A different way to trade forex
What is forex trading? Currency or forex is the world’s largest market, with $3-5 trillion traded daily. And it’s not for big banks and funds anymore. Individual traders want the opportunity of this highly liquid and tradeable asset class.
In simple terms, forex or currency traders buy and sell one form of money with another form of money. A simple example is when you buy euros in exchange for US dollars at an airport kiosk when traveling.
You can use a number of different forex trading strategies. You might short-sell the EUR/USD forex pair in the spot forex market. You could also trade futures contracts on the euro.
Recently, many traders are choosing a new way to trade forex: binary options and call spreads on Nadex, a CFTC-regulated exchange based in the US. They are flexible and powerful enough to use in almost any forex trading strategy.
What is currency trading?
Currency is any form of money issued by a government and circulated within an economy. Currency is basic to trade; we use money to buy and sell goods and services. The word “currency” refers to its circulation.
Most countries have their own currency. Switzerland's official currency is the Swiss franc; Japan's is the yen. The euro is the currency for all the member states of the European Union. Some countries even use a foreign currency as legal tender.
Before you trade, make sure to look over the forex contract specifications to see trading hours and other details.
What forex pairs can you trade on Nadex?
Nadex forex contracts are based on the current exchange rate, known as the spot forex rate.
You can trade binary options and option call spreads on 10 forex pairs:
Australian Dollar-US Dollar
British Pound-US Dollar
US Dollar-Canadian Dollar
US Dollar-Swiss Franc
Australian Dollar-Japanese Yen
US Dollar-Japanese Yen
British Pound-Japanese Yen
New forex trading strategies
Forex market trading offers tremendous opportunity. The market is open around the clock, five days a week. It is highly liquid and constantly in motion. And because exchange rates reflect key macroeconomic factors like central bank actions, trade balances, and GDP, forex trading can be a great way to take trading positions based on your economic knowledge and intuition.
Plus, you get to trade alongside major banks, sovereign wealth funds, and other big institutions. For many traders, it can be both lucrative and enjoyable.
The downside? Conventional forex trading is leveraged and over the counter.
Leveraged means that you only put up a fraction of the amount you are trading and you effectively get a temporary loan for the rest. You can buy more than the amount you put up. However, if the currency pair you’re buying goes down, that leverage also increases your losses.
Over the counter means there is no central exchange for forex. Trades are done between traders or, most of the time, between brokers or dealers—who charge a commission and may not be well regulated.
How to trade forex on Nadex:
Instead of leveraged, all Nadex contracts are fully collateralized. If you paid $40 per binary option, then your maximum possible loss is $40. You can’t lose more than you paid up front. That’s why Nadex never has to issue margin calls.
This relatively low risk exposure and cost of entry (compared to other forex trading venues) makes Nadex a great place to learn how to trade forex.
Nadex is an exchange, not a broker. We’re regulated by the CFTC and located in Chicago. We are designed to create a level playing field for individual traders, with secure transactions and full transparency. And instead of broker commissions, you pay a fixed fee of $1 per contract side.
Check out the forex trading example below!
Example: Short-selling the Aussie-Yen forex pair in 3 steps with binary options
If you’re a forex insider, you may have heard of the yen “carry trade,” in which investors borrow Japanese yen and then exchange those yen for another currency like the Australian dollar, which they use to buy high-yield bonds. They pay a low interest rate to borrow the yen and earn a higher interest rate in the Aussies and keep the difference as profit.
As you can imagine, it’s a popular trade, especially when exchange rates are stable. When rates fluctuate, the risk goes up for the carry trade, but for trend traders it can be a great opportunity. Trading binary options on the AUD/JPY is a way to trade those fluctuations, whether the trend is up or down.
How to trade this forex opportunity? To show how simple it is to short forex on Nadex, let’s look at how to sell a binary option on the AUD/JPY.
Let’s say the binary option contract
AUD/JPY > 81.00 (7PM)
has four hours left until expiration. It’s currently 3PM. (You can trade 23 hours Sunday through Friday on Nadex.)
Every binary option has a strike price. In this case, the strike price is 81.00. The expiration value of the binary is decided based on whether the market price is above the strike price or not. In other words, the binary option is based on this question:
Will the AUD/JPY exchange rate be above 81.00 at 7PM?
For this example, let’s say you think the answer is no, the AUD/JPY rate is going to be at or below 81.00 at 7PM. You would then sell the binary.
You can choose to sell a binary option for several reasons and scenarios. The AUD/JPY might currently be below 81.00 and you think it will stay there. It might be in a downtrend and, even though it’s currently at 82.00, you expect it to come down.
Or, maybe you have some other investment which is affected by the AUD/JPY and you want to hedge against a decrease. Hedging with forex? Yes. Binary options can be useful in a variety of trading strategies.
If you hold the binary until expiration, you’ll get one of two outcomes: If the AUD/JPY is at or below 81.00 at 7PM ET (the expiration time), you (the seller) will get the $100 payout. But if the market is above 81.00, you get zero and the buyer of the binary gets the full payout. That is the all-or-nothing outcome at expiration.
However, on Nadex you don’t have to wait until expiration. You can exit your position prior to expiration at the current market price. Your profit or loss in that case is the difference between your entry and exit prices.
In other words, you can trade binary options much the way you trade any other financial instrument, but with the added protection of a capped risk/reward which you set before entry.
See details about expiration, trading hours, and
other contract specifications here:
Experience a different way to trade.
and experience a different way to trade forex.
Or try it risk-free with a full-featured demo account.