FX Options vs Binary
FX Options is a new trading instrument introduced by IQ Option in late 2018. The company launched the product as an alternative to binary options. Traders can buy Higher and Lower options with expiry times.
With FX Options, the potential profit might significantly increase until the original expiry.
After the binary options ban in Europe, IQ Option sought to develop a similar product to comply with the new regulations. Now, traders can enjoy FX Options, which work with expiry times in the same way binary options did. However, there are also some significant differences, which we will discuss now.
What are FX Options?
FX Options deal with currency pairs. IQ Option offers 12 forex pairs on this product, including all the majors plus some cross pairs, such as EUR/JPY and GBP/JPY. FX Options run on every hour, and traders can jump into action until the original one hour expires.
In theory, you can purchase 60 second options, but doing so would limit your potential profit. With FX Options, the profit grows when the currency price is moving in your direction.
Higher or Lower
Similar to binary options, you decide whether the currency price will be higher or lower at expiry, but with FX Options, you choose the strike price when you buy the option. To make profit, your Higher option has to close above the strike price and your Lower option has to close below the strike price.
FX Options vs Binary Options
There are some similarities between Binary and FX Options but also many differences. The good news is that with FX Options, the potential payout is not limited and your profit could grow until you decide to close the option.
The main difference between the two instruments is the payout system. With binary options, the predefined payout is fixed, and with FX options, the potential profit might significantly increase. With both instruments, the risk is limited to the amount you decide to invest.
When you trade binaries, you can choose your expiry time from plenty of available times, such as 60 seconds and 5 minutes. While on FX Option, the expiry starts on every hour and you decide when to enter, which means the expiry time cannot be more than one hour.
With binary options, you usually buy the contract at the current market price. When you trade FX Options, you can choose your strike price. There are plenty of available strikes, so you can manage your potential profit and risk.
How to profit
To make profit with FX Options, you obviously need to move with the trend because you would make profit when the currency price is moving in your direction. IQ Option offers plenty of charting tools, so you can identify trends and trade accordingly.
For example, if you decide to trade an Uptrend, you might want to buy pullbacks where the price decreases so you can enter the market from a better position.
As you can see on our USD/JPY example, we buy a Higher option after a minor pullback on the upward trend. When we buy the Higher option, we select the lowest available strike price, so we enter in the profit zone immediately if the US dollar price moves higher.
In the opposite scenario, if buying a Lower option, we would select the highest available strike price.
- If you invest $100 in the option, a 1% move is equal to $1 profit.
- If you invest $1000 in the option, a 1% move is equal to $10 profit.
If the currency price is not moving in your direction, you lose some or all of the invested amount. To manage your risk, you can sell back the option before the original expiry, thus limiting your loss.
To profit with FX Options, it is not just enough to understand how the IQ Option platform works. You need significant knowledge of price action and experience on the forex markets. You have to know whether the price is trending or ranging, so you can buy your options accordingly.
IQ Option Disclaimer: Trading FX Options carries significant risk.