On the EZTrader platform, users can trade binary options across a range of asset categories including stocks, indices, commodities and forex options. When executing a binary options strategy, users simply make a prediction on if the price of an asset will rise, through placing a call option, or fall in price, by executing a put option, upon expiration.
Forex binary options are binary options based on the relationship of two currencies. When trading with forex options, users specifically select a currency pair as their asset. Platforms like EZTrader have a range of assets to choose from including some of the most popular currency pairs such as EUR/USD, USD/JPY, USD/CAD and GBP/USD. All of these forex binary options represent global markets that heavily influence the global economy.
Trading with binary options based on currency pairs is different than traditional forex trading in a number of ways. Traditional forex platforms allow traders to buy or sell a currency pair at a specific price. Unlike binary options, traders need to close the trade on the forex system when they deem most profitable, making their returns variable depending on the performance of the currency pair.
When trading forex on a binary options platform, traders are required to determine the direction of the price of the currency pair (not the magnitude) and their potential returns are listed before placing the trade. Additionally, they need to select if they would like to place a weekly or hourly expiry time.
There are a number of factors that influence the relationship between two currency pairs and all are related to the trading relationship of the two countries of the currencies. The currency pair is relative to the other in the pair – so the EUR/USD currency pair will be comparing the relationship of the European Union (EU)’s currency to that of the United States’ (US). Some of the factors include -
Differences in interest rates – One of the major factors to changes in a currency pair are differences in the interest rates of both economies. Since interest rates are set by the country’s central bank, they exert a lot of influence over how one economy compares to another. Generally speaking, higher interest rates demonstrate strength in an economy while lower rates signal a struggling economy. From a forex perspective, when a country lowers their interest rate and another maintains or increases it, it may result in a more favorable position for the country with the higher interest rate.
Differences in inflation – In a similar vein, inflation is a major determinant of changes in a currency pair’s performance. The economy with a lower inflation rate typically experiences a rising currency value as its purchasing power increases relative to other countries. For instance, countries that have historically experienced low inflation like Japan have seen their currencies appreciate in comparison to countries with higher inflation such as the US (i.e. USD/JPY).
Politics and economics – Another major factor that influences change in currency pairs is differences in political stability and economic performance of the two countries. When one economy is going through changes in its political leadership or experiencing economic struggles, it typically will lower the value of its currency in relation to others in the global market. As this situation changes, movements will continue to influence the value of the currency pair.
Forex trading software is designed for traders who want to trade with currency pairs across a range of global markets. Trading with binary options on forex can provide the same access to foreign exchange trading with a defined understanding of return through a simplistic platform.
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