There are many overlooked technical aspects to Binary Options that make them ideal for Forex strategy trading. The primary advantages, which we will summarize below, are related to leverage, risk/reward and momentum trading.
The most obvious difference between conventional Forex trading and Binary Options is expiration. Hourly Forex Binary Options expire at the end of the hour, and pay out a fixed return of 85% even if the expiration price is just a fraction of a pip in the direction speculated. This has major impacts on your trading strategy since it directly affects leverage, risk / reward and momentum trading. Since the payout is so high, 85%, then a $100 trade will profit $85 if it is just a fraction of pip “in the money” at expiration. Binary Options do not use leverage, so you cannot lose more than you bet. This aspect impacts your risk / reward as well.
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The point at which all these components come together is most evident when employing a Forex trading strategy such as momentum trading. In the chart above, a breakout from the base formed by the EUR/USD causes momentum in one direction, but of unknown duration and size. This unknown is felt by the conventional Forex trader in terms of perceived risk / reward. On the other hand, Binary Options offer simple directional trading so they intuitively feel like a perfect fit for momentum trades. As long as you accurately predict direction of the breakout, you can make 85% profits by being right even if the pip moves a fraction in the direction speculated. This would have required huge leverages with conventional Forex with incomparable risk / reward.
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