Trading binary currencies is a relatively young trading strategy. Like other asset classes, currencies have a fixed payoff amount. As the most popular asset class traded on the binary options market, currencies allow traders to participate in foreign exchange markets.
How trading binary currencies works
To take part in currency binary options trading, you need to understand the basic premise involved in binary options. This is to make a prediction of whether the value of one country’s currency will increase or decrease in comparison to another nation’s currency. As you’ve noticed, it works in the same way as trading binary commodities, indices, and stocks. It’s this attribute of binary currencies that enable anyone to enter trading binary options even with only basic knowledge about financial trading.
To demonstrate how the trading process goes, let’s say you decide to trade on the EUR/USD currency pair. This is the most frequently traded currency pair among traders worldwide. Assuming that the current EUR/USD exchange rate stands at 1.40, you can speculate whether this price value would go up or down within a given period of time.
If at 7:00 PM, you predict that the EUR/USD’s exchange rate would rise to 1.45 by 7:05 PM, then you need to buy a “call” option. Once you’ve bought your chosen option, all that you need to do is to observe the asset’s movement, hoping that it would move the way you want it to.
By 7:05 PM, you’ll immediately see the result of your trade. If the exchange rate reached 1.45 or higher, then you’ve made a right assumption. You then earn profit based on the asset’s payoff. However, if the asset moves downward and ends out-of-the-money, you get nothing.
Quick tips for trading binary currencies
As a new trader, it’s advisable that you start trading on major currency pairs before going into other types of currencies. It’s important that you develop a decent understanding of the currency pairings so that you can appreciate the rewards you can get in trading them. Moreover, adequate market research can greatly help you in making more accurate predictions based on the economic stability of certain countries.