Binary options based on forex – currency exchange rates – have become very popular and for several good reasons. The international forex market is active around the clock, five days a week. There are a notable number of currency pairs prone to movements that can be profitable exploited by a skilled binary options trader. The forex market is known to be a highly volatile market, and this attracts speculators who seek to profit from very short-term price movements.

The huge boom in cryptocurrency trading has also helped boost retail interest in more traditional currency trading, and for the average hobby trader, binary options are a great tool for gaining exposure to currency price fluctuations without actually having to buy, hold and sell currency.

Basic information about forex trading

Forex is short for foreign exchange, which means exchanging one currency for another.

In the forex market, currencies are quoted in pairs, such as EUR/USD, USD/JPY and GBP/USD.

The quote EUR/USD 1.2531 means that 1.2531 U.S. dollars are required to purchase 1 Euro.

The roots of forex trading go back very far, and foreign exchange traders did, for instance, exist in the Ancient Roman Empire. Today, the forex market is larger than ever before, as we have so much international trade and movement. Global businesses, governments, large banks and speculators are some of the actors in the forex market of today.

Exchange rates on the forex market are strongly driven by the forces of supply and demand, although quite a few governments around the globe attempt – in various ways – to impact the valuation of their own currency in relation to certain other currencies.

Binary options based on Forex

• Buy using binary options, you can speculate on exchange-rate movements without actually having to buy, own and sell currency.
• Forex binary options make it easy to profit from minuscule exchange-rate movements without having to purchase huge amounts of currency. Since intraday exchange-rate movements tend to be small, this is an important consideration.
• Forex binary options are typically used for short-term speculation on exchange rates. If you want to do long-term investments, other solutions might be more advantageous. With that said, not all forex binary options are for day traders; some of them are designed for a somewhat longer possible lifetime.

The difference between put binary options and call binary options

• You buy a call option if you believe the price will go up.
• You buy a put option if you believe the price will go down.

Hedging

Binary options can be used as a part of a hedging strategy.

Example: You take a traditional long position in EUR/USD. To risk manage, you put in a stop-loss order, but also purchase a binary put option for EUR/USD.

Selecting a broker

Almost all brokers that offer binary options will have forex binary options in their offering. Since there are so many good brokers to choose from, there is no need to stay with a broker that does not suit your needs and preferences.

We advise you to be picky when choosing a broker and consider using more than one broker to cherry-pick the best each broker offers. You might, for instance, find that Broker A offers the best terms and conditions for your EUR/USD binary options trading, but Broker B is superior when it comes to USD/CHF, and Broker C offers binary options on more unusual currency pairs that both A and B are lacking.

Here are a few points to keep in mind when selecting a Forex binary options broker:

• Where is the broker based and regulated?
• Is this broker offering the type of binary options that I am interested in and for the underlying currency pairs that I want to speculate on?
• What is the minimum deposit and minimum trade size, and does it suit my bankroll?
• What would it cost me to use this broker for my specific trading strategy? Instead of getting to obsessed with one single parameter, take a look at the whole situation, e.g. spreads, commissions, leverage fees, platform fees, deposit and withdrawals fees, and more.
• What are the terms and conditions for leverage?
• Do I like the platform? Will the broker allow me to open a free demo account so I can test out the platform without making any deposit or risking any real money? Serious brokers tend to be very happy to let you sign up for a free demo account filled with play-money, since they know they have a good product to offer.
• Does this broker accept transfer methods that I feel comfortable using, and that aren´t overly expensive for me to use?