In the last few years, binary options have become more and more popular. A lot of investors have become interested in binary options because they’re comparably safer and easier to understand than Forex Trading. But what are the exact differences between binary options and Forex Trading? This article gives you the low down.
The first difference between binary options and Forex trading is in what they actually are. With binary options, you will just have to predict whether an asset will go up or down in price. For example, if you expect a price to go up within a certain time frame, you just put a call option on the asset. You then check back with the asset after the set time frame, and if it actually went up, you reel in a profit. Forex trading is different because you will actually have to predict the actual future price of the asset. You’ll only reel in the profit if the asset will go up or down to the price you predicted.
Secondly, Forex trading uses margin and use the best trading strategies You use a lever to make your potential profit, whereas you do not use a margin with binary options. The upside of the absence of a margin is that there is not margin call. Thirdly, with binary options you actually know your profit upfront. This is also possible with Forex trading, because you can limit which profit you want with limit/stop orders.
Finally, Forex trading closes on a certain profit or loss. This makes it very solid in terms of what you can expect regarding your investment. Binary options are different because it will expire after a set time frame. This can make it more volatile because you have to be more precise in your prediction, since the time component is there. It therefore comes down to personal taste what kind of trading you want to get into. Be sure to do your research!
The Forex market is the largest market and is also the most liquid market. It has certain principles that you should follow. The thing is that getting started, or even pursuing a career in Forex trading isn’t easy, you need to get lots of good sleep with your wedge pillow amazon in order to be able to handle. There are countless elements that you need to acquire knowledge of, because if you don’t, then the one thing that you will acquire is that of pure failure! All in all, to be able to trade successfully in the Forex market, you must consider the following aspects:
Significance of Forex Trends
Forex trends typically tend to provide investors and dealers with the most necessary aspect of trade, which is information. The high and lows of the market are precisely and accurately found from trend lines and thus, trends act as a present and future guide for investors. Trends help to calculate support and resistance levels that act as pivotal points for deciding purchase and sale times of currency. With the help of trend lines, investors can understand their entry and exit points in the Forex market. The most valuable information that the trend lines provide are the unwarned movements in the market depicted by their sharp turns in the pattern.
Different Types of Forex Trend lines
There are different forms of trend lines that are used in terms of carrying out a basic Forex market analysis. All the types always follow the basic trend guidelines that assume that a trend cannot be inferred from two points and the beginning and end of a trend line cannot be chosen upon ones convenience. A simple line drawn between the first data point and a last data point is not a trend. Now, there are three types of trends, simple line trends that can vertical, horizontal or diagonal. There are Fibonacci trend lines that have gained quite popularity nowadays, as they provide an excellent and clear way of understanding Forex market trends. Then there is the pivot trend line that are used to find out fluctuations of the market at previous time frames and last but not the least speed lines where calculations are made in thirds unlike the other three types.
Forex trading currencies should be selected in pairs. Also, there is no such connection between the forex pair you select and the ‘base working currency’ (the currency to handle the forex account and make withdrawals and deposits). If you want to “buy USD”, for the simple fact that it is less than the EURO, and you have speculated that the USD will increase in the near future, then once the rate of the USD has attained the level of your anticipation, you can close the deal and get more EURO against the USD and hence, you earn a profit.
Although Forex trading deals in currencies, but there’s no physical cash transaction in the process. Rather, the Forex deal has a “volume”, which signifies the amount of currencies in the contract. You need to identify the volume of contract instead of purchasing the whole amount. Generally, most of the transactions are carried on common leverage and so you can deal 10,000 euro with much less amount.
Selecting the amount of risk
Risk is always involved with the amount you are investing, because it is the maximum you can lose. At a ratio of 1:100 leverage against 10,000 EURO, you actually put USD 100 at risk.
Stop loss rate in Forex Trading
This rate is the currency exchange rate at which the deal will close automatically when the market attains this rate. In this situation, you would lose USD 100 from your investment. The “stop loss rate” can be defined in a different way but the amount of risk will change accordingly. A direct relationship exists between the “margin” (the risked amount) and “stop loss rate”, which is required for the deal.
In forex trading, after going through the rate of the deal, you might be all set to go ahead with it, but to be honest; you may need to take a few seconds to think. The freeze rate allows you to think for those few seconds, and allows you to either accept or decline the deal.
Once you are ready to accept the deal, it is activated. If you are ready with enough money for the trade to get through, dive in. Now you are in an “open position” in the Forex trade.
These basic concepts and principles of Forex trading are going to help you a great deal once you get started. Just pay attention to them, and you’ll do just fine in the live market!
The US economy is posed for what many expect to be a significant downturn and very possible return to recession due to political discord. While the fiscal cliff was averted in the end of 2012 there appears to be little political movement to avert $85 Billion in spending cuts posed to take place beginning March 1st. This reduction in government spending combined in a loss of consumer confidence is predicted to cause a recessionary period in the US economy that may echo globally.
With an accompanying lowering of US stock prices followed by expected lower market indexes globally traditional stock profit strategies will be rare. Steady decline in stock prices combined with reduced earnings for dividends leave little room for short term positions being productive in stocks through conventional stock market investing.
Short term positions in currency exchange and commodities markets will provide opportunities for profits. This will result from both typical currency fluctuations as well as more money being moved into these markets. In currency and commodity markets equally, profits can be made so long as fluctuation is taking place and irrelevant to the actual direction of that fluctuation.
The perceived expectation of a general decline in the value of the USD against major currencies as spending cuts dampen the US economy should be tempered by expectations of similar slowing or recessionary growth in other economies echoing the US outlook.
This combined with tacit approval of many financial markets of reduced spending may work to strengthen USD. Further slowing in the UK economy pushing the impetus for reduction of AAA rating could also push the value of the GBP down against other currencies as well as continued decline against the USD continuing a 7 month trend.
The combined result of the fluctuations in major currencies and expected volatility in the commodities markets leaves spread betting companies and Forex traders in a position to take advantage of key indicators to reap profits. As these profits do not rely on economic growth they are insulated from an overall downturn in global economies.
As with any volatile period, short term positions and automated trades to take advantage of profit opportunities and mitigate potential losses is the common strategy. Careful research and use of multiple indicators in determining positions to take as opposed to blind trending is the best approach.
Of specific interest and worthy of attention are interests rates in the various economies and consumer price index – key indicators of inflation. Inflationary concerns will have a rapid and dramatic effect on currency valuations.
In the near term taking positions excluding the value of the USD will insulate you from volatility of the next month of economic unrest in US markets but also reduce positions available for profit taking. It should be noted that pronounced recession in the US economy will echo globally bringing other major currencies into a similar position in short order. Attention to economic stimulus packages by other countries may have short term effects on those currencies to be considered in your positions.
Inflation rates of countries can influence the markets to a significant extent, which is why Forex traders should take into account inflation rates of countries when trading currencies, since rates of inflation can affect the values of currencies.
There are many different fundamental indicators that currency traders should keep track of and inflation is one of them. A country’s inflation rate is the rate at which its good and services increase over a certain period of time. Rates of inflation of countries can greatly affect the prices of their currencies.
High rates of inflation are generally seen to be undesirable and they tend to cause currencies to fall in value. A high rate of inflation is seen to be bad for not only a country and its economy, but also for its currency.
Low rates of inflation are thought to be more desirable than high ones, though rates of inflation that maintain themselves fairly well and only change minimally are the most desirable. Lower inflation can be good, but very low inflation can signal a lack of aggregate demand in an economy for example, which is not good.
Unstable and volatile inflation rates can cause the currencies of countries to change similarly in their prices, so you should be aware of this. This can cause Forex traders to lose out, but remember that you can also make lots of profits with unstable and volatile markets – more risk means more reward.
It really depends on what currencies you are looking at, when you are studying inflation rates. Different countries will have different inflationary pressures. The governments of different countries typically set inflation rate targets and different countries have different targets to suit their own individual economies. You shouldn’t just look at how high or how low a country’s inflation rate is; you need to look more closely at how an inflation rate has moved over a certain period of time and where the rate of inflation of a country is sitting in relation to the government of the country’s set target rate of inflation.
At the end of the day, inflation is necessary for an economy’s health and well-being. When an economy grows, its prices should ideally grow with it. Inflation is not bad in general and it tends to move in a variety of ways, for example countries can experience cyclical inflation as part of their business cycles.
Remember that inflation is only one macroeconomic indicator of quite a few. Other main fundamental indicators include: interest rates, gross domestic product (GDP), trade balances and employment rates. You shouldn’t base any of your investment decisions off inflation rates solely, since it is only one indicator, unless of course you are trading a short-term news releases that is related to inflation. Instead, you should simply take into account rates of inflation and understand that they can definitely affect the prices of currency pairs in the Forex market.
In conclusion, the inflation rates of countries can influence the prices of currency pairs in the Forex market. However, inflation is one of many fundamental indicators and Forex traders shouldn’t really base any of their investment decisions solely on changes in the rates of inflation of different economies.
Fundamental analysis is all about studying and keeping up-to-date with all of the latest news releases and key economic data. Forex traders will focus more on economic indicators, which are also known as fundamental indicators, when conducting fundamental analysis.
There are many different economic indicators, though the main ones are: interest rates, gross domestic product (GDP), trade balances, employment and inflation.
A common misconception made by currency traders when carrying out fundamental analysis, is that the fundamental indicators must change in order to move the Forex market. However, the market for currencies is so sensitive to fundamentals, that it can move without any of the economic indicators actually changing.
Remember, the currency market is all about mass psychology and the minds of the traders and investors in it collectively. Trends are developing through longer-term buying and selling pressures. This means that whatever Forex traders think collectively, the FX market will move accordingly. Any hint of a change in one of the fundamental indicators, in one of the main ones especially, can cause a lot of movement in the Forex market purely because of the traders in it.
Of course actual changes can cause much greater market movements and larger changes in the prices of currency pairs. Do bear in mind though, that no fundamental indicator has to change in order to spark some currency market movement. Remember, the markets move even before important news releases are released, because of anticipatory buying and selling. When carrying out your fundamental analysis, ensure that you are aware that the market for currencies can be very sensitive and try to stay up-to-date with the all of the news. Don’t just look at the news around the dates of important news releases and such, but try to keep up-to-date with the news all the time so that you can be aware of any possible hints that could cause the price(s) of the currency pair(s) you are trading to move.
Remember to conduct fundamental analysis whatever Forex trading strategy you use, because fundamentals really can move the markets. You should at least be aware of the main fundamental indicators and the news in general, so that you will be one of the first to know any changes in the any of the economic indicators as well as any hints of any changes. It might seem like a bit of an effort, but you should always be aware of what’s going on outside of your currency trading platform, or you could deduce unnecessary losses due to unfavorable Forex market movements caused by fundamentals that you were not aware of.
In conclusion, the market for currencies can be extremely sensitive to any changes or even any hints of any changes in any of the fundamental indicators. For example, if an influential figure or organization came out with a prediction regarding interest rates for a particular country, this could definitely affect the price of the country’s currency even if the prediction ended up being wrong. By keeping up-to-date with the news in general, not just with the dates of important news releases and by having a strong understanding of the main economic indicators, you will be able to maximize your chances of success and profits.
Fundamental analysis is all about both political and economic news and announcements. So, the news if of course very important, because it’s exactly what you analyse when conducting fundamental analysis. This is why your sources of news are also very important, because one news source might tell you something different to another.
There are many sources of news today and many of them are biased in one way or another. This is why in order to see past the biased information, you must diversify your sources of news so that you can make more accurate judgements to base your investment decisions on.
If you rely on only one single source of news, you will more than likely get misled and lose out, as you will interpret news releases badly and ineffectively. There are many traders and investors in the Forex market, so in order to make the best investment decisions possible, you need to think like the rest of the market. In order to think like all of the other Forex traders in the market for currencies, you need to diversify your sources of news so that you can get the bigger picture and know what others are thinking.
Most Forex traders will get their news online. The internet is an extremely convenient way of accessing the news on a regular basis. It is also completely free. There are other ways in which you can stay up-to-date with all of the latest news releases though. Another way in which you can get access to the news is by watching television, however many TV channels are biased so you must take care when doing this. The internet has to be the best way to stay on top of the news because it is convenient, free and easy; you can get all of the latest news from all of the major news corporations with just a few clicks and it is even easier with news aggregation websites.
The greater the number of news sources you rely on, the greater the chance that you will profit through trading the news. You should definitely look at a large number of news sources if you use a Forex news trading strategy or one that focuses on fundamentals, for obvious reasons. However, you should still try to diversify your sources of news even if your Forex trading strategy is based more on the technical side of trading. Both fundamental and technical analysis are important in Forex trading, regardless of your trading strategy. The more aware you are of the currency market, the more chance you will have of profiting.
In conclusion, it is important to get access to a number of different sources of news in Forex trading, so that you can see through biased information and make better judgements, which will in turn allow you to make more profitable investment decisions. You should definitely diversify your sources of Forex trading news if you use a trading strategy that is more heavily focused on the news, because in this case, your judgements on the news can be the difference between profiting and losing. Remember to always stay on top of the news regardless of your currency trading strategy though, as fundamental analysis is of the utmost importance in the market for currencies.