Two of the trading vehicles that are known for some of the highest returns in the trading industry are forex and binary options. So, it’s no surprise that so many people want to know what they are and how to trade them. Below, we’ll go over each trading vehicle and how they work…
What Is Forex Trading?
Forex trading is the process of trading currencies. Traders tend to like forex because of the fact that currency is the most liquid asset in the world. As a result of the high liquidity, we tend to see quite a bit of volatility in the currency market. The more volatility there is, the more opportunities become available. Therefore, forex is the market known for having the most available opportunities for profit.
How To Trade Forex
There are three different ways to go about trading forex…
- Spot Trading – Spot trading is the most popular way to trade forex because spot forex is the actual underlying asset that causes movement in the other two types of trading we’ll talk about. In spot trading, investors essentially buy, sell and short currency. This means that the trader makes an attempt to buy the currency at a low value and sell it at a higher value later. However, if the trader believes that the value of the currency is likely to fall, he shorts the currency to take advantage of the expected downward movement.
- Forward Trading – Forward trading is the process of purchasing contracts based on the underlying currency. These contracts allow the trader to buy or sell the currency at a predetermined price in the future. By setting the price the trader is able to buy or sell the currency at, forward currency contracts are often used as a hedge against loss when trading on the spot forex market.
- Forex Futures – Finally forex futures are futures contracts that allow the trader to exchange one currency for another at a pre-specified price and date in the future. This derivative contract is also commonly used as a hedge against losses in the spot forex market.
Binary options are another trading vehicle that’s known for providing quite a few opportunities. When trading binary options, traders aren’t buying or selling any financial asset. Instead, they are making prediction as to which way the value of an asset is likely to move in the market. For instance, if the trader believes that the value of an asset is likely to move up, the trader purchases a call option to signify their predictions. Adversely, if the trader believes that the value of an asset is likely to fall, he would purchase a put option to signify his predictions. If his predictions are correct, the trader has the opportunity to earn some of the largest gains known to traders; the gains can be as high as 80% and higher.
How To Trade Binary Options
There are several strategies for trading binary options. However, all of the strategies tend to follow the same principles. Essentially, the binary options trader pays close attention to fundamental and technical analysis that surrounds a specific asset or a group of assets. Using this data, the trader makes predictions as to whether or not the value of an asset is going to rise by purchasing call or put options. The trader also sets an expiry period; which acts as the amount of time the trader has before his predictions must come to fruition. This process is an incredible simple one that if done properly can also be incredibly profitable.
Trading forex and binary options are incredibly simple processes. However, if you plan to do so, it’s important to research loss exposure strategies as well as strategies designed to maximize profit potential. With the right trading plan, you have the ability to earn very good money through trading!