Trading Binary Options in the United States

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Binary options have become a very popular trading vehicle and new binary options brokers are opening their doors in a steady stream. But most binary options brokers are not under supervised by any recognized regulatory organization and there is very little oversight involved, so caution is always advised when opening a binary options account.

Binary considerations to be‘exotic options’, but binaries are easily understand and are extremely simple to use. The most common binary option is a "high-low" option. A trader who chooses this type of trade selects an asset from a host of commodities, currencies, stocks or indices, decides on a specific time period, as short as 15 minutes, and predicts which direction the price of his asset will go-up or down. This is referred to as his strike price.

Binaries Basics

If the trader has called correctly, and the price went in the direction chosen within the right time frame, he will receive a return which was fixed before he placed his trade, usually between 70-80% of his investment regardless of how much the instrument moved. A trader who has wagered incorrectly on the market's direction suffers a loss on her/his investment.

Binary options are used as an alternative for speculating or hedging.  Advantages of binaries include an identified risk and reward ratio, no commissions, choice of strike prices and expiry dates, access to multiple asset classes in global markets and flexible investment amounts. Disadvantages include non-ownership of the asset, little or no regulatory oversight and a profit payout that is normally lower than the loss on losing trades.

Binaries in the United States

Binary options traded in the U.S. are structured differently than European binaries and without regulation, the U.S. Securities and Exchange Commission sees greater potential risks to the trader. Till 2008, most foreign binary options brokers were not legally allowed to solicit trading from U.S. residents unless that broker was registered with a U.S. regulatory body such as the SEC or Commodities Futures Trading Commission. In 2008, the SEC began to regulate certain exchanges such as the Chicago Board Options Exchange (CBOE) which began listing binary options for U.S. residents while the Nadex binary options exchange in the U.S. became subject to oversight by the CFTC.

There is still quite a bit of misunderstanding regarding the legality of binary options trading in the U.S.  Much of it is a stems from the increase in off-shore binary options platforms and the off-exchange or OTC contracts they offer. Off-shore platforms are still prohibited from soliciting binaries to retail customers in the United States. And only recently, in 2013the CFTC charged a Cyprus-based company with selling them illegally to U.S. investors.

Price Consolidation in Forex Trading

Forex traders love to trade on price consolidation breakouts. So what is a price consolidation?

In terms of technical analysis, consolidation is the movement of an asset's price within a well-defined pattern of trading levels. Consolidation is generally regarded as a period of indecision, which comes to an end when the price of the asset breaks beyond the restrictive barriers. Periods of consolidation can be found in charts covering any time interval (i.e. hours, days, etc.), and these periods can last for minutes, days, months or even years. Lengthy periods of consolidation are often known as a base.

Once the price of the asset breaks through the identified areas of support or resistance, volatility quickly increases and so does the opportunity for short-term traders to generate a profit.

With Forex, price consolidation occurs when there is no obvious uptrend or downtrend in short-term time frames. With prices still fluctuating up and down, consolidation does not take place in ranging markets. In fact, consolidation is a period when prices are less volatile and are seemingly moving sideways. Market prices do not fluctuate and typically stay within a 10 to 15 pip range.

Breakout

When currency traders identify a price consolidation, they usually anticipate a breakout to follow. A breakout occurs when prices break out of consolidation, penetrating the support, downward breakout or resistance, upward breakout lines. Forex traders look to make profits from consolidation and breakout. Because you cannot know while currency trading whether the market will break out of consolidation downward or break out upward, you need to prepare for both. This is called a straddle trade. In this situation, you would want to place an order to buy 15 pips above the resistance level and at the same time, an order to sell 10 pips below support level.

Although currency trading breakouts from consolidation can lead to profits, you can also trade from within the consolidation. You would not use a straddle in this situation. Instead you would sell at the resistance level with a limit at the level of support and a stop loss at the last level of resistance. Or you could buy at the support level and with a limit and a stop loss at the last level of support.

Breakout Momentum

Many people trade when the price breaks out of the highest or lowest level of the consolidation. If prices break upwards, they buy. If prices break downwards, they sell. This decision is based on the supposition that the momentum of the break will be strong enough to push price further in the same direction.

This postulation has proven true in most instances. Trading at breakout can be very profitable. But it isn’t easy to decide when to exit a trade once its in-the-money. Any hesitation regarding when to sell can result in unanticipated losses as breakouts reverse directions very quickly.

Intervention threat trips Kiwi dollar

On Monday night eight armed men broke into Zaventem airport near Brussels.  They drove to a Swiss-registered aircraft that was loading on the ramp and transferred 120 packages from the hold into their van.  Mistaking their actions for the normal behaviour of baggage handlers, police allowed the men to carry off diamonds worth $50m.  So far the men have not been caught.

If apprehended, they are likely to be charged with either insider trading or money laundering, both of which carry heavier penalties than armed robbery so don’t expect them to be using services on the internet to send money online.

As diamonds typically change hands for US dollars and the thieves (one assumes) are Eurolanders, they will already be looking at a book loss of €250k on their booty, the euro having strengthened by one US cent between Friday night and this morning.  If they were British bandits they would be looking at a mark-up of about £70k, since sterling has fallen by a third of a US cent over the same period.

The pound had a tough day on Tuesday. It fell by nearly a cent against the euro in money transfers, the Swiss franc and the Australian dollar and is down by one yen. As can be seen from its smaller quarter-cent losses to the US dollar and the Aussie, sterling committed no major blunder but, like the diamonds on the plane, just happened to be in the wrong place at the wrong time.  The wrong place was right on the four-year-old trend support for sterling/euro, which investors have made several attempts to break in the last couple of weeks and had another go at on Monday afternoon.

In the unlikely event that the raiders came from New Zealand they will consider themselves particularly fortunate that the NZ dollar chose yesterday to be the world's worst-performing major currency, thereby handing them a book profit of NZ$350k on their booty. The Kiwi's setback came early this morning after Reserve Bank of New Zealand Governor Graeme Wheeler warned that "the Kiwi is not a one-way bet" and that he is "prepared to intervene".

One must presume that Mr. Wheeler took the precaution of clearing his intervention threat with Prime Minister John Key, the one-time global head of foreign exchange for Merrill Lynch. In April last year Mr. Key described such action as "the stuff of LaLa Land", saying "I don't believe in intervention - never have and frankly never will. I spent my professional life looking at it and it fails." Of course, the prime minister might have changed his mind about intervention since then, having realised that he is just about the only world leader not so engaged.

The highlights of Monday's ecostats were the much stronger readings from ZEW's surveys of German and Euroland investor sentiment.  They didn't have much immediate impact but will have done no harm to pro-euro attitudes.  Worse-than-expected Japanese trade figures overnight sent the yen only temporarily lower.

With German inflation (1.9%) out of the way and with French inflation and Italian industrial production unlikely to influence investors, the most important items on the morning agenda are the UK employment data and the Monetary Policy Committee minutes.  US building permits, housing starts and producer prices this afternoon ought not to affect the dollar but the FOMC minutes at 19:00h might.

Forex Trading Basics

Forex trading is the buying and selling of currencies that takes place in the foreign exchange market. Up until a few years ago trading in currencies was not open to the general public and only a fee large financial institutions and banks were allowed to trade in currencies. Ever since the markets have opened up, anyone can trade in currencies by using various forex trading platforms that are available with forex brokers.

The forex market is the world’s largest trading arena. Daily volumes go as high as trillions of dollars. These volumes are higher than all the stock exchanges of the world put together. The popularity of the forex markets is increasing every day and the market is growing at a rapid pace too.

Key Characteristics of Forex Trading

Forex trading involves the selling and buying currencies. This is why it is one of the most liquid investments that one can think of, making it extremely different from the real estate market or the stock market too. All trading is carried out over the counter and there is no central marketplace like there is in the case of stocks. This decentralization means that traders can choose to purchase from various dealers that are present in the open market and ensure that they get the best rate that is possible. It allows for higher levels of competition and comparison of prices. The same decentralization also indicates that there is no central regulating or controlling body in the case of forex trading. Another aspect that differentiates the forex markets from others is that it is open 24 hours a day for 5 days in a week.

Basics of Forex Trading

When you buy a currency you also sell another currency at the same time. One of the currencies is called the base currency and the other is called the counter currency. The value of the currency that you are buying is determined by the amount of the other currency that you need to pay in order to buy it. The currency that you buy is called the base currency and the one that you are selling is called the counter currency. Since two currencies are involved in each trade, currencies are almost always quoted as pairs. The four major currency pairs that are traded in the markets are EUR/USD, USD/JPY, GBP/USD and USD/CHF.

Forex Trading Platform

The trading platform is the most important tool for a forex trader. This is why forex brokers ensure that provide an opportunity to the new trader to test out the trading platform by using their demo account. But remember, the best forex broker isn't necessarily the broker that gives you the best forex platform.  Not only does this demo account give an opportunity to the trader to test out the specific trading platform, it also allows for newcomers to trade in a virtual environment that simulates real life scenarios. Everything in the demo account is exactly how it will be in the real forex market except for the fact that real monies are not involved. You can choose currencies to deal in, decide the level of risk that you will take, track rates, place trades and decide stop loss too.

How to Use Leverage Trading Currency Pairs

One of the top reasons you might have entered the world of forex instead of sticking with stocks and bonds is the concept of leverage. Through leverage, you can trade large amounts of money and either earn enough to trade without leverage (or even retire), or lose so much money that you immediately wipe out your trading account. You have to understand leverage trading before you try to participate in it, or else you're going to set yourself up to go bust.

The basics of leverage

If you trade in standard units of 100,000 units of currency and have a 1% margin, you need $1,000. Your leverage will be 100:1, which you can calculate by dividing the units of currency by the amount you are depositing (100,000 divided by 1,000 is 100, so the leverage is 100:1). Another example: if you were depositing $2,000 for the same trade, you would have 50:1 leverage.

Leverage is higher in the forex market than other markets, which is probably one reason you're trading in this market. The reason is because currency pairs are often more stable than company stocks or other forms of investments and don't rapidly appreciate or depreciate, allowing your broker to lend you the appropriate amount without undue risk to either you or the broker.

Risk and margin

Of course, the higher the leverage or the smaller your margin, the higher the risk. If you bought one standard unit with a $1,000 deposit and it increased in value by $1,000, you would have a 100% return (your initial $1,000 deposit divided by the $1,000 gain, then multiplied by 100 to get the percentage). Similarly, if the value decreased by $1,000 instead, you would have a -100% return and would quickly be broke.

The amount you deposit is the margin. If you deposit $2,000 on a $100,000 currency position, your margin is 2%. Margin generally varies depending on the broker, and can be anywhere from 0.25% to 5%. If your margin is 0.25% and you deposit $250 on that same $100,000, the tiniest change in the market can deplete your funds instantly.

Decide on your real leverage

The margin-based leverage on your account is less important than your real leverage – the 50:1 or 100:1 number, for instance. If you invest $1,000 in shorting $10,000, you will lose much less money if you lose pips on a currency rising in value unexpectedly than if you short $100,000. Instead of risking as much as you can, try to keep your investing goals in mind.

If you have spare money and you don't mind risk, by all means, get 50:1 or even 100:1 leverage and enjoy the potential profits – just be prepared to lose your investment quickly, too. For beginners or intermediate traders, it usually makes more sense to avoid highly-leveraged trades and stick to more reasonable leverage like 5:1, 10:1, or 20:1.

Now that you have a basic understanding of leverage, try leverage trading currency pairs as a potentially lucrative investment, and revel in not having to come up with the full amount to trade the market. Just don't be too hasty and rush into a trade without taking a good look at the leverage you're applying to the trade.

Resources:
http://www.investopedia.com/ask/answers/06/forexleverage.asp#axzz2ALj3MXN0
http://www.babypips.com/school/undergraduate/discovering-your-trading-profile/the-number-1-cause-of-death-of-forex-traders/
http://www.investopedia.com/articles/forex/07/forex_leverage.asp#axzz2ALj3MXN0

This Guest post is contributed by Stacy Pruitt, a freelance forex strategy and finance writer. Stacy writes about advanced trading and forex indicators. Click here for advanced videos on forex trading.

An Introduction to Forex Trading

The foreign exchange market, also known as the FX or Forex market, is one of the largest and most traded markets in the world. It is a type of global, foreign-exchange trading dealing with international currencies. The Forex market is the only one that is open 24 hours a day and that operates in all time zones.

Forex trading is different from other markets, such as the stock market. In these markets, when shares are bought or sold, that is the only action taken. With the Forex market, however, things work differently. Each sale within Forex results in a simultaneous purchase and vice-versa; this is where the “exchange” in “foreign exchange” comes into play.

Currencies are all traded in pairs. There are two types of currency pairs: major pairs and cross-currency pairs. All major currency pairs involve the US dollar. Examples include the Euro-dollar pair and the dollar-yen pair. Cross-currency pairs are alternative ways of trading that do not necessarily involve the US dollar; cross-currency pairs are also known as cross pairs for short. Examples of cross pairs include the Euro-Swiss pair and the Euro-yen pair.

The way in which success is measured in Forex trading is by the profit and loss of the pair, also known as P&L. It is vital to understand how P&L works when dealing with online margin trading; the amount of margin available to work with is directly affected by your P&L.

Your opening margin balance is your initial margin deposit. This is the amount of collateral that you put up when creating your trading account to support the margin requirements of your broker. It is important to note that, unlike other markets, forex trading does not deal with margin calls. Rather, a ratio of margin balances to open positions must be maintained.

An example of how margin ratios work will explain this concept further. Suppose your broker requires that you maintain, at all times, a margin of 100%. Also suppose you have an account with a 100:1 leverage ratio. This means you can control $100 for every $1 of margin in your account. This means that to control $10,000, you will need $100 in your account. This is because $10,000 divided by your leverage ratio of 100 gives you $100.

If your margin balance ends up at less than the broker's required amount, due to losses you've incurred, the broker can terminate your account. This is why it is crucial that you keep an eye on your margin balance. Should this happen, any losses you've experienced will usually be locked in. There is a lot that can be said about margins and margin balances, but this is usually covered in the fine print for the account you create and can vary a lot from one broker to another, making it very important to read over everything ahead of time.

There is much to know about the Forex market and trading within it, but this article represents the most fundamental and important information needed to understand the deeper aspects. The Forex market really isn't as complicated as it seems, and once you understand these basics, you'll have a much easier time not only learning more, but you'll have a much easier time being successful in trading as well.

This article was provided by the leading financial trading education site - FinancialTrading.com.