Forex Binary options is a new opportunity to make money right now. It is open like a loophole for you to exploit. You can bet on the value of the exchange rate and win a payoff of $100 if your bet comes out right. If your bet comes out wrong, you get nothing. There are many currency pairs that you can trade with the forex binary options.
Forex Binary Options also known as Digital Options can have an expiry of 30 minutes, 60 minutes, 24 hours, 7 days or 30 days. You can choose the strike price and the expiry whatever suits you from the options list. Now, in this article, we are going to show you a forex binary options strategy that can be used to reduce your risk on your spot positions. Suppose, the EURUSD pair is in an uptrend. The exchange rate is 1.2567. You enter the market at this rate with a stop loss of 30 pips with the expectation that the uptrend will continue for a number of days.
This means in case the exchange rate fluctuates to 1.2537, the stop loss will be triggered and you will be out of the market with a loss of 30 pips or $300 on a standard lot of $100K. You are expecting the market to go up! But it is always a good strategy to hedge your spot position. You have already placed the stop loss to reduce risk. You can use forex binary options to further reduce your risk.
Buy five forex binary options with expiry of 24 hours and with strike or expiry price less than 1.2537. Suppose, the cost of each contract is $20. So, you total cost of creating this hedge is $100. Now, if the market does go down below 1.2537 in the next 24 hours, you will make a payoff of $100 on each contract or a total of $500 on the five contracts. Deducting the cost of buying these five contracts, your net profit will be $400.
If the spot trade that you had entered goes well in the next 24 hours, you lose the $100 that you had invested in buying the five forex binary options contracts which is equal to 10 pips on the standard lot. Suppose, within the next 24 hours, the market moves up by 40 pips, so your cost of 10 pips in creating the hedge had already been covered. But suppose, the market moves down by 40 pips in the next 24 hours. Your stop loss is hit when the exchange rate falls below 1.2537 causing you a loss of 30 pips or $300. But at the same time, your five forex binary options contracts give you a net profit of $400 meaning you make $100 when the market moves against your trade.
This forex binary options strategy can be used in swing trading, day trading as well as scalping. Sometimes, traders are not comfortable with entering a stop loss of more than 30 pips even when there is a very good swing trading strategy with an excellent risk to reward ratio, you can use this forex binary options strategy to hedge your spot position and reduce your risk to a negligible level. You can also use this strategy if you are a scalper by using half hourly forex binary options. Try these Forex Signals by two top gun traders in a friendly competition. Discover these Forex Binary Options Systems that can give a return as high as 400% in just 1 day.