Binary options trading

Binary options Definition

The binary option is a way to trade the fluctuation of prices of the open global market. It allows to obtain or a payoff of a fixed amount of money (or asset) or nothing. So, in simple terms, it is binary because you only have two possibilities: win or not. On a first approach, binary option can seems a very simple way to earn money, so that a lot of Forex traders start using it. But really, it is not so simple to enrich with it, as strategies and money management must be very well known to avoid the risk of lose everything.

One of the characteristics of the binary option trades is that it can be different in the different country: this is really evident in the United States exchanges, where structures of binary option is different from those available outside of the US. And in fact, in the US, traders deals with the so called exotic options, referring to the investment made outside the US.

Just like the Forex Trading, the Binary Option ( has different orders, or better, different options. The first one, the most common, is the ‘High-Low’ option, that allows to trade in Forex, stocks, asset and indices. The high-low option allows the buyer to have a payoff deriving from the differences between the higher and lower prices reached by an asset during a period of time. For example, imagine a trader knows that a certain kind of asset is known to rally in the close future: he can decide to risk and believe the market trend (or the market voice) and buy a binary option of this asset (in trading language he is buying a call) . After bought, he had to fix an expiring time, that can be of few minutes, of days, weeks or months, depending on his choice. And he had to wager if the price at the expiry time will be above the starting price. If this happen, the trader gain a good percentage of the starting value. If not, he loses his investment. Depending on the brokers, the investment can be fix or can range from a minimum to a maximum, or, in most case, is limitless.

The brokers also allows binary option outside the traders country. This is very common in the United States, where binary options have fixed risks and payout that, in some way, protect the traders. As already said, it is not uncommon to find unskilled people that start to trade because they hear about wonderful gains, but they really don’t know anything about the rules of the market, of the Forex trading and the Binary Options. It is important, before starting, to realize that the risks can be greater, especially for the novices, that in some case can also entry in trades not legally allowed by their country.

Broker Definition

Broker Definition

The term broker derives from the french word ‘broceur’ that means small trader. Today the brokers are agent working in some industry fields but this word is famous especially in the market where the broker is one of the most important role, an intermediary from the market and the traders. Brokers in fact are those that have and give information on the market conditions, or on the prices of the products. Today is unthinkable to work in the trade system without the support of a broker. In fact all the Forex Trading are usually done by the brokers, that are people or platform that act as intermediaries among the trader and his trade and the market. In fact ‘normal people’ are not allowed in operate directly on the market, but only broker can. Today there are a lot of on line platform that act as brokers: they are the on line forex broker. These platform have the quality to show time after time what happened on the market, so that the trader can track and monitor prices, statistics, purchases, gains, losses and so on. Of course, all the licensed platforms are listed, so that investors can chose their own on-line broker without meet with not authorized brokers. This is a very important point as the open market is a very interesting world, but is also a good way to dupe the simple person or those that expose themselves to the market for the first time. The best broker platform always advises all the investors not only of the possibilities of gain, but also about the risks of investing.

What is online trading?

In this trading community blog we talk about online trading

  • what is forex trading?
  • what is binary options trading?
  • what are the risks of online trading?

Forex trading Definition

The trading of currencies of different countries is called Foreign Exchange Market or, in the shorter form, Forex. The Forex Market sees the most important international banks playing the leading role, and the broker, the buyers and the sellers as ‘supporting actors’.

So when we deals with Forex Trading, we are dealing with the trading of different currency pairs (for example Euro versus United States Dollar or versus United States Dollar versus Pound) from different countries that are considered each against the other. The Forex trading works completely on line, and this is probably its most important characteristic. International trades, investments, curreny conversions, are all negotiation of interest of the Forex trading. All these Trades in the Forein Exchange Market are based on the payment in different currencies and on the exchange from a currency to another one. The exchange can be advantageous or not and this is one of the basic of the Forex trading.
Let’s try to understand better what is the meaning of trade different currency pairs.

The first point that probably everybody more or less know, is that those operate in the Forex Trading hope they can gain money through this channel. This is true, but not always true. All those that approach the Forex should have always clear in mind that earn and losses are both probable, so in the same way a trader can earn money or can lose it. Or, to be really precise, for those that are not very skilled, losses are the most probable results.

So, how does it work the Forex Trading? How is it possible to earn money with the trading of currency pairs? Let’s have an example with two very common currencies, that are United States Dollar (USD) and Pounds.

A trader buys one thousand pounds in a certain period that could be, for example, march 2013. He purchase them with the US Dollars, so he spend about one thousand and six hundred dollars (we have supposed that the exchange pound versus dollar is 1:1.6). At the end of May of the same year, our trader realizes that the value pounds versus US dollars increases, so that the exchange is 1:1.7, that is that one pound is equivalent to one thousand and seven hundred dollars. For this, the trader can decide to sell his dollars (or to close his trade) so that he would have earn one hundred dollar. Of course, if he is not a good trader, he can do a wrong play, and sell his currencies in a moment in which the exchange is disadvantageous, because the exchange is, for example, 1:1.5. In this case he would have lose one hundred dollar.

To trade with currency pairs or with stocks, a broker or a market maker is needed. To be sure to ask to a real Forex broker and not to an impostor, the trader should check the lists of qualified broker available on line. Of course, today, all the trading procedures are made on line, with few clicks, without meet people, without offices and without appointments. This means that everything is faster, but at the same time, this can be more dangerous for the inexperienced traders. To avoid risks, several on line brokers make available on line customer support that explain the basic of the on line trading.

Forex Trading language

When start trading in the Forex, what is important is that all the terms used are really clear in the meaning. It can be very easy for a novice to make mistakes due to the misunderstanding of the used terms. The first important term is the ‘lot‘, that is, usually, a precise quantity of asset or currency. During the trades is very probable that the purchases are done in terms of lots or, for small quantities, in terms of mini lot or micro lot. As it is easy to understand, mini and micro lots are parts of the lot, and in particular, they represent the tenth part and the thousandth part of the lot.

Another term very often used in the Forex trading is the Pips, that is the Percentage in Points. It is a small measure, very useful in the change of the currency pairs, In fact, the relationship among the different pairs is always complex and needs of the multiples and submultiples of the units. So the use of the Pips allows to work with the decimal numbers.

In the Forex language there are both terms connected to the quantity of the currencies or stocks and terms connected to the actions. For example very common terms, also entered in the everyday languages are the bid and the ask. The bid is the offer that is made by the investor or the trader, or better, it is the price at which you (or the broker for you) want to but a currency pair, or an asset. On the contrary, the ask is the price at which you (or again the broker for you) want to sell. Of course to have a transaction, usually the buyer and the seller have to make an agreement that can be more or less convenient for the buyer or for the seller depending on several conditions. In the best cases, the agreement find a price that is in the middle of the one asked and the one bidden.

Another very used term is the spread. The spread is the quantity of pips (see above) between the ask and bid price, that is the difference between these two parametres. So all these terms are connected and it is very important to understand what they mean to understand what the spread is. If a broker buys a currency for 100 and sell it for 102 the spread is the difference between 102 and 100. These terms have been used to better undestand the meaning of the difference between dib and ask, but in the reality, the spread goes on the decimal terms, so true values could be for examples 10.0004 and 10.0002.

To conlude, let’s give a look to the ‘leverage’, that is a term used to indicate borrowed funds. In forex the leverage is strictly connected to the gain and the losses, as it magnifies them. Often this involves the risk that borrowing costs will be higher than the income from the asset. This will cause, obviously, a reduction in profits. As an exemple, an investor who buys a stock on 50 % margin will lose 40 % of his money if the stock declines 20 %. Risk may be attributed to a loss in value of collateral assets. Brokers may require the addition of funds when the value of securities hold declines. Also, banks may fail to renew mortgages when the value of real estate declines below the debt’s principal. More,iIf cash flows and profits are sufficient to maintain the ongoing borrowing costs, loans may be called. This may happen when there is little market liquidity and sales by others are depressing prices. It means that as things get bad, leverage goes up, multiplying losses as things continue to go down. This can lead to rapid ruin, even if the underlying asset value decline is mild or temporary. The risk can be lowered by negotiating the terms of leverage, or by maintaining unused room for additional borrowing, and by leveraging only liquid assets.