To many traders, choosing between binary options and forex options sort of feels like a philosophical question with no definitive answer. What is unsurprising is that binary options has been in existence for some time and there are close, but slightly different, similarities between forex options and binary options.
Forex options presents traders with a marketplace for trading currencies and their derivatives. To make profits off price differences, forex options involves speculating the direction of a currency pair. Forex options involves trading one currency for another in a foreign exchange spot transaction.
Key Features of Forex Options
At a glance, forex options is a global marketplace where currencies are exchanged. Trading occurs when a trader compares value disparities between two instruments, like the Euro and US Dollar, in a highly volatile market driven by economic and geopolitical elements.
Although there is no cap on profits and losses, traders can enact stop-loss orders to mitigate exponential losses. In addition to being able to trade seamlessly when the market is open, there is no set expiry time for forex traders with a potential for colossal leverage.
Maximum Risk
The only way to mitigate losses beyond anticipated levels in forex options is to use the stop-loss factor in the spread. While stop-loss is within the trader’s control, certain elements may go beyond a trader’s control.
Slippage, insufficient liquidity to activate a stop-loss order at the pre-determined price and some network issues emanating from malfunctioning of the forex broker’s platform might prevent a trader from enacting stop-loss orders.
Volatility
News events on geopolitical and economic swings significantly affect the forex market. As a forex trader, you have to stay updated on the direction the market will move – either for or against you.
Market swings can result in significant losses to the tune of your investment being wiped out. This is the top reason trading forex options without a stop loss is incredibly risky.
Leverage
Proper use of leverage can increase the profit potential of a trade. With less upfront investment, traders can make significantly higher profits, in the range of 50 to 500 times the initial amount. In addition to profits being affected mainly by market movements and decisions made by traders, using leverage irresponsibly can maximize losses.
Risk And Reward
The forex market offers enhanced variability at higher risk. Given that a trader must predict how high or low a particular currency will go, the risk associated with forex options is significantly high.
Although stop-loss orders used by Trusted Forex Brokers limit the risk associated with forex options, they do not entirely cushion the trader from significant market swings.
Trading Time
The versatility that comes with forex options allows traders to open or close trades as they wish. Some traders can choose trades that last as short as 10 minutes, while others could perform trades that last for months.
Weekend trading does not favor most traders, but it always remains open with limited functionality.
Verdict
With a lot of practice and learning from dexterous traders, trading forex options can be a lucrative investment. While profits with forex options can never be guaranteed, other traders who have used Social CopyTrading, economic news filter, live market charts and MT2 Forex Options Robot have mitigated errors associated with forex options to make profits.