The EUR/USD is the superstar of the Forex market, making up about 20-30% of the daily trading volume. But did you know there’s a way to trade this popular pair without actually buying or selling it?
That’s where binary options come in! In this guide, we’ll dive into everything you need to know about trading the EUR/USD with binary options.
Key Facts
- EUR/USD is considered a safer option for both new and experienced traders in binary options due to its lower volatility and higher profitability compared to other assets.
- Forex trading can be done 24 hours due to the global network of banks, with price movements measured in pips.
- While EUR/USD is the most traded currency pair offering good liquidity and pricing, it can also be highly volatile, making it difficult to predict price swings accurately.
- Successful trading of EUR/USD in binary options involves choosing the right time frame, understanding market patterns, and being informed about European and US market news trends.
A Summary of How You Can Start:
Step 1: Pick a Reputable Broker
Step 2: Perform Market Analysis
Step 3: Determine EUR/USD’s Likely Direction
Step 4: Choose Expiry Time and Investment AmountStep 5: Execute and Journal Your Trades
Check out our EUD/USD Forex binary options strategy video:
How to Trade EUR/USD with Binary Options: A Detailed 5-Step Process with Analysis
Here’s a simple 5-step guide you can follow to start trading the pair with binary options:
Step 1: Pick a Reputable Broker
First, pick a broker supporting EUR/USD binary options trading. Choosing a reputable binary options broker is vital to ensure your capital is protected from fraudulent brokers. Here are two brokers we recommend, including background information about their Forex binary options platform:
1. Pocket Option
Known for its easy-to-learn and user-friendly interface on both the website and mobile applications, Pocket Option offers a broad range of assets and markets for trading. Hence, the platform is mainly preferred by beginners in Forex binary options trading due to these features.
EUR/USD Currency Pair Payout: 92% on correct bets | Trading Schedule: Open on both regular trading days and weekends (through OTC Market)
2. Quotex
On the other hand, Quotex is favored for its more advanced offerings, including extensive analytical trading tools ideal for more experienced and advanced Forex binary options trading.
EUR/USD Currency Pair Payout: 93% on correct bets | Trading Schedule: Open on both regular trading days and weekends (through OTC Market)
Step 2: Perform Market Analysis
Consider the following two essential categories:
a. Internal Factors: This covers the current and expected economic (i.e., inflation, GDP, and interest rate) and geopolitical developments (such as political instability) in the US and Europe.
b. External Factors: These developments mainly pertain to external macroeconomic and geopolitical developments that may influence the currency pair’s value.
Step 3: Determine the Pair’s Likely Direction
After your market analysis, you are more informed to decide which direction you expect the currency pair to go. You may also consider the following:
a. Prevailing Market Sentiment: Observe the general sentiment towards the EUR/USD pair. One way to determine this is by checking how the currency pair is reported or portrayed in different media channels.
b. Technical Analysis: This refers to the pair’s price movement, including the prevailing trend and reaction to key price levels. You may also use relevant technical indicators to assist you in pinpointing present and probable short-term trends.
Step 4: Choose Expiry Time and Investment Amount
Deciding an appropriate expiry time and position size is crucial to manage your risk exposure. Here are the general guidelines:
Quicker Expiry Times (a few seconds to minutes) are more suitable when expecting a fast price reaction to a specific event or development that occurred.
Longer Expiry Times (1 hour and above) are better when expecting a more “gradual” price change.
Investment Amount: Managing your risked capital is vital to avoid wiping out your portfolio. With this, a good starting rule is to risk only 1% to 2% of your entire capital in any trade.
Step 5: Execute and Journal Your Trades
Execution: After doing your due diligence and carefully selecting the appropriate expiry time and investment amount, you may now place your bet.
Bullish Prediction = Pick “Up” or “Call”
Bearish Prediction = Pick “Down” or “Put”
Journal: Lastly, keep a detailed record of each trade you make, including your analysis, the rationale behind your decision, the outcome, and the lessons you learned after each EUR/USD binary option expires. This practice is essential for improving your ‘trading edge’ over time.
It’s essential to trade the strongest currency pair at the right time to gain more profit.
European Forex Session (07.00-16.30 UTC)
Before 10:00UTC, the trading movement of the currency pair depends on the Asian traders as they fix profit and loss at the end of their trade. Also, before the market opens in America, the price slightly decreases.
Europe America Session (13.30-16.30 UTC)
During this time, important news related to currency pairs is released in the US. This thing can either bring down the market or can strengthen it. Moreover, American traders make around 60%-70% of total trade.
America (13.30-20.00 UTC)
During this period, the dollar is strengthened because the currency moves from Euro to Dollar.
Asia (20.00-07.00 UTC)
The EUR turnover falls during this period. Thus, traders remain outside the market and wait for the market to reopen in Europe to rise again.
(Risk warning: Your capital can be at risk)
Pros and Cons of Trading the EUR/USD Pair with Binary Options
- Minimum initial capital needed
- Weekend trading
- Non-leveraged trading
- No exposure to margin cells
- Spread-free trading
- Risk of larger accumulated losses
- Sensitivity to information gaps
- Less regulatory oversight
- Higher risk of undisciplined trading
- Short-term orientation
(Risk warning: Your capital can be at risk)
Strategies for Trading EUR/USD with Binary Options
1. Momentum-Based Strategy
In this strategy, you identify the key support level (for a potential price breakdown) and the key resistance level (for a potential price breakout) of the EUR/USD pair. Then, you wait to see if either of these levels continues to hold. If either level is breached with significant volume to back it up, this can serve as your entry signal for a momentum play.
2. Swing-Based Strategy
In this strategy, you can use current market developments or technical analysis to identify potential pivot points in the currency pair. Since EUR/USD binary options are incredibly short-term, you can search for probable “pullback areas” within an established trend. Similarly, you can search for signs of reversal, indicating a shift in market sentiment.
3. News-Based Trading
In this strategy, you search for “newsworthy” internal and external events reported in the media. These may include updates on interest rates, GDP, or inflation from either the US or the EU.
Key Risks of Trading EUR/USD with Binary Options
1. Government Policy Risk – Shifts in fiscal policies, such as changes in tax rates and import and export policies, in the US or the EU can affect general market sentiment, potentially leading to an unexpected swing in the EUR/USD price.
2. Central Bank Policy Risk—The Fed and ECB can intervene in the Forex market if they believe their currency is undervalued by market participants, potentially leading to a detrimental price movement.
3. Interest Rate Fluctuation Risk – Any shift in the US or EU’s interest rate policy can affect market sentiment. For example, a US interest rate hike will likely increase the US dollar’s value relative to the euro.
4. Inflation Risk – Higher-than-expected inflation may compel central banks to increase their interest rates to combat inflation. Conversely, lower-than-expected inflation may lead central banks to reduce their interest rates to stimulate economic growth.
5. Geopolitical Risk – External and internal geopolitical developments, such as domestic political instability or an external major conflict, may impact the market sentiment of EUR/USD.
How News Impacts the EUR/USD
News events have a big impact on the EUR/USD currency pair due to the importance of both the euro and the US dollar in the global economy. For instance, if news that weakens the US dollar or strengthens the euro, you might see the EUR/USD value increase.
On the flip side, positive news for the US dollar, like the Federal Reserve raising interest rates or a trade surplus, or negative news for the euro, such as geopolitical tensions in Europe or the European Central Bank lowering interest rates, could lead to a drop in the EUR/USD value.
Conclusion
Considering all these aspects, trading EUR/USD with binary options offers an alternative to traditional currency pair trading in the Forex market. Notable advantages that may prove incredibly beneficial include a lower minimum initial capital requirement and non-leveraged trading (which translates to spread-free trading and no exposure to margin calls).
Nevertheless, it is crucial to weigh the drawbacks, carefully study the unique aspects laid out in this guide, and test out your strategy with a demo account or with minimal capital before deciding to dive in.
Interested in checking out other strategies? You can find our whole list here.
Most commonly asked questions:
What is the primary difference between trading EUR/USD with binary options versus in the traditional Forex market?
You do not trade the EUR/USD pair directly in binary options trading. Instead, you bet on the direction of its price movement within a specified time frame. If your prediction is correct, you earn a predetermined payout. In contrast, in the traditional Forex market, you directly trade the EUR/USD pair, with profits or losses depending on the magnitude of the currency pair’s price movement and the size of your position (and whether you are leveraged or not).
How do I start trading EUR/USD with binary options?
You first must open an account with a binary options broker supporting EUR/USD currency pair trading. Picking a reputable broker, such as Pocket Option or Quotex, is crucial to avoid fraudulent schemes. Then, you can practice with a demo account first before committing.
What strategies can I use to trade EUR/USD with binary options?
Three of the most popular EUR/USD trading strategies are momentum-based, swing-based, and news-based. Regardless, these strategies require a sufficient understanding of the market, so it’s important to do your due diligence and practice in a demo account before diving into a live trading scenario.
What are the pros of trading EUR/USD with binary options versus traditional Forex trading?
The primary advantages include a lower minimum initial capital requirement and non-leveraged trading (which translates to spread-free trading and no exposure to margin calls).
Can I trade EUR/USD with binary options on the weekend?
Yes, one of the benefits of trading EUR/USD with binary options, compared to the traditional Forex market, is the availability of weekend trading. This allows traders who usually cannot participate during weekdays to engage in trading.
