Loading... Please wait...

Blog - Online

Forex Trading Without the Forex Risk

Posted by

It’s the world’s largest market, by far, with $3-5 trillion traded every day. Traded 23 hours a day in financial centers around the globe, the currency exchange markets truly never sleep. It’s no wonder individual traders have flocked to the opportunity of near round-the-clock liquidity and variety.

Currency trading was long the exclusive province of institutions. When “retail” forex became available to individual traders, at first it was offered through dubious, unregulated providers. Binary options went through a similar phase, before the establishment of CFTC-regulated binary options exchanges like Cantor and Nadex.

Forex is attractive to both fundamental traders—those who make decisions based on the news, data, and the consensus of experts—and technical traders, who focus on price action and chart patterns.

Fundamental traders can use the foreign exchange market as a reflection of global trade and economic activity. Fluctuations in the exchange rates between currencies can reveal the comparative strengths of the two economies. Those who follow economics and global affairs often have opinions on where the euro, yen, or Swiss franc might be headed.

For technical traders, a chart is a chart. Such traders are mainly looking for strong trends and liquidity that allows for quick and accurate order filling. The foreign exchange markets certainly offer those things.

Like the futures markets, forex offers leverage, meaning that you can get a potentially substantial return on a relatively small move in the market. But leverage is a double-edged sword. If the market moves against your position, you could also lose a large amount in a short time.

How much could you lose? With traditional forex trading, you can never say with 100% certainty. You can use a stop-loss order, but if that order doesn’t get filled at the price you wanted, you might lose more than you bargained for and could even end up owing money to your broker and getting a dreaded margin call.


Forex Trading Guide - Ebook PDF

That may be the most obvious advantage of trading the forex markets using binary options: you know your maximum possible loss on every trade with 100% certainty. You decide up front how much you’re willing to risk. You can never lose more. And you never get margin calls.

Since 2012, forex traders have had a new alternative: binary options on a CFTC-regulated exchange. (Note: this article refers only to US-based, exchange-traded binary options, approved by the Commodity Futures Trading Commission.)

Binary options offer many of the same advantages as conventional forex:

  • Access to the ten most popular forex pairs
  • Short-term results and favorable risk-reward leverage

At the same time, binary options avoid many of the disadvantages of traditional forex trading:

  • Your risk is always limited to an amount you set up front, before you enter the trade. You can never lose more
  • You never get stopped out, because you get built-in risk protection without a stop-loss order
  • You never get a margin call, because you can never risk more than you have in your account
  • You can typically start with a smaller account balance
  • You don’t need a broker. You trade directly on the exchange and don’t pay commissions, just a low, fixed trading fee
  • Short-selling is as simple as buying
  • The all-or-nothing outcome at expiration means your exit strategy is built in. At the same time, you can exit early with a limit or market order, to determine your own exit
  • You can also trade commodities, stock indices, and even economic numbers from the same account

When you don’t have to use a stop-loss order for risk protection, you are free to focus on the trade itself, knowing that your maximum possible loss is already set. What’s more, if a market goes sharply against your position, your binary option’s value might go to zero, but you aren’t stopped out of the trade. If the market comes back, you still have a chance to break even or profit.

Finally, the yes-or-no design of a binary option focuses all your analysis on a clear trading decision: “Will this market be above this price at this time?”

The question is simple, but not simplistic. Getting to the right answer provides all the challenge and excitement of forex trading, but with limited risk and a level playing field.

Binary options on a CFTC-regulated exchange offer a secure, transparent, and sensible way for almost anyone to trade the forex markets.

ref: investopedia.com


Forex Trading Guide - Ebook PDF

View Comments


Top 2 Truths About Forex Trading

In keeping these two “truths” about forex trading in mind all the time, you can be able to gain a psychological edge and cope with losses better. Here’s what you should always remember:1. Expect the unexpected Face it. No matter how much effort you put in your analysis, you still won’t have a hundred percent accurate [...]

Read More »


Forex Exchange reserves hit record USD 404.92 billion

The country's foreign exchange reserves surged by USD 3.53 billion to touch a new lifetime high of USD 404.921 billion in the week to December 22, aided by an increase in foreign currency assets, Reserve Bank data showed on Friday. In the previous week, foreign exchange reserves had risen by USD 488.2 million to USD 401.385 [...]

Read More »


Can U.S. Dollar Collapse? What Would It Take?

Ever since the launch of quantitative easing (QE), worried investors have asked "will the U.S. dollar collapse?" It is an interesting question that might superficially appear plausible, but a currency crisis in the United States is unlikely. Review the dollar's strengths and weaknesses to see why. Why Currencies Collapse History is full of sudden currency collapses. Argentina, [...]

Read More »


Best Times of Day to Trade Forex

Forex traders need price movement to make profits, whether that movement occurs over the course of one day, several days, or even several weeks. Intraday traders need volatility within the trading day itself so, by definition, FX traders that are looking to open and close trades within one session need this movement. The day in forex [...]

Read More »


Is Forex Trading Really Profitable?

Is Forex trading profitable? This question has been debated for quite some time. This is due to the fact that many investors haven't had the success trading Forex they had imagined, and their experiences have cast a shadow of doubt on its viability as an investment choice. However, for a market that trades around $5 [...]

Read More »




 

Recent Updates

Newsletter


s