Options Trading: Understanding Option Prices.
Binary options are an alternative to take part in the forex market – options trading, which facilitate the process of interpretation and understanding of the behavior of the market at any given time. However, sometimes they are more risky than others, since by its simplicity leave out some aspects that are important when making decisions to intervene effectively.
If the trader is right is said to have closed and will be paid the benefit offered by the broker. Otherwise it is said that the trader has closed and lost its entire investment. The most common benefits offered are around 70% and losses are usually not total but about 90%, although this depends on the specific offer of each corridor. In tracionales options and normal trading (options trading), profits and losses are calculated based on the difference between the closing price and the entry price. In binary options there are only two options: either win everything or lose everything, hence its name.
Binary forex or options trading are options whose underlying asset is a currency pair. digital options can be traded on all forex currency pairs from the EUR / USD as the USD / ZAR. The forex market is the largest financial market with average daily transaction volume exceeding several million dollars per day.
The forex and binary options share a common basic component: business decisions are based on price forecasting in the future. In both cases analysis and speculation. The main differences from a practical standpoint are the way in which the benefit of an operation and the duration is calculated.
Initially investors with small capital volume had no opportunity to trade in the currency market or Forex because the amount of their transactions and strict financial requirements were too high for private investors or individuals, leaving the Forex to banks and brokers of great support. Why they were only this group of bankers who could outdo the most of the forex market. However, the development of new technologies allowed today all private investors to participate actively in this exciting market.
The Forex market is a spot market, a market in which contracts of sale were running at the time and the trader pays the market price at that time. In binary options trader does not pay “a price” for the asset invests speculating on price direction
These are clearly some great news for investors binary options, you can now take advantage the most of these high returns offered by forex or currency options, plus additional advantages of opportunities to invest relatively small amounts and maturities short term.
In relation to the previous point we come to the biggest practical difference: the way we calculate the profit and loss of operation. In the forex market, as a spot market, buying and selling when you pay the market price. Gains and losses are calculated by subtracting the price paid at closing minus opening price; the number of pips is thus obtained. The value of each pip by the number of pips obtained multiplies and reaches the gain or loss on the transaction (learn more in the pip and lot and how to calculate the value of a pip).
We know a little more closely to trade foreign exchange or Forex is the basis of activities in forex binary options, and learn some guidelines on this exciting market applications, than any other online investment market is not. The Forex market also known as FX, or currency market is active 24 hours a day, five days a week and a half, connecting global financial transactions and allowing banks and other financial institutions buy and sell currencies easily.
By contrast, in the binary options or options trading profit and losses are calculated as a fixed percentage of the amount invested. The final price we only care if it is greater or less than the exercise price, not exactly. In other words, when you open a binary option you know how much you can earn and how much you can lose no matter how far the market arrives. The possible amount of gain or loss remains constant is known from the time of purchase of the option.
The currency prices rise and fall according to the state of the markets, so that the value of a particular currency will rise or fall in proportion to their demand. Therefore, when trading in forex binary options, you can. Call or Put options purchased major currency pairs, such as the euro / dollar pair.
Another important difference is that in the forex market operations can be open indefinitely while the binary options have an expiration date established in advance and that is usually very short-term and can not run before or after this date.
Since currencies always traded in pairs and in relation to face each other, if a currency is not performing well, it means that the other is in an advantageous situation, thus leading to potential benefits. The conclusion would be that you perform. A study of the market, it may be placed in an advantageous position to enter the right time and make the best position.
Also keep in mind the risk associated with each type of trading. In forex you can manage your money and operations more flexible through money management and risk management (see definition of monetary management and monetary management artículoIntroducción) and operate according to these principles. So you can achieve positive net results even with a winning trades ratio below 50% (see the series Risk: Profit in Forex). In binary options or options trading, with a typical distribution of 70% of benefit options In The Money and 90% loss in options Out Of Money, you need at least one hit ratio of 50% to close at breakeven (break even losses).
Digital forex options range from the EUR / GBP to USD / ZAR (South African Rand). The forex indicates how many units are required for a specific pair to buy the second currency. Take for example the pair euro (EUR) against the pound sterling (GBP): EUR / GBP. The first currency (in this case EUR) is known as the base currency and the second (in this cate GBP) as the quote currency.