to be the case. This is known as ‘in-the-money’. If the contract is ‘out-of-the-money’, you lose your initial investment. Payouts can be in terms of a pre-set cash amount or by delivery of the underlying asset.
In theory it seems like a simple case of 50/50 probability but in practice the price of the contract reflects the probability it has to expire in the money. The price is determined by a complicated formula called the Black-Scholes Valuation. Traders can win big if the option taken played out and news supported the asset price.
Some experts compare binary options to betting on a horse race. You get shorter odds and so a smaller payout if the favorite wins. Less likely winners have longer odds and so can potentially pay out more. The better is more likely to win big if conditions change to suit other horses or if the favorite pulls out.
Binary Option contracts are not regulated in the same ways as other instruments so it’s important to choose a reputable broker. Binary Options become increasingly difficult to sell as the maturation date approaches so they are not considered as liquid assets. This is because traders may see the target price as impossible to achieve within the remaining time left on the contract. Even so, they are gaining popularity for their simplicity and potential for fixed profits and may be something that traders should consider discussing with their broker or account manager as an option to extend their trading portfolio.
