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!
With major economic news on multiple fronts the currency markets promise to be very active. The USD is poised for movement against major currencies based on impending spending cuts in excess of $85 Billion that look likely to slow growth in the US substantially if not move it into recession. This will in turn slow many global economies if goes as widely predicted.
In Europe the GBP has been under review for several months by major credit rating agencies and it is appearing likely to lose its AAA rating. Being such a large player in the European market it could easily effect the value of the Euro as well.
As always when you trade FX, you must look at both fundamentals such as inflation and production for indicators of a currency strength as well as the technical indicators to show trending. These basics will help you make proper analysis of what currencies should do. In a volatile market (as this is expected to become in the next few weeks) as fallout from the US economy go from predictions to actualities certain market realities must be considered. The two most important are:
1. Predictions of political fallout are only that: predictions. The market and the economy do not always actually do what is predicted.
2. Currencies do not always react exactly as they should based on relevant indicators. Trading pressure and perception also move the valuation of one currency against another.
Taking these two facts into consideration when planning a trading strategy in a volatile market is essential. Though any fundamentally sound and disciplined strategy can make profits in this market some are more adaptable than others.
If you use a rule based strategy for trades a highly volatile market may prove challenging. It is less of a case that it cannot be done then a case of you must watch carefully to adapt the rules you are using to a rapidly changing situation. When a rule based strategy requires frequent changes you are losing some of the benefit of this strategy – most importantly the fact it may be time proven.
Fully automated programs or ‘robots’ as they are sometimes referred pose a similar challenge. Unless you are programming it yourself and have the ability to make adjustments it will be difficult to get a program able to adjust itself fully in a rapidly changing market.
Automated programs work off changes in the market but they cannot take into account a press release that caused a significant but very temporary shift in that market as the impetus for that change.
Discretionary strategies are by nature adaptable to any market condition. Success with this strategy in a volatile market depends on using resources to aid you in your decision making as opposed to trying to play the trend. Careful analysis of breaking news and comparing news from multiple sources will help you understand why the currency is reacting in a certain way and allow you to make a prediction as to how long it will continue to do so. A disciplined approach will keep your losses to acceptable level while seeking profits.
Rapidly changing valuations that do not necessarily follow predictable patterns or indicators are common in a market responding to political and media news. This type of market is an excellent time to look at price action strategies. Regardless of trend up or down in valuation, there will be peaks and valleys in value in the movement. A price action strategy allows multiple opportunities to take a profit due to this fact. It will also mitigate losses against any surprise changes. By setting price actions at a narrower range you may be able to make multiple smaller profits in a day or week trading to offset any relatively small losses and benefit from the markets’ volatility.
There are many different time frames to choose from, when trading currencies. Different ones will suit different Forex traders, with each one presenting different opportunities to the next. It is important to choose the best time frame for you to trade Forex within, so that you can maximize your chances of success and your profits too.
Since there are many trading sessions with different markets being more active during different times, a Forex trader should be aware of their own time zone when choosing currency pairs to trade and time frames to trade within.
There are many different time frames that you can trade within. The one that you trade Forex within, will ultimately depend on your Forex trading strategy. For example, if you are a scalper, you will most likely trade within 1 minute time frames.
Whichever one(s) you decide to trade currencies within, you should try to look at the bigger picture too. Remember that it is important to take into account the Forex market’s overall trends, so that you can be aware of where the market is heading. Of course if you are a scalper, you probably won’t be interested in this since you will be trading within extremely short-term time frames. As a scalper, you won’t really be that interested in looking at wider ones since you will be placing many orders each day. However, if you use a swing trading strategy or another medium-term trading strategy or even a long-term trading strategy, you should really study wider time frames too.
If you ever find it difficult to profit using the ones that you choose to trade within, then you may want to consider changing up your currency trading strategy and selecting wider ones to trade Forex within. You ultimately should choose ones to trade within where you find it the most easiest to find trends. The wider the time frame, the safer you are generally, which is why longer-term Forex trading strategies are the most ideal for beginning traders and investors. Scalping and other short-term currency trading strategies are best avoided, for beginners.
Always follow trends, after all, “the trend is your friend” especially if you are just starting out. Currency pair price trends tend to follow economic cycles, it is worth noting and some trends can be very strong, lasting years in some cases. This is why long-term trends are typically safe bets. Once you have discovered a trend within your chosen time frame, you should then look for suitable points of entry and exit, which should be easy once you have actually discovered a trend.
In conclusion, it will really depend on the individual Forex trader, which times frames are the best to trade currencies within. You should really just focus on choosing ones that you find the most easiest to find trends within. Everyone is different and everyone has a different situation. Your Forex trading strategy will determine which ones you choose to trade within really, but ensure that you don’t find yourself struggling. If you ever do find yourself struggling to find trends, simply expand your time frames while also taking into account when the Forex market is most active (particularly for the currency pair or pairs that you are trading).
It is important to look at time frames larger than the ones that you have chosen to trade in. Many Forex traders decide to just focus in on their chosen time frames, but this is just being narrow-minded.
Time frames in Forex trading are important and you should definitely choose good ones that are the best, most suitable and most appropriate for you and your Forex trading strategy. However, you shouldn’t just ignore other time frames, because it’s a good idea to get the bigger picture. Too many Forex traders ignore ones that they don’t work within; they don’t look at them at all and as a result, they don’t look at the bigger picture. This is of course not ideal.
Now admittedly, this doesn’t include scalpers and day traders. Scalpers for example, can often be in and out of single trades in seconds, so there’s no real need for those using these types of Forex trading strategies to look at the bigger picture.
The majority of traders and investors in the Forex market though, don’t use scalping strategies. Beginners definitely shouldn’t scalp the currency market, since it can be very difficult to scalp successfully without a lot of previous Forex trading experience. So, if you don’t scalp or use a day trading strategy of some sort, then you should definitely be looking at the bigger picture.
By looking at wider time frames, you will be able to see what the prices of the currency pairs you are trading are really doing in the long run and what direction they are actually moving in long-term. By doing this, you will find it far easier to define currency pair price trends. Do bear in mind though, that you don’t have to look at very long-term price charts and graphs if you are only trading within 15 minute time frames, for example. If you trade within 15 minute time frames, you might want to consider looking at 1 hour price charts and graphs perhaps. If you trade within 1 hour time frames, you might want to consider taking into account daily or even weekly price charts and graphs.
The FX market is always moving either up or down, so if you ever begin to struggle finding trends within your chosen time frames, then either choose larger ones or just take larger ones into account so that you can get more of an idea of the currency pair(s) you are trading. Remember, even if you aren’t struggling, you should still know what the most prominent trend is in the market for the currency pair(s) you are trading. It will just put you at an easy advantage, since you will essentially be more aware than others who don’t bother to consider wider time frames. If you can put yourself at an advantage, you should do so, especially if it doesn’t take a lot of effort.
In conclusion, it is highly recommended that you take the time to look at larger time frames than the ones you have chosen to trade within. By doing this, you will stand more of a chance of making consistent profits, since you will know the general direction in which the currency pair(s) you are trading is moving in, which will in turn give you an edge. It isn’t completely necessary to take into account larger time frames in Forex trading, but it is definitely a good idea and it doesn’t take a lot of effort to do so, so you may as well.
Some believe that technical analysis can be used in the both short run and long run, but the vast majority of Forex traders only use it in the short run. Generally, this type of analysis is better suited to those who use more short-term Forex trading strategies, but if you are looking for long-term profits only, it doesn’t mean that you can’t use technical analysis too.
Technical analysis is all about studying price action through various charts and graphs. Most technical traders focus on making shorter-term profits, such as scalpers and swing traders. Forex traders who look for more short-term profits, tend to try and exploit technical analysis more often because it is much more accessible. In fundamental analysis, you have to wait for key economic data and such to be released, but with this kind of analysis, you can simply open up a chart or graph and start looking for trends immediately. Scalpers for example, would look at price charts and graphs for the currency pairs they are trading, with very tight set time frames – some Forex traders even use time frames as tight as a few seconds.
Technical analysis is flexible though; you can still look for long-term opportunities using this type of analysis. For example, you might just set the time frame of your price action charts and graphs for the currency pairs you are trading, to maybe 6 months. By doing this, you will be able to spot longer-term price action trends and patterns. This is one of the most easiest ways you can make money in the Forex market; all you have to do is discover what direction a particular currency pair’s price is trending in and then place an order accordingly. However, ensure that you are aware of short-term price volatility too, when doing this.
In conclusion, technical analysis can actually be used effectively in the both short run and long run. It doesn’t matter what Forex trading strategy you use; you can make use of technical analysis whatever your situation may be. In all fairness, if you are more of long-term Forex trader, you might want to consider focusing on fundamental analysis more. However, this doesn’t mean that you should neglect technical analysis, because it is just as important. Always focus more on what you’re best at and what works better for you, but never trade narrow-minded. If a Forex trader placed an order, basing their investment decision solely on the technical analysis that they conducted beforehand, they would essentially be trading half-blind. Even if you spot a really strong and consistently bearish currency pair price trend on a price chart or graph, it doesn’t necessarily mean that you will be able to make an easy profit from it, because the economy of the base currency could suddenly take a turn for the worse and you could lose everything. It’s important to always keep up-to-date with the news too, if you do choose to focus on technical analysis, regardless of whether you use it to spot long-term or short-term trends and patterns.
Bar charts are the commonly used type of chart in Forex trading. They are used by many Forex traders and they can be effective if used properly.
Forex bar charts, just like other charts of this type, have two notches on them. The left notches represent the opening prices of the currency pairs in question and the right notches represent the closing prices of them. The edges of each bar on a Forex bar chart, represent the highs and lows of the currency pair prices in question.
Bar charts unfortunately don’t bear many advantages over other types of charts used by Forex traders. However, some traders and investors in the Forex market, prefer to use them over other kinds of charts. When using charts to watch the market for currencies and the price actions of the currency pairs you trade, really all you need to do, is use a chart that works for you and you are familiar with. There is no point in using a particular type of chart, just because every other Forex trader does. More experienced currency traders do tend to use candlesticks however, which are somewhat similar to bar charts but present more advantages.
When comparing bar charts to candlestick charts, you will notice that bar charts can actually make the process of interpreting data much more slower for more experienced Forex traders. This is why more experienced traders and investors generally move onto using candlesticks in Forex trading, once they feel that they are competent enough with the technical aspect of Forex trading in general.
Many beginners first start out using line charts in Forex trading, but then later move onto bar charts before finally using candlesticks. Line charts are the most simplistic out of the three main types of Forex charts, which is why beginners tend to use them, rather than more seasoned traders. Bar charts are slightly more complex and need a bit more getting used to. Candlestick charts are thought to be the most complex sorts, however you soon get used to them after a little practice.
At the end of the day, ensure that you don’t rush anything and progress gradually in Forex trading. Charts are only one aspect of technical analysis and technical analysis itself, is only one aspect of Forex trading, so try not to get bogged down on all of this information as it doesn’t mean anything in the bigger picture. First, practice with what makes sense to you and then move on when you feel comfortable. Remember, some very successful and highly experienced Forex traders use bar charts primarily; it’s all down to personal preference, ultimately. It’s best to just use what works for you; there’s no logic in not doing so. If you would prefer to stick with a line chart throughout your entire Forex trading career and don’t feel that moving onto a different type of chart will actually benefit you, then feel free to continue using line charts.
In conclusion, bar charts are used by many Forex traders and they can be effective, in the currency market. However, they don’t bear many advantages over other types of Forex charts and they are sometimes thought to merely be a stepping stone between line charts and candlestick charts, for traders and investors. Bar charts are slightly more advanced than line charts, but slightly less complex and powerful than candlestick charts. Remember though, just use what you’re most familiar with and what works for you, because nothing else really matters as long as you are always progressing and growing your Forex trading account (or at least getting closer to profiting).