How to Trade Forex Binary Options | Full Tutorial


Forex binary options are financial derivatives that allow traders to bet on the movements of currency pairs without owning the underlying assets—the specific currency pairs.

This guide will explore the fundamentals, covering key factors you must remember, outlining the pros and cons, and providing a step-by-step process to trade Forex binary options.

Variety of Forex Binary Options on a Trading Platform

How To Start Trading Forex Binary Options:

Steps on how to start trading Forex Binary options:

  • Step 1: Pick a Reputable Broker
  • Step 2: Perform Market Analysis
  • Step 3: Determine Your Position
  • Step 4: Choose Expiry Time and Investment Amount
  • Step 5: Execute and Journal Your Trades

How to Trade Forex Binary Options: A Detailed 5-Step Process with Analysis

Assuming that you know trading fundamentals, such as how to set proper risk management, incorporate basic trade systems, and technical analysis. Here’s a simple 5-step guide you can follow to start trading Binary Options on Forex:

Step 1: Pick a Reputable Broker 

First, you need to choose a broker supporting Forex binary options trading. It is crucial to pick a reputable binary options broker to ensure your capital is safeguarded.

Here are two brokers we suggest, including vital information about their Forex binary options platform

Broker:
Review:
Advantages:
The offer:
Yield: 97%+
12345
5.0/5
  • Welcomes international clients
  • Offers high payouts: 90% – 97%+
  • Professional-grade trading platform
  • Swift deposit process
  • Enables Social Trading
  • Provides free bonus incentives

$ 5

   Visit broker

(Risk warning: Trading is risky)

Yield: 95%+
12345
5.0/5
  • Min. deposit $10
  • $10,000 demo
  • Professional platform
  • High profit up to 95%
  • Fast withdrawals
  • Signals

$10

   Visit broker

(Risk warning: Trading is risky)

Broker:
5.0/5
12345
Yield: 97%+
Advantages:
  • Welcomes international clients
  • Offers high payouts: 90% – 97%+
  • Professional-grade trading platform
  • Swift deposit process
  • Enables Social Trading
  • Provides free bonus incentives
The offer:

$ 5

Visit broker

(Risk warning: Trading is risky)

Broker:
5.0/5
12345
Yield: 95%+
Advantages:
  • Min. deposit $10
  • $10,000 demo
  • Professional platform
  • High profit up to 95%
  • Fast withdrawals
  • Signals
The offer:

$10

Visit broker

(Risk warning: Trading is risky)

1. Pocket Option

Recognized for its website’s and mobile applications’ easy-to-learn and friendly user interface (UI) coupled with a broad range of available assets and markets for trading, the platform is especially preferred among beginners in Forex binary options trading. 

Supported Forex Pairs:EUR/USD (Euro/US Dollar)
USD/JPY (US Dollar/Japanese Yen)
GBP/USD (British Pound/US Dollar)
USD/CHF (US Dollar/Swiss Franc)
AUD/USD (Australian Dollar/US Dollar)
USD/CAD (US Dollar/Canadian Dollar)
EUR/GBP (Euro/British Pound)
EUR/JPY (Euro/Japanese Yen)
GBP/JPY (British Pound/Japanese Yen)
AUD/CAD (Australian Dollar/Canadian Dollar)
NZD/USD (New Zealand Dollar/US Dollar)
USD/SGD (US Dollar/Singapore Dollar)
USD/TRY (US Dollar/Turkish Lira)
EUR/TRY (Euro/Turkish Lira)
USD/HKD (US Dollar/Hong Kong Dollar)
EUR/HKD (Euro/Hong Kong Dollar)
…and more
Average Return:Average payout of 82% up to 95%+
Expiry Time:5 seconds to 4hrs
Trading Schedule:Some assets, such as cryptocurrency, can be traded 24/7, but most trading hours start at 5 PM EST on Monday and end at 5 PM EST on Friday.
Minimum Invest:Demo account: $0
Real account: $1 minimum trade
Minimum account investment: $5

2. Quotex

Another noteworthy platform, Quotex, is well regarded for its more advanced offerings, which include comprehensive analytical trading tools ideal for more experienced and advanced traders.

Supported Forex Pairs:EUR/USD (Euro/US Dollar)
USD/JPY (US Dollar/Japanese Yen)
GBP/USD (British Pound/US Dollar)
USD/CHF (US Dollar/Swiss Franc)
AUD/USD (Australian Dollar/US Dollar)
USD/CAD (US Dollar/Canadian Dollar)
EUR/GBP (Euro/British Pound)
EUR/JPY (Euro/Japanese Yen)
GBP/JPY (British Pound/Japanese Yen)
AUD/CAD (Australian Dollar/Canadian Dollar)
NZD/USD (New Zealand Dollar/US Dollar)
USD/SGD (US Dollar/Singapore Dollar)
USD/TRY (US Dollar/Turkish Lira)
EUR/TRY (Euro/Turkish Lira)
USD/HKD (US Dollar/Hong Kong Dollar)
EUR/HKD (Euro/Hong Kong Dollar)
…and more
Average Return:Average payout of 78% up to 90%+
Expiry Time:5 seconds to 4hrs
Trading Schedule:Some assets, such as cryptocurrency, can be traded 24/7, but most trading hours start at 5 PM EST on Monday and end at 5 PM EST on Friday.
Minimum Invest:Demo account: $0
Real account: $1 minimum trade
Minimum account investment: $10

Step 2: Perform Market Analysis

You may consider the following two crucial factors:

Internal Factors: This covers the present and forecasted economic (e.g., interest rate, GDP, and inflation) and geopolitical developments (e.g., political stability) in each of the pair’s issuing countries.

External Factors: These external developments include changes in the US Federal Reserve’s interest rate and external geopolitical developments that may affect the currency pair’s value.

Step 3: Determine Your Position 

Based on your market analysis, you can now make an “informed decision” on which direction you expect a specific currency pair to go. You may consider the following:

Overall Market Sentiment: Monitor the prevailing market sentiment towards that currency pair, incorporating internal and external factors.

Tip: One way to discern this is by checking how a specific currency pair is portrayed or described in different media channels.

Technical Analysis: This pertains to the pair’s chart movement, including the prevailing trend and reaction to key price levels. You may also use technical indicators to help you pinpoint current and potential short-term trends. 

Step 4: Choose Expiry Time and Investment Amount 

A suitable expiry time and position size are essential to manage risk exposure. Consider the following general guidelines:

Shorter Expiry Times (e.g., a few seconds to minutes) are more appropriate when expecting a quick price reaction to a specific event or development that occurred.

Longer Expiry Times (e.g., 1 hour and above) are better when anticipating more “gradual” Forex market shifts.

➨ Sign up with the best binary broker Pocket Option now!

(Risk warning: Your capital can be at risk)

Step 5: Execute and Journal Your Trades 

Execution: Place your trade after picking the appropriate expiry time and investment amount.

Bullish Forecast = Pick Up or Call

Bearish Forecast = Pick Down or Put

Note: Ensure you accomplished your due diligence and factored in the latest information before placing each trade.

Tip: One way to discern this is by checking how a specific currency pair is portrayed or described in different media channels.

Journal: Maintain a thorough record of each trade, containing your analysis, the rationale of your decision, the outcome, and the lesson/s you learned after each Forex binary options expire. This habit is fundamental for improving your “trading edge” over time.

Popular Forex Pairs to Trade with Binary Options

The following are ten of the most popular Forex pairs you can trade with binary options:

1. EUR/USD Euro/US dollar

2. USD/JPY US dollar/Japanese yen

3. AUD/USD Australian dollar/US dollar

4. USD/CAD US dollar/Canadian dollar

5. CHF/JPY Swiss franc/Japanese yen

6. EUR/GBP Euro/British pound

7. AUD/CHF Australian dollar/Swiss franc

8. CAD/JPY Canadian dollar/Japanese yen

9. GBP/JPY British pound/Japanese yen

10. USD/CHF – US dollar/Swiss franc

Pros and Cons of Forex Binary Trading:

Pros

  • Lower capital requirement
  • No spread costs
  • No leverage
  • No risk for margin calls
  • Weekend trading

Cons

  • Potential for bigger losses over time
  • Short-term focus
  • Lower regulatory protection
  • “Too simple, too risky”
  • Fewer supported pairs

What You Need to Know about Forex Binary Options:

Here are five key factors to better distinguish Forex binary options from traditional Forex trading:

1. Underlying Asset – Unlike in the traditional forex market, you do not own the asset (the specific currency pairs) in Forex binary options. Instead, you merely track the pair’s movements. 

2. How it Works – You predict the currency pair’s movement direction (whether it will go up or down) within a fixed timeframe. If you are correct, you will earn the predetermined profit. On the other hand, you will entirely lose your invested amount.

3. Value Proposition – Forex binary options present a straightforward method to gain exposure to a specific currency pair without owning the underlying asset. Hence, you can take advantage of the Forex trends quickly, without buying that pair.

4. Limitation – A direct ownership in the traditional Forex market enables you to utilize longer-term trading strategies. On the contrary, Forex binary options force you to bet on the pair’s direction within a relatively shorter time frame (as quick as a few seconds).

5. Macroeconomic Considerations – Both Forex binary options and traditional Forex pairs are influenced by several macroeconomic factors, such as economic growth, inflation, geopolitical events, and the prevailing interest rates from both the parties that issue the currency pairs and the US Federal Reserve “Fed” (since the US Dollar is widely used as a reserve currency of numerous countries as well as a medium of exchange for international transactions).

Strategies for Trading Forex Binary Options

1. News Trading

In this strategy, you look for new internal and external stories reported in the media. These stories may come from interest rate data, economic growth data, or inflation data from one party of the currency pairs.

In addition, you may also look for geopolitical developments in either of the issuing countries and major international socio-economic instabilities that may shift the currency pair’s value.

2. Breakout Trading

In this strategy, you utilize technical analysis to look for an ongoing price consolidation in a specific currency pair. Afterward, you determine the key support area (for a possible price breakdown) and the key resistance area (for a potential price breakout). Then, you wait if either of these levels continues to hold. If either breaks, that can be your entry signal that signifies a shift in market sentiment.

3. Trend Reversal Trading

In this strategy, you may utilize recent market developments or technical analysis to identify possible “pivot” points in a specific currency pair.

Since Forex binary options tend to be extremely short-term, you may look for potential pullback areas of a particular established trend. Likewise, you may also look for an apparent trend reversal indicating a change in market sentiment.

Key Risks of Trading Forex Binary Options

1. Intervention Risk—Central banks can intervene in the Forex market if they deem their currency is “unjustly” undervalued by market participants, leading to a sudden market movement that may be detrimental.

2. Interest Rate Risk—A change in the interest rate policy of one of the parties in the currency pair can shift the market sentiment. This is one of the ways a Central Bank can also intervene to influence their currency value.

3. Economic Risk—Changes in economic policy and landscape in either of the countries in a currency pair can also influence overall market sentiment, potentially causing a sudden price swing. 

4. Geopolitical Risk—Internal and external geopolitical developments, such as political instability or conflict, may influence the market perception of the currency pair.

5. Regulatory Risk—Lastly, since binary options regulations can vary significantly across regions and countries, an unexpected regulatory change may pose a risk depending on where you are.

➨ Sign up with the best binary broker Pocket Option now!

(Risk warning: Your capital can be at risk)

Conclusion

With all these factors considered, Forex binary options offer a compelling alternative to traditional Forex market trading.

Despite the inherent drawbacks, they can provide noteworthy and distinct advantages, such as a much lower capital requirement, no spread costs, and the absence of margin calls, all of which may prove extremely valuable.

Most commonly asked questions:

What are forex binary options?

Forex binary options are financial derivatives that enable traders to speculate on the movements of currency pairs without owning the underlying assets. Traders predict whether the value of a currency pair will rise or fall within a fixed timeframe, with predetermined profits for correct predictions and complete loss of investment for incorrect ones.

How do forex binary options differ from traditional forex trading?

Unlike traditional forex trading, where traders buy and sell currency pairs directly, forex binary options trading involves predicting the direction of currency pair movements within a fixed timeframe without owning the underlying assets. Forex binary options offer fixed profits for correct predictions and complete loss of investment for incorrect ones, while traditional forex trading allows for more extended trading strategies.

What factors should I consider before trading forex binary options?

Before trading forex binary options, consider factors such as market analysis, internal and external economic developments, geopolitical events, and the prevailing sentiment towards currency pairs. Understanding these factors can help inform trading decisions and manage risk effectively.

What are some popular forex binary options trading strategies?

Popular forex binary options trading strategies include news, breakout, and trend reversal trading. News trading involves reacting to economic data and geopolitical events, breakout trading focuses on identifying key support and resistance levels, and trend reversal trading aims to capitalize on shifts in market sentiment.

What risks are associated with trading forex binary options?

Risks associated with trading forex binary options include intervention risk from central banks, interest rate risk, economic risk, geopolitical risk, and regulatory risk. Traders should know these risks and implement proper risk management strategies to mitigate potential losses.

About the author

Percival Knight
Percival Knight is an experienced Binary Options trader for more than ten years. Mainly, he trades 60-second trades at a very high hit rate. My favorite strategies is by using candlesticks and fake-breakouts

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