Introducing… The Binary Option
For those of you visiting this site for the first time allow me to introduce to you the one of the world’s most wonderful financial creations: the binary option. A lay-person would look at the question that started this whole conversation – “how to make money in forex without trading forex” – and think to themselves, “Well that’s stupid! You can’t make money in forex without trading forex.” WRONG! If I had a nickle for every time someone passed along a misconception like that one… well I’d probably have all of 5 nickles to my name, lol. Honestly not many people talk about trading forex so the question doesn’t come up all that often… but I digress.
What Is a Binary Option and How Can I Make Money in Forex without Trading Forex?
Well that’s the $64000 question isn’t it? A binary option is a ridiculously simple to trade security. A true binary option is a contract for a fixed dollar amount which pays a fixed yield at expiration (depending on whether it is in the money or out of the money). The contracts expire either at the end of the hour or end of the day depending on which one you buy.
People wanting to know how to make money in forex without trading forex need only to know that yes, there are binary options traded on several foreign currency cross pairs. Does that mean you need a forex account or trade forex to make money trading a binary option on a currency pair? Nope. A binary option is traded in dollars. You don’t care what the forex cross rates are or margin or leverage ratios or anything math related like that. You only care which direction the cross rate moves. Make sense? Maybe a little example might help.
A Binary Option Forex Example:
Let’s pretend the USD/Yen rate is 92.265 (as it is right this moment). You decide the USD is going to strengthen during the day because of favorable GDP figures this morning and want to make some money but don’t want to be monitoring a margin account all day. How do you make money with a binary option trading on this information? It really couldn’t be simpler. We’ll use a $100 contract for simplicity’s sake.
Let’s presume you go to your binary option broker at 11:15am and buy a binary option call on the USD/Yen, which is traded at the spot price of 92.265 Yen per Dollar. The contract is set to expire at noon and the yield payout is 62%.
At noon when the option expires, let’s say the spot price is 93.000 (or any price above 92.265). Your binary option call bought at 92.265 is in the money and you get back $162 ($100 initial capital plus $62 profit).
Not bad for an hour’s “work” no?
Did you have to own a foreign currency? Nope.
Did you need to do any crazy math-bejiggering? Nope.
Did you have to worry about a margin call? Nope.
How to make money in forex without trading forex? Binary options. Try them.
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It looks so simple to trade, but my question is if it will really be profitable in the long term.
There is not a lot of discussions and reviews on this subject, and I would like to have us really look into the Binary Options to see if we all can make money of it.
I concentrate on Digital Binary Options, but would like to compare with Binary Option Trading as well.
Binary options trading is a short term strategy – always.
Having this tool in your arsenal provides a great way to insure the day to day success of your other strategies. Binary options are not best used as a stand-alone investment – they serve better as a wall or fulcrum to squeeze profits out where they would otherwise be missed and left on the table.
Very interesting and simplified explanation about binary options trading.. i just would like to ask how much will i loss if the opposite situation occurs?
thanks
If you do your binary hedge correctly losses typically would be limited to around 10%. This would be true even if the market turned against you and you decided to hedge narrowly out of the money (leaving a small window where you would lose double but everywhere else loss would be limited to +/- 10%). This would vary of course with the yield of the individual contract.