In/Out Binary Options
In/Out binary options are same as boundary options. As we have covered in another section, this is a type of contract where the trader predicts whether an asset price will remain within a defined price range (in), or move outside of the price range (out), before the contract expires. There are not as many binary options brokers who offer this type of structure as there are those who offer call/put contracts, but there are still a number to choose from – and we will be sure to cover some of them in the reviews section of our site.
We have a section which covers boundary options, also called in/out options and you can find more information here. Rather than go back over what we have already covered, we suggest you take a few moments and read the page before returning here. Basically, this type of trade allows a trader to try and profit from a period of relatively low activity, or conversely, heightened activity, focusing less on direction and more on the volatility of the market or particular asset.
Let us now look at some of the benefits of trading options in the Forex market.
The Benefits of Trading Forex Options
If you decide to take advantage of a broker who offers Forex options, there are a number of advantages which can benefit the trader, though naturally, it depends on the state of the market and whether it outweighs the benefits of trading basic spot Forex. High returns are achievable, in some cases as much as 80% or more, and in just a few minutes, if you can successfully predict movement of a currency pair over a set level and period of time. As an incentive to trade, some Forex options brokers also offer a cash back should you lose on your contract. There are also a number of attractive first-deposit bonus schemes available to bump up your trading account, though with set conditions attached.
Forex options allow a trader more flexibility in the way they can profit from a move. For example, say you choose to trade GBP/EUR and you believe the pair will end up above or below the current price over the course of an hour, but you are not sure by how much. In this case, you will choose a call option. If think GBP/EUR will fall below the current price, you choose a put option. If the closing price is above the predetermined price on a call option, then the option is in the money and the buyer will receive the set payout. For a put option, the contract is in the money if price is below the set strike price. As already mentioned, one can make as much as 80% or more on this type of trade, though one has to remember that, the higher the payout, the harder and further away the strike price is going to be. As attractive as some of the payout amounts may seem, they are high for a reason – the broker (or market maker) believes the strike price has a lower chance of being achieved and hence offers a high payout as incentive to trade. In such instances, if you believe the price is set to move higher, it may be more beneficial to use a traditional Forex position to express your view, with the disciplined use of stop losses.
Binary options are however a great hedging tool. Hedging essentially limits one’s risk against direction and volatility, or both. Binary options are popular on short expiry times, are allow a trader to take advantage over news or data, as these events can trigger market fluctuations and can keep the trader in a position rather than trip their stop loss.
As such, Forex binary options can be useful, but traders need to decide when and where they are best utilised. They can allow a trader to transfer risk from a traditional long-position, say in GBP/EUR (with a stop loss), purchased with a binary put option to enable you to cover any losses from a triggered stop losses. In some cases, you may even profit from this hedge. In effect, if the long spot trade is ‘unsuccessful’, risk is transferred from below to above the stop loss. Using binary options in this way can be beneficial, though it does incur costs. If prices continue to rally in the right direction of the spot trade, then profits will have be reduced by the price of the option purchased as a hedge. One has to consider this when using options as part of their trading strategy. Binary options trading can be far less stressful than trading Forex in the spot market, but it comes at a price/cost. The trader needs to weigh up the costs when determining what scenario he is looking for.
The pros of binary options trading
- Great potential for quick payoffs –achieve strong returns on your capital in just a few hours, sometimes even minutes.
- Simple to understand – You decide the type of asset, expiry date, and the amount of your position. Then it is a case of deciding the direction versus the targeted value your broker has provided.
- Execution is easy – There are no timeframes to consider, leverage issues, or correlations to look out for.
- No stress or worry – Opening a position of an investment is the easy part. The hard part is deciding the when to sell. This is taken out of your hands with binary options trading, though strict use of stop losses can are also effective when applied with strong technical analysis.
- No fees or commissions – Costs are borne by the spreads within the rebate/pay-off structure. However, these have to be measured against the risk and reward of a standard Forex position with stop loss.
- Risk is set at the point of execution. – There is no additional downside risk once the trade is open.
In conclusion, as good as binary options may sound, there are not the be-all and end-all of trading. They are (or could or should be) but one instrument in your trading tool box. Unscrupulous service providers may also offer wide spreads or in this case, unattractive payout vs cost structures, so there is plenty to consider. That being said, if you follow the right advice and trade