Part 2: Why Trade Binary Options? Binary Options 101

Written by Abe Cofnas - renowned Forex expert and the author of a forthcoming book by Bloomberg Press on Binary

In the last article, we discussed about the basics of binary options and why you, as a trader, should be paying far more attention to binary options and the variety of ways to use it so that you can make some good trades out of it. The power of binary options lies in the fact that it is an instrument that is totally under control and also in the fact that there is nothing new to learn as the binary options in FX are basically all about trading the same instruments in a different manner with a different kind of platform. The tools and the strategies that you use for trading FX can be applied here as well, and they would work equally well; and that too in a controlled manner as your risk is fully under your control.

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Another advantage of binary options, that you as a trader should see, is the fact that irrespective of whether the trade moves against you by 100 pips or more, the amount that you lose per trade remains the same and under your control. This removes the emotional factor behind trading which is what most traders suffer from.

The traders see the loss increasing more and more as the trade goes against them and they are simply stunned and in a state of shock. They are reluctant to close the position in the hope of the trade turning back. The trade never turns back and the entire account goes into margin call.

This does not happen with Binary options as you either win or lose. If you do lose, you always have a next time where you can go back into the market after sharpening your skills. Good traders would tell you that the more trades you put on, the more you learn and the better you get at it. Binary Options, even with a live account, gives you the opportunity to put in more trades with limited risk, so that even newbies can learn and get better with time.

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You can trade for as little as 60 seconds up to a time period of even a week. This suits all kinds of trading styles and helps the scalper as well as the swing trader as well. At the end, a binary options trade can have one of the just 2 possibilities. This makes the analysis of a trade much more easy and simple.

The Hidden Benefit

The biggest, yet untapped, use of a binary options trade is in hedging. The binary options trade can be used to hedge your trade in the spot market. Let’s say you are long on the euro in the spot market and the price is falling or you are not sure of the trade.

You can immediately switch to the binary options market and take a trade which says that the euro will be lower after a specific time period. Thus, during that time period, you are basically hedged in the euro and irrespective of whether the euro goes up or down, you would still make money.

In the future articles, we would be discussing more on the various strategies of binary options and how we can place trades in binary options.

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