Forex and binary options are two different trading tools. When it comes to binary options, a trader implements a call option or a put option on the price of an underlying stock. The trader makes a prediction whether the price of the underlying asset will go above or below the strike price at the time of expiration. Expiration periods can range from 30 seconds to weekly and even monthly expiries.
In binary trading, the trader has a 50-50 probability of making the correct prediction on the direction of the price of the asset. You can trade a wide array of assets including stock options, forex options, indices and commodities.
Forex trading is a different ball game altogether. Commonly known as Forex, or FX, forex trading entails the exchange of one currency for another at a specific market rate. With a turnover of more than $4 trillion each day, forex is the most traded market globally.
FX is a leveraged product. This means that a trader only needs to make a small deposit of the value of their position to be able to execute a trade. As such, the chances of making a loss or profit accruing from the initial capital investment are potentially higher.
In forex trading, you are essentially speculating on the direction of currencies. To make a profit, a trader buys or sells the exchange rate of one currency against another. For example, when you buy a currency pair such as GBP/USD, you are essentially buying the GBP while at the same time selling the USD. The underlying expectation is that the exchange rate will rise and so will your profits.
On the other hand, when you sell the GBP and buy the USD at the same time, the expectation is that the price will plummet and your profits will rise.
How does leverage work?
Leverage is at the heart of forex trading. Also known as margin, leverage exposes you to the fx markets for just a small capital outlay. Leverage is typically worked out as a ratio. For example, a leverage of 100:1 means that at least 1% (1/100) of your forex position must have exposure to the market for you to be able to execute a trade.
Traders can choose their leverage scale depending on their strategy and the underlying risk involved in a particular trade.
OptionWeb now offers forex as a trading method with a leverage of up to 400:1. This means the leverage is 400 times more than the initial capital overlay.
For example, with a leverage of 400:1 and an initial overlay of $1000, you could purchase $400,000 contracts. As such, there is a higher potential for a much bigger profit than the initial investment.
To simplify the trading platform for new traders, you only need to select the type of trade under the ‘Asset’ tab and then choose the appropriate leverage under the ‘Contract size’ tab.
Limiting investment risk
OptionWeb offers you several options to minimize risk and protect your investment. One of these is a stop loss order which a trader can utilize if the direction of your currency is likely to create a loss. For example, you could choose a stop loss order if you sold a currency at a lower price with the intention of buying it back at a profit. A stop loss order will keep you from making a loss if the currency appreciated by a certain amount.
On the other hand, a take profit order allows you to set a limit within which a certain currency position can be liquidated to ensure profits.
OptionWeb lets you choose your orders so that you can control the potential profits and losses without the need to constantly oversee your trades.
OptionWeb also offers the most popular currency combinations and indices. You just need to use the search bar to look up a particular combination and start trading.