The Inherent Risks of Trading Binary Option Currencies

Yes trading does involve risk, but along with the risks of trading, are the possibilities of substantial rewards.

Binary option currency trading presents the trader with the opportunity to earn profit by predicting the correct outcome from two available options. Hence, the term “bi-nary”. The ease of entering into a binary option trade can be a lucrative attraction for those looking to profit from trading.

Those that have yet to experience the allure of trading currencies need to proceed with both eyes wide open. In trading currencies, the potential for loss of your investment can be extremely high especially if one does not take the steps necessary to minimize the risk involved.

The trader must always keep in mind the emotions that they will go through when trading is involved. Keeping the emotions of highs, lows and greed in check are an essential aspect of implementing a successful strategy.

These emotions that are experienced can be checked and minimized when trading the binary option currency market.

What can be viewed as a benefit, in contrast to other types of trading such as Forex, stocks and commodities, is that binary option trading has a predetermined fixed profit for predicting the outcome correctly and a predetermined loss when the outcome is predicted incorrectly.

Any binary option currency trade has only two options involved. It is termed as either a “call” trade or a “put” trade. A call trade is predicting that the price of a chosen currency pairing will be up, from your entry point, at the time of expiry. A “put” trade is predicting that the price of the chosen currency pairing trade will be down, from your entry point, at the time of expiry.

For example, if the trader is trading the currency pairing of the GBP/USD (the British Pound aka the Sterling/U.S. Dollar, this pairing is also recognized as the Cable) and enters a $200. USD “call” trade, the trader is anticipating that the price of this pairing will be higher than the strike price, at the time interval that the trade expires (the strike price is the exact price that was entered for the trade). If the anticipated prediction of the trade is correct, the trader will have gained a profit of $200 minus the brokers fee’s which can range by broker, but is typically between 10% to 20% of the trade amount. In this instance, if the broker took a fee of 10% then the trader can expect to receive a profit on that trade of $180. USD.

In predicting the outcome of a particular binary option currency trade, the trader needs to consider various factors that may influence market conditions in order to optimize the opportunity for a successful trade.

The goal of the binary option currency trader is to make the correct prediction and achieve profit. This is termed being “in the money”. In order to do this at a successful clip, the trader needs to avoid the pitfalls that can hinder the potential for profit. Some of these pitfalls include, but are not limited to:

  • Not taking the appropriate time for research and analysis

  • Not having a trading strategy and system

  • Not having a plan and taking the time to practice

  • Not setting your financial capabilities and sticking to it

As we discussed earlier in the article, the human element of emotion can be the trader’s best ally or worst enemy depending on how they are able to hone in and check the highs and lows experienced by market volatility. The emotions experienced in binary option trading can run the gamut from hesitation, “what if” scenario’s and the biggest emotional deception of all: GREED.

When these pitfalls are addressed, then the trader can avoid them in order to optimize the opportunity for success and profit. There is also a tremendous amount of satisfaction when the trader has taken the steps necessary to limit risk and ends with the desired result of a winning binary option currency trade and is “in the money”.

If the pitfalls are avoided risk is minimized and the rewards of trading can be reaped with enjoyment and satisfaction.

Source by Edmund Lovett

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