Introduction:

Every time brokers or market makers announces about new financial or trading tool in their system or platforms, discussions begin about the new trading tool, is beneficial for me? What is difference between it and my old trading tool? or which is better, sure when broker announces new trading tool, it not for luxury, sure that when different tools available, brokers attract more traders, because more trading tools and options means that you satisfy’s more traders so diversity is so important for brokers.

Trading Forex using margins:

My topic is not to talk about Forex, but the summary here as preface for my topic, simply when you are using Forex using margins, you will buy or sell an instrument, before you enter a trade, you should know what is your target for the trade (profit target) and you should decide what is the price level you should be out from the trade (stop loss).

As example, you Buy 10,000 EUR/USD at market price 1.1300 with profit target at 1.1350 and with stop loss At 1.1250, that means that it price reached 1.1350 then you gain 50 pips = 50 $, if reached 1.1250 that means you lost 50 pips = 50$, if stop loss reached before profit target then you have actual loss, money lost deducted from your balance.

Advantages of Trading Forex using margins:
  • Ultimate profits, you can make profits without any limitations, as example, if you enter trade with 10,000 EUR/USD , with profit target at 10 pips then you will profit 10 $ (if target achieved), if your target at 100 pips then you will profit 100 $, it depends to your decision.
  • Your sell or buy instrument may continue as long as you can, it is right that you will pay daily swaps but your transaction will continue without any time limitations.
  • You can close your buy or sell transaction at any time, even if you put target profit and stop loss, if you find later that conditions of market changed, you may stop the transaction at little loss, if you find that the pair may go more than you firstly expected, then you can make your target profit bigger.
Disadvantages of Trading Forex using margins:
  • Using margins is so important in Forex, without margins no one can make a trade in forex because margins make Forex easily and profitable, by 100 $ you can buy or sell 10,000 $, but using high margins may cause quick and big losses for you, sometimes, change of margins due to weekends or due to financial crisis may make your trading complicated and may cause unexpected losses for you.
  • Sometimes, during strong news, you may not be able to make a trade at the time and price you need, sometimes, spread may widen due to market conditions and liquidity.
  • Ultimate losses, even you put stop loss before making a trade, you may change stop loss every time you feel it will be hit, also sometime, during news, stop may be hit far from your initial stop loss.

Trading Forex using binary options:

When talking about binary options, it is related to system worked here in Dukascopy because every broker have its different process, according to Dukascopy website, “Binary options also called digital options or fixed-return options (FRO) are a simple way to trade price fluctuations in a wide range of financial markets.”, so in binary options if you think that instrument will go higher after decided time, use call option, if instrument will go lower, use put option, binary options contracts/premium with Dukascopy Bank start from as low as USD 1.

As example, you think that EUR/USD will rise 30 pips in the next 30 minutes, then you will make call option for EUR/USD with premium to be 1000$ for 30 minutes time and payout/refund to 90%/0%, after 30 minutes if price was above strike -EUR/USD price when you made contract- then you will gain 90% of the 1000$ = 900$ even if the price is only above strike by 0.1 pip, if EUR/USD closed above strike by 1 pip or 100 pip, it is the same profit, but if the 30 minutes end and price below strike then you will loss the initial investment 1000$, , if EUR/USD closed below strike by 1 pip or 100 pip, it is the same loss.

Advantages of Trading Forex using binary options:
  • Fixed losses, you know the money you will loss if the price went against your transaction, you will not pay any swaps or commissions.
  • Fixed profits, it is advantageous also, as you will not care where to put profit target or you will not change it with or without a reason.
  • Fixed time, you choose the time of transaction, in Dukascopy Bank, it is from 1 to 60 minute, this make you less complicated as it shorten time of transaction, even if you lose money, short time of transaction means less adrenaline and less stress.

Disadvantages of Trading Forex using binary options:
  • You will not be able to close the transaction in the time you need, even you think that market conditions changed and your trading will go to loss.
  • You cannot minimize your loss, as mentioned above, fixed loss is the result of your trading as it is goes against your expected direction.
  • You cannot increase your profits, even you think that market conditions is your favor and you can make more money.

Summary:

Trading Forex using margins have a lot of advantages and limitations, the same, Trading Forex using binary options, but for traders like us existence of multiple trading options is not luxury, it should be beneficial for us, we should use margins when its benefits exceeded the benefits of binary options, also, we should use binary options when its benefits exceeded the benefits of trading using margins, as example, what is the best to use during strong data like FED meeting or Nonfarm payrolls, this issue will be discussed next week in the next article which will be “Trading Forex using margins or binary options (2)”.
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