The Definitive Guide to Forex Binary Options

Chapter 1: Introduction to the Course

But first: What is Forex Trading?
Factors Affecting the Exchange Rate
Forex Pricing
What is Binary Option Trading?
What is Forex Binary Options Trading?

Chapter 2: Why Trade Forex with Binary Options?

Similarities
Differences

Chapter 3: How to Trade Forex with Binary Options

Choosing the asset
Setup of a Typical Forex Binary Option Trade
Trading on the Direction of the Market

Chapter 4: Beginner strategies for Forex Binary Options

Strategy 1: Trend Trading Strategy
Strategy 2: MACD Entry Trading Strategy
Strategy 3: Hedging

Chapter 5: Intermediate strategies for Forex Binary Options

Strategy 1: Multiple Time Frames Trading
Strategy 2: Trend Reversals Identification
Strategy 3: Scalping with Binary Options

Chapter 6: Hedging Your Spot Forex Position with Binary Options

Chapter 7: Anyoption and Forex Binary Options
Chapter 1: Introduction to the Course
Welcome to the Definitive Guide to Forex Binary Options. You’ve heard of Forex, and
you’ve heard of binary options but how about Forex Binary Options?

Confusing? Not at all. In the world of financial trading, there are various asset classes that
are available to trade. For instance if you are into trading commodities, you can choose
from agricultural products such as coffee or wheat or from primary resources such as
crude oil or natural gas.

Among all the asset classes, currencies or Forex is by far the most popular asset class being
traded by most retail financial traders. This is mainly due to the high liquidity which the
market for this asset class enjoys.

That means it enjoys a high trading volume and that these assets can be easily bought or
sold. Another reason for its popularity is the relatively low cost to this market. Over the
course of this guide, we will explore the different types of currency trading that are
available to you and why for optimal results, you should use Forex binary options to trade
the Forex market.
But First: What is Forex Trading?
So what is Forex trading? Forex trading or foreign exchange is basically the exchange of
one country’s currency for another country’s currency. For example, the currency
circulating within the Eurozone is the Euro or EUR while in the U.S, it’s the USD or $. A
simple Forex trade between the Euro and U.S dollar looks like this.
In principle you are exchanging the U.S dollar for its equivalent in euro. In other words,
you will be purchasing the euro while at the same time selling the U.S dollar. The rate at
which you can change the U.S dollar for the Euro depends on the prevailing exchange rate
at the time of the trade.
Factors Affecting the Exchange Rate
The value of a currency, just like goods and services will rise and fall depending on a
variety of factors such as:

 Central Bank Monetary Policy

 Currency manipulation by speculators or the central bank

 Economic Growth

 Geopolitical Situation

 Natural Disasters

Because there are so many factors that can affect the value of a currency, you can never
really tell what the exchange rate is going to be even in the next minute. The exchange
rates can respond very quickly to changing circumstances around the world. That’s why
trading Forex is so fascinating to currency traders. Traders who want to profit from these
changes in the exchange rate will try their very best to predict which way the exchange
rate is going to move in the future.

Forex Pricing
For any currency, its exchange rate will always be quoted in relation to another currency.
In order to understand how a Forex trade is carried out, you need to be familiar with some
of the specific terminologies used in the Forex trading industry:
 Base & Counter Currency
As mentioned earlier, a currency exchange rate is always quoted against another currency.
For example, with the euro and U.S dollar, the exchange rate will be quoted as EUR/USD.
The “EUR” represents the euro and is called the “base currency”. The U.S dollar is
represented by the prefix “USD” and is called the “counter currency”. It shows how much
one-euro can be exchanged for U.S dollars.

1 Euro / U.S. dollar = 1.1031

 Pips
Pip is the acronym for “Percentage in Points”. Currency pairs can be quoted up to 5
decimal points although normally it is up to 4 decimal points. A pip refers to the rate of the
price movement at the 4th decimal point. For example, let’s say the EUR/USD exchange
rate is currently trading at 1.1031, if the euro appreciated by 1 pip, the new rate will now
be written as 1.1115. The rate of change is actually the equivalent of 1/100 of one percent
or one basis point.

 Spread
When getting a quote for a currency pair, 2 prices will be given by the broker, which is the
“Bid” price and “Ask” price. For example, the Bid/Ask price for the EUR/USD can be
denoted as 1.3272/1.3276. The bid price represents the price which you will receive if you
are selling a currency pair. The ask price is what you will have to pay when you buy a
currency pair. It should be noted that the bid price is always lower than the ask price. The
difference the bid and ask price is what’s known as the “Spread”. In the example that we
used above, the difference between the Bid/Ask prices of the EUR/USD is 4 pips. The 4 pip
difference is what is called the spread. It is the margin which a Forex broker or market
maker makes when they buy or sell a currency pair on your behalf.
The Forex Market
Now we have established what Forex trading is, let’s find more about the Forex market.
Forex market is where the currencies are exchanged at an agreed price. It is also the world
largest market with a daily turnover in excess of 4 trillion U.S dollars. By comparison, the
New Stock Exchange (NYSE), the world’s largest stock exchange, has a daily turnover of
only around 50 billion U.S dollars. But what is really interesting about the Forex market is
the fact that it is not associated with any central exchange or physical location. Instead,
trading is done electronically on a 24 hours basis through a network of banks and investors
collectively known as the Forex OTC (over-the-counter) market.
So What Is Forex Binary Options Trading?
Nowadays, there are 2 ways of trading currencies. One way is through the spot Forex
market and the other way is with Forex binary options. With the spot Forex market,
trading transactions involves the outright purchase and sale of the currency in question.
With Forex binary options, you will be trading on a currency derivative instead of the
actual currency.
With binary options, the outcome of a trade depends on a Yes/No proposition. For
example with binary options, you might have to determine if the price for the EUR/USD
will move from 1.3272 to 1.3276 within the next 30 minutes. The possible choices that you
will face here are “Yes” or “No”.

If you determine correctly then your trade will close in the money. Unlike spot Forex, the
profitability of the trade depends on the magnitude of the price movements. If the price
movement isn’t sufficiently large enough, you might not even cover the cost of your Forex
transaction.
Chapter 2: Why Trade Forex with Binary Options

In order to appreciate the benefits to trading Forex using binary options rather than with
spot Forex, it is first necessary to look at the similarities and differences between the two
types of trading Forex.
Similarities:
Some of the similarities between spot Forex trading and Forex binary options include:

• Online Trading
When it comes to trading Forex, you can trade both spot Forex and Forex binary option
online. And since the Forex market is open 24 hours a day, you can trade spot Forex and
Forex binary option 24 hours a day 6 days a week.

• Small Capital Outlay

You can start trading spot Forex and Forex binary options with an initial capital outlay as
low as $100 making market entry extremely affordable.

• Short Term Time Frame

Both spot Forex and Forex binary options trades can be made on a very short-term time
frame.

• Outcome Based On Price Movements

The trade outcome of a spot Forex trade and Forex binary option trade are both based on
which way prices are going to move.

Differences:
Despite their similarities, spot Forex and Forex binary option are distinctly different in the
following ways:

• Fixed Returns for Binary Options

With binary options, you know beforehand what your return on your investment is going
to be as the payout ratio is fixed by the broker at the onset of the trade. Supposing the
payout ratio is 80%, this means for every $100 that you invested into your trade you will
receive $80 in return if your trade closed in the money.
With spot Forex, you have no way of knowing how much you will make as the payout is
dependent on the price movements. The more prices move in the desired direction, the
higher will be your profit potential. We say profit potential in the case of spot Forex
because we need to take into consideration the transaction cost of the trade as well.

• Magnitude of Price Movements

For binary options, the magnitude of the price movement is irrelevant for the outcome of
the trade. If the price only moved by 1 pip above the strike price, your trade will still close
in the money earning you the payout ratio determined at the onset of the trade.
For spot Forex, the magnitude of the price movement is important as this will ultimately
determine how much you will profit from the trade. If the price movement is not
sufficiently large enough, you could end up with a loss since there is a trading cost which
needs to be covered.

• Simplicity vs. Complexity

With a spot Forex trade, there are many tools such as stop loss and trailing stop to help
manage your trading risk. While this may be a good thing, it is also a complex way to
achieve your profit target.

Even then, you have no way of knowing what your ultimate risk level is and possible profit
until you have closed your market position. Binary options on the other hand are much
simpler to trade with as the risk and possible payout is already known beforehand.

• Trade Time Frames

With spot Forex, the time frame for a trade is indefinite as this is decided by you as the
trader. With binary options, the time frame is already fixed by the broker. This is a plus
point as you know the beginning and end times for your trades hence giving you the
leeway to focus your energy and concentration on other trades at the interim.
• Trading Experience
With spot Forex, you need a high level of trading experiences before you can think of
making any decent returns. Binary options on the other hand don’t require the depth of
trading knowledge as spot Forex and is much easier to understand and trade with.
As we have seen, although there are some similarities between spot Forex and Forex
binary options, it is their differences which help to highlight the attractiveness of Forex
binary options to the average traders. With just a Yes/No proposition to consider, Forex
binary options traders need not have to spend countless hours planning out their trades to
ensure that their trade will close in the money. Furthermore by knowing exactly what his
risk/reward ratio is beforehand, a Forex binary option trader can plan his trading activities
even better at the end of the day.
Chapter 3: How to Trade Forex with Binary Options
Although classified as an “exotic” financial instrument, binary options are actually very
easy and simple to trade with. They are called binary for the simple fact that they expire
with an all or nothing outcome. Used properly, binary options can be a very powerful tool
for traders to reduce their trading risk. While binary options are structurally different from
vanilla options, they do have some similarities in terms of having an expiration date, a
premium payable for the option contract and a strike price.

The distinguishing feature between binary options and vanilla options is the fact that
binary options have a fixed payout. For example at Anyoption, you can expect an average
return of 80%. So if you invest $100 into a trade for the EUR/USD to hit the strike price by
the expiration of the option, then you will end up with a $180 payoff. Normally if the price
doesn’t hit the strike price upon expiry, you will lose all your investment and in the case of
our example above, the amount of $100. Nevertheless at Anyoption, they also offer
investors a rebate of up to 25% even when your trade expires out of the money.

Choosing the Asset to Trade With

Let us now look at an example of how to make a Forex trade using binary options. When
trading Forex, one of the first things is to decide which currency pair you want to trade in.
The ideal currency pair to trade is one which exhibits signs of being volatile. For our
example, we will choose the EUR/USD Forex pair since the present uncertainties
surrounding the Greek debt crisis after the July 5th referendum is making investors jittery
about the Euro.
Another possible candidate that is suitable to trade in the light of the present situation
between Greece and its international creditors is the EUR/JPY. Investors looking for a safe
haven currency will be looking to park their euro-based investments into a stable currency
like the Japanese Yen. This surge in demand for the JPY will certainly cause the JPY to
appreciate against the EUR.
Remember that when trading Forex binaries, you can:

• Use several types of trading contracts according to what is offered by your broker.
• Trade on a 24 hours basis as according to the spot Forex market trading hours.
Also take note that the movement of currency rates can at times be very volatile and you
should adjust your trades whether by the amount invested or with the type of trading
contract to suit the behaviour of the currency that you are trading in.
Setup of a Typical Forex Binary Option Trade
Structuring Your Trade

The first step of any binary trade is to structure it according the option contract type. The
simplest way is to use the Call/Put or High/Low options type. This type of trading contract
can be found on all binary options trading platforms.

Technical Analysis and Short Term Trading

Once you have chosen both the currency and contract type, you need to ask yourself what
are the factors that will cause the selected currency to move above or below your trade
entry price. In chapter 1 we pointed out some of these factors which can affect the
exchange rate. The factors that we mentioned are basically fundamental in nature. For
trading options contracts with very a short expiry time, relying solely on fundamental
factors to base your trade on may not be entirely wise due to the unpredictable nature of
news events.

For a more reliable method of predicting how prices will move during the short term, it is
better to rely on technical analysis especially through chart patterns.

Prices are going to move in the desired direction. Once the chart patterns have pointed
you in the right direction, use technical indicators such as the Relative Strength Index (RSI)
or Bollinger Bands to reconfirm the trading signals. Assuming that you see a rising wedge
pattern like the one shown in the diagram below, it is indicative of a bearish market which
you will see the price of the underlying asset ending lower. Your trade then should take
place at the point when prices breaks through the lower trend line as shown in the
diagram below (Sell point).
Trading on the Direction of the Market

Once you have setup your trading scenario and you see the price breaks through the lower
trend line, Select “Put” or “Low” option to execute the trade with the amount that you
want to invest. Ensure that the expiry time of the option is adequate to permit the asset
price to move solidly into the target range.

Because of the fact that the Forex market is trading on a 24-hour basis, you will find plenty
of trading opportunities. The best part about using binary options to trade Forex is the fact
that your trading risk is contained and you don’t have to worry about incurring any losses
which are beyond your expectation. In addition, investing with as low as $25 per trade, it is
actually an ideal way to learn how the currency market works before diving into the spot
Forex market.
Chapter 4: Beginner Strategies for Forex Binary Options
To help you get started on the right track in trading Forex binaries, we have shortlisted 3
trading strategies that are simple enough for a novice trader to understand and apply. Of
course there are higher level trading strategies that one can also use but these strategies
require that you possess more knowledge and experience which novice traders will not yet
have. Nevertheless once you have mastered these beginner strategies, you can proceed to
next chapter to learn about the intermediate stage trading strategies that we have
prepared for you.

Strategy 1: Trend Trading Strategy

You have probably heard of the saying “The Trend Is Your Friend” when it comes to trading
the markets.

So what is a trend?
A trend is when prices are moving in a manner as to generate a series of successive higher
highs/lows or successive lower highs/lows. If prices are moving successively higher and
higher than the market is said to be trending upwards. On the other hand if prices are
moving successively lower than we say the market is down trending.
How the Strategy Works
The thing about trends is that if you know which direction the market is moving towards,
then you will know what type of binary options to invest in (Call or Put). By plotting out
prices onto a price chart, you will be able to visualize how prices are behaving. So if you see
that prices are on the uptrend, then you should use a “Call” option. Alternatively, if prices
are shown down trending than you should invest in a “Put” option.

Trend Lines
To help with your market analysis, draw 2 trend lines onto the chart by:
• Connecting the series of highs together with a straight line.
• Connecting the series lows together with a straight line.
The trend line for the highs will represent the resistance level. This is the level where prices
are having difficulty breaching through. As for the trend line for the lows, this line will
represent the support level. This is the level where prices are finding it difficult to fall below.
The diagram below will give you a better idea.
While it is entirely reasonable to trade while prices are moving between the resistance and
support level, the best time to trade however is when prices start to break out. This
signifies a change in the direction of the trend and represents the best point for you to
capture all the potential of your trade. The rationale is, you stand a better chance of
profiting when you trade towards the direction of the trend and at the breakout point;
there is less likelihood of prices reversing.

Strategy 2: MACD Entry Trading Strategy

The MACD entry trading strategy is best used for trading scenarios with a short term time
frame and relies heavily on the use of the MACD. This strategy is actually a trend following
strategy which uses more the SMAs and MACD to identify your trade entry points. The
Moving Average Convergence Divergence or MACD is a trend following momentum
technical indicator used by traders to identify increasing short-term momentum.
To set up the trading strategy properly, we need 2 simple moving averages or SMAs (with
the setting at 50 bar & 100 bar) and the MACD histogram (with default settings of 12, 26,
and 9).

How The Strategy Works.

The SMAs are used to determine the trend and hence the direction of the trade. If the 50
bar SMA is above the 100 bar SMA, it means the trend is bullish. On the other hand, if the
50 bar SMA is below the 100 bar SMA, this mean the trend is bearish.
The time to trade is when the MACD indicate an overbought or oversold situation. This
occurs when there is a crossover of the SMAs and also when the price goes past the SMA.
In other words, if the market is trending downwards, wait for the price to correct itself
above the SMA. Once this has happen, checks the MACD to see if it is overbought and
makes a crossover like in the diagram below.
This strategy is one of the best trading strategies around for novices due to its flexibility. It
can be used also for deterring the prevailing trend as well as identifying market reversal.
While the strategy may be simple, its usefulness is not confined to novice traders but can
be utilized by experienced traders as well since it can be used for different time frames as
well.

Strategy 3: Hedging
Being a good trader not only means knowing how to trade well but also knowing how to
manage your trading risk effectively. To help you manage your risk, you can apply a hedging
strategy as well when you trade the markets. While there are many hedging strategies
which you can apply; the best ones are those which are simple and most importantly those
that you can understand.
The objective of a hedging strategy can be two fold, to make a profit or to minimize your
losses by creating an offsetting market position. Essentially it means when you trade with a
Call option, you will use a Put option to hedge your position. Likewise if you are trading with
a Put option, you use a Call option to hedge your position. While it may be slightly more
difficult to hedge with binary options as compared to vanilla options, it is not entirely
impossible.

Hedging Examples:
Below is a hedging example on a platform which pays out 70% returns for In-The-Money
(ITM) trades and 15% rebates for Out-Of-The Money (OTM) trades.

Market Position If market is uptrending If market is downtrending

Call Option (Invested $100) Receive $170 Receive $15
Put Option (Invested $50) Receive $7.50 Receive $85

The total cost to hedging your position is $150. As for the return on investment, if the
market closed on the uptrend, you will a total of $177.50. However, if the market closed on
the downtrend, you will only receive $100. Hence, your total profit for the up trending close
is $27.50 or 18.3% of your total investment. As for the second situation (downtrend), you
total loss is $50 or 33% of your total investment.

The main drawback of this hedging strategy is that you have to be contented with less profit
in return for minimizing your loss. Of course while your profit might be less than when you
didn’t hedge, you should take note that you lost only $50 instead of $85 had you didn’t
hedge you position.
Chapter 5: Intermediate Strategies For Forex Binary Options
This chapter covers intermediate based binary trading strategies for those traders who are
already familiar with trading binary options and want to expand their current knowledge of
binary trading strategies. In this chapter, we will look at how you can trade with multiple
time frames, identify trend reversals and learn how to scalp with binary options.

Strategy 1: Trading the Forex Market with Multiple Time Frames

Essentially, the multiple time frame trading strategy calls for the monitoring of an asset’s
price movements across several different time frames. This strategy while commonly used
by spot Forex traders has been neglected by binary options traders mainly because they are
normally dealing with options that have a short expiry time. As such, binary traders may feel
that this strategy might not be for them. The fact of the matter is when we lose sight of the
bigger picture; we will often miss what might be clear signals for an ideal trade.

Selecting the Time Frames

The first step of this trading strategy is the selection of the time frames to work with.
Ideally, you should have 3 time frames to base your trade on, a long-term time frame, a
medium time frame and a short-term time frame. Each time frame will serve a particular
purpose in formulating your trade at the end of the day.
When choosing the time frames, always start with the medium term time frame first as this
the time frame which you will base your trade on. For example, if the expiry time of your
trade is 2 hours, then this will be the time frame that you will use for medium term time
frame.
As for the long term and short-term time frames, their selection is based on the “Rule of
Four”. For example, your medium term time frame is 2 hours (120 minutes), then your
short-term time frame should be 30 minutes (120 minutes divided by 4) and long term time
frame set at 8 hours (120 minutes x 4).
Applying the Strategy
Start your analysis beginning with the long-term time frame. This will give you the primary
direction of the market. Once you have identified the primary trend, focus your analysis on
the medium term time frame. With this time frame, the spikes of the general trend should
become more obvious giving you a good picture of both the short term and long-term time
frames. With this insight, you can better focus on how to plan your trade optimally.
The final stage is the conclusion of the trade with the use of the short-term time frame.
With the shorter-term time frame, you will now see the smaller price movements, which
were not obvious at all before hence allowing you to pick out the ideal entry point for your
trade. Remember that the entry point should be in the same direction as the primary trend
that you have discern with the longer-term time frames.
By combining the analysis from all the different time frames, you cut down the risk of
missing out any signals. Furthermore by beginning your analysis with the long-term time
frame downwards, you get to avoid making poor trades as a result of temporary fluctuations
in the market.

Strategy 2: Trend Reversals Identification

In the previous chapter, we introduced the concept of trading with the trend. In this section
here, we will now expand that concept to cover more in-depth on the subject of trend
reversals. While we understand that the trend is our friend and we should always trade with
the trend but what do we do when a trend has run its course and ends?
While knowing when to enter into a trade is a critical skill, you should also be aware that
exiting the market at the right time is equally as important. Of course with binary options,
most traders don’t pay so much attention to the question of market exit timing because
binary options have a fixed expiry time.
Nevertheless we need to stay on top of the situation because if we are following a trend:
• How do we know if the trend is going to last until the expiry of the option?
• How do we know if we can continue riding the trend with another option trade after the
expiry of the first trade?

Let’s have a look at the diagram below:

The chart show a very typical pattern of an up trending market with its entire minor up and
down correction movements across different phases of the trend until it reaches toward the
top of the chart. The question here is how do we tell when the market is experiencing
correction or when it is reversing? When we think about it more deeply as a binary trader,
we should be even more concerned about this issue since we don’t want our trade to be
engulfed in one of these corrections.
While nobody can predict the future, binary options traders have a whole array of tools at
their disposal that can be used to pick up signals which will give traders a heads up to the
fact that a reversal is about to happen.
Some of these tools include technical indicators like Bollinger Bands and the Relative
Strength Index (RSI).
Another way of telling if the market is about to reverse is to refer to the charts and look for
“engulfing” candlestick patterns. Engulfing patterns can be either bearish engulfing or
bearish engulfing. They can be easily identified through their characteristics of second
candlestick running contrary to the first candlestick and engulfing it as illustrated below.

Recognizing patterns such as these will help prevent you from betting on the wrong side of
the trend and let you catch the reversals at the early stage thus enabling you to ride the
new trend to its maximum duration.
Strategy 3: Scalping with Binary Options

Scalping is a trading technique, which requires traders to open a position and to close it once
they have gained just a few pips. The idea behind this trading strategy is that by making a
few pips at a time and with a large number of transactions, this will accumulate into a
substantial amount of profit at the end of the day.
The strategy is often used by spot Forex traders but rarely by binary options traders.
Nevertheless, it is not to say that it is impossible to scalp with binary options. In fact, the
principle behind scalping with binary options is the same as that of spot Forex. The only
difference is that closure of market positions of binary options is automatic due to the fixed
expiry time of the options.

Scalping With Binary Options

To scalp with binary options, you need to trade with options that have a very short expiry
time. Since most binary trading platforms today offer 30 seconds options and 60 options, this
is not a problem.
Even if your binary broker doesn’t offer 60 short-term options, you can still scalp with 15
minutes or 30 minutes options.

Tools of the Trade

In order to start scalping, you need the proper set of tools such as technical indicators,
candlesticks charts and price action analysis. Use only charts with a time frame of 1 minute
to a maximum of 15 minutes in order for the information from your analysis to stay relevant.
A word of caution, while scalping in theory might sound easy, it should be noted that this
type of trading is highly speculative.
Chapter 6: Hedging Your Spot Forex Position with Binary Option
Over the years and before Binary Options was first introduced publicly as an OTC (Over the
Counter) trading vehicle, it was commonly used by institutional bankers to hedge against
other positions across their portfolio and to minimize their risk exposure. The beauty of a
good trading strategy is one that you can learn to use quite easily without getting a
headache. That’s where binary options as a way to hedge against your spot forex positions
comes in.

The point of the binary options hedging strategy is to minimize losses from your forex
account by opening short-term binary positions or indeed maximizing your profit on a
successful forex trade.

For instance you have a trade open on the EUR/USD on your MT4 platform. You bought it at
1.1193 and you take profit at 1.1198. Let’s assume each pip is worth $10. Now while this is
happening you can open a 30 seconds binary trade at the same time. It closes out at 1.1198
so now you have gained more profit than from the forex position alone. The binary options
position pays 85% return so $85 profit on your $100 investment. The forex trade pays $10 a
pip – the spread = $30. So your total gain comes in at $115 instead of $30
Conversely to minimize losses, you buy your EUR/USD again for 1.1193, your stop loss order
is effected at 1.1189, when the EUR/USD hits 1.190 you open up a 30/60 second binary
options position as a CALL option. So while you may have lost 4 pips on the forex trade,
suddenly you have gained around 85% profit on the binary trade. Let’s assume you invested
$100 this becomes an $85 profit – 4 pips on the forex trade = $45 profit!
 Why Binary Options make a Good Hedge for Spot Forex Positions

Due to the way they are structured, binary options are an excellent hedging tool because:

 Binaries have a fixed risk/reward outcome. With binary options, you know prior to the end of
the trade how much you can earn or how much you can lose. In our case, you can earn up to
a maximum of 80% with anypption. Your possible loss, on the other hand, is only limited to
what your paid for your option.

 With binary options, your risk level is capped. This mean you can never lose more than what
you invested. For this particular reason, stop loss levels are irrelevant when trading with
binary options.

 In binary option trading while there is no leveraging involved, it is still possible for you to
make a profit and without having to risk a penny more than what you paid for your binary
option contract. With this in mind, you can hedge your spot forex position without having to
resort to leveraging.

 Binary options is based on directional trading. This means you can use a binary option CALL or
binary option PUT to hedge the opposite end of your spot forex position.

Most spot forex traders tend to shy away from trading binaries because they feel binaries are
relatively expensive when compared to trading spot forex. For example, a winning binary
trade may pay out 80% but an out of the money binary trade only gives you a rebate of 15%.
The gap which is in the broker’s favor is much higher than the spread a spot forex trader
typically pays for his transactions.

Nevertheless, you will be less inclined to think in this manner once you see how useful forex
binaries can be in reducing your spot forex position risk exposure. The concept of using binary
options to hedge a spot forex position might be fairly advanced for the average binary trader
to grasp but an seasoned sport forex trader should have no difficulty in understanding how
this strategy works.
Trade Example
In this example we will look at how we can use a One Touch option to hedge a spot forex
trade. One touch binaries are option contracts where you have to determine if the price of
the asset will “touch” a predetermined level during the life time of the option. If market price
of the asset does touch the predetermined level before the expiry of the option contract, you
can earn anywhere from 150% to 380% of your investment. So if you had invested $100, your
gross return can be anywhere from $250 to $480. However if the one touch option failed to
close in the money, you stand to lose all your investment.

Let’s assume that you think that the USD/JPY currency pair if going to fall from its current
level at 121.25 to 118.25 by the next week. On this premise, you purchased a one touch
option contract with a payout of $10,000 at a premium of $4000 with the strike price at
122.75.

Simultaneously you open a spot forex short position with a nominal value of $500,000 at
121.25 with the take profit (TP) level set at 118.25 and stop loss level at 122.76 ( a pip above
the one touch option strike price).
 Now there are 2 possible outcomes for this trade to end:

1. If the USD/JPY rises to 122.76, your one touch option will close in the money and you will end
up with a total payout of $10,000. However, you lost $6150 on your spot forex position.
Hence your net profit in this situation will be $3850.

2. If the USD/JPY instead were to fall to 118.25, you will profit from your spot forex position by
$12,685/- However, you will lose out on the premium paid for your one touch option. So in
this case, your net profit will be $8,685/-.

As you can see from the above example, either way you will still end up in the black by using a
one touch option to hedge your spot forex position. Of course, that is still the possibility of
prices remaining between the range that you are trading in but the chance of that happening
is remote since the spread you are trading in is pretty narrow.
Chapter 7: Anyoption and Forex Binary Options
Now that you have some background on trading forex binaries, let’s familiarize ourselves
with the Anyoption binary trading platform. Before you can start trading live, you need to be
aware of all the tools that are at your disposal.
Established in 2008, they are regarded as one of the pioneer binary options brokers.
Anyoption, unlike most brokers, is more conservative and sticks to a more traditional way of
trading binaries. The key reason for taking this approach is so they can stick to what they
know best and as such maintain their great reputation.

Types of Trading Contracts

As for the type of trading contracts that you can trade with at Anyoption, they consist of:
• High/Low (Call/Put) Binaries
• Option+
• Binary 0-100
• One Touch Options
• Special Options

High/Low (Call/Put) Binaries

Available on all binary brokers’ platforms, High/Low options are the easiest to trade with.
Essentially, you just need to determine if the price is going to move up or down from the
entry price by the time the option expired.

Option+

Options+ traded in the same way as High/Low options with one key exception. With the “Get
Quote” feature on this type of contract, this allows you to close your position before the
expiry of the option.
One Touch Options

Available for purchase only during the weekend and with anexpiry time of a week, one-touch
options require that the price of the option “touches” the strike price before the expiration
of the option. The cool thing about one-touch options is the high returns which they offer (as
high as 380%). Because they are traded over a weekly time frame, most traders rely on
fundamental analysis to help them determine the direction of the price movements.

Binary 0-100

A CFTC style option contract, this type of option trading is only offered by Anyoption on this
side of the Atlantic (non-US). With Binary 0-100, you bet on an “event” rather than on the
asset. For example, if you think that the EUR/USD is going to rise above a certain level by a
predetermined time, you “buy” into the event. Alternatively, if you think the EUR/USD will
not rise above a certain level by the expiration time, you “Sell” the event. The return on this
type of option is based on the difference between 100 and premium paid for the option.

Special Options

Special options cover trading on Bitcoin against the USD and sometimes pre IPO stocks. They
work in the same way as one-touch options.
Trading Platform
Trading on the AnyOption platform is rather a simple process. At any one time, you can view
4 assets that are available for trading. The following diagram below shows some of the major
features that are available on AnyOption’s platform.
Useful Trading Tools

• Profit Line
Gives you a quick view as to whether your trade is in the money or not.

• “Take Profit”
Allows you to close your trade early. The feature is only available just 5 minutes before the
expiration of the options.

• “Get Quote”
Available under Option+ and works in a similar manner to the Take Profit feature.

• Roll Forward
Allows you to extend your expiry time to the next cycle. The feature only comes on 15
minutes prior to the expiration of the option contract.

• Sentiment Indicator

Let’s you have an idea on how other traders on Anyoption are currently trading.

Other tools which you should take note off on the AnyOption platform are located under
their Blog section. They include:

• Economic Calendar
Gives you an overview of upcoming economic events which can have an impact on the
financial markets.
• Advanced Trading Chart

Use this chart to perform your technical analysis of the market. The chart comes integrated
with several technical indicators which are not found on the trading platform chart.
• Market Quote Board

Gives you a snapshot of the major movers in the market

• Daily Market Signals

The signals are based on the market analysis conducted by the in house analysts at
anyoption. They give you an idea of what assets you should be looking at for the day.
• Market Analysis

Compiled by the experts at anyoption, the market analysis gives you a rundown of that is
happening in the financial markets. They also help to give you an insight as to what assets
you should be focusing on.

So that’s it, you are now well on your way to trading Forex Binary Options. anyoption have a
team of in-house training specialists. If you have any questions about trading generally or
more specifically trading with Anyoption, get in touch.
 We are here to support you,
Every step of the way.
anyoption is here to support you every step of the way in your binary options trading
journey. Our 24/7 support team is always on hand to answer any questions that you might
have.

As well as providing 5-star support, we also give you access to additional training in the form
of our trading academy, where you will find in-depth video tutorials that cover every aspect
of binary options trading. The academy’s content complements what you have learned in
this “Definitive Guide to Forex Binary Options” guide while also providing training in
additional areas.

You can also access our official anyoption blog, where you will find in-depth articles on all
that is happening in the global markets. Stay up to date, with news, market reviews and
more. Our blog is an excellent resource for traders who want information that can help
guide their trading decisions and discover opportunities for profitable trades.

We hope you have enjoyed the anyoption.com the “Definitive Guide to Forex Binary
Options”.

Happy Trading!