How are binary options used to cover Forex investments?
Binary options can be used directly to trade Forex assets, or in the case where you are already a Forex trader, to cover your current investments.
Possibilities for earning a profit with Forex are limited. In fact, you can earn a profit only if you purchase an asset at a sufficiently low price and resell it once its price has increased. It is exactly because of this unidirectional profit that binary options are useful for Forex traders.
The principle of coverage consists of reducing your risk by trading the same asset, but in the opposite direction. When is it useful to cover a position? Following public announcements or a quarterly report, etc. If an official announcement comes to perturb the market price and make it unstable, it is essential to cover your investment. Binary options provide you with a sort of insurance.
For example, a trader decides to purchase EUR/USD at 1.4352. The purchase price is correct, however an announcement of GDP in a Euro country is published, or worse yet, a catastrophic report appears on a Euro country’s national debt, and a few hours later, the price begins to drop. You certainly cannot recover this loss with your classic Forex platform. You therefore decide to open a position on a binary options platform and trade EUR/USD downward.
By doing so, you control the asset’s drop yourself and safeguard the capital invested in your Forex account.
The big advantage of binary options is that the return on investment is much higher than in Forex, which allows you not only to cover your investments, but also to achieve some profit in the process.
If you have no Forex account, we recommend trading only with binary options for the good and simple reason that it is clear that trading binary options represents a bigger advantage. In fact, with binary options, you can trade whatever the market’s direction. You are not purchasing something; rather, you are speculating on the future state of an asset. This is why beginner financial traders are more comfortable trading binary options.
For those who already trade Forex, it is essential for them to find a way to cover their investments because Forex trading is high-risk. Using binary options as coverage can provide them with the safety net they did not have before.
To conclude, it is completely possible to use binary options as coverage, whether you trade on the Forex, Stock Market index, raw materials or Stock Options.
To learn more on our binary option method, click on Trading binary options with the Bollinger band strategy.