Currency Options Trading | How Binary Options Can Get You Started

Currency options trading is just as risky as any other form of options trading however the entry costs associated with getting started with options trading many times is more capital than the average beginner is willing to commit to something new. There is a way, however, for beginning options trading that requires only $100 to start and offers much of the same opportunity without a great deal of the complexity.

Enter: The Binary Option
Using binary options to begin your exploration into currency options trading is a really cheap way to investigate the currency options trading market and test your mettle in real time without committing (and risking) a fortune up front. If you think you have what it takes to beat the market currency options trading but you can’t afford to lose $10000 or $100000 finding out whether or not you’re any good – why not commit $100 or $1000 instead with a binary options broker?

We cover “What Is a Binary Option” elsewhere on the site, but suffice to say a binary option trades without spread and without commission – completely eliminating those two costs (cost which effectively squeeze out the low capital / beginner traders). Further, because the yields on a binary option contract are so high (60-81%) – the same currency options trading which would require thousands of dollars to yield a respectable short term return can be attained using $200-$500 of capital instead. Try making a buck in the stock market with only $200 to work with – see how far it gets you.

But Binary Options Are All or Nothing – Won’t Currency Options Trading Be Less Risky?

In a word, no. Both regular currency options trading and binary options trading carry similar risks. The greatest difference between the two is the time factor. The duration of a binary options contract is measured in hours or minutes, whereas the typical currency options trading contract is measured in weeks or days. We talked about trying to make a currency options trade using standard options with just $200 – how do you think you will fare using them with so little capital? Figure your commission is going to be (generously) $5.00 in and out – so $10.00 total if not held to maturity, and figure a spread of at least 1.5% on a long ITM (in the money) option, MUCH MUCH higher for ATM (at the money) or OTM (out of the money) options. Let’s be generous in our computations and figure on 2% for a reasonable ITM contract. 2% on our $200 purchase will be $4.00 – so before we buy anything figure $14.00 in transaction costs – 7%. That means before you make even dollar one in your currency options trading career you need to make 7.5% just to cover transaction costs.

I’m not saying that doesn’t happen, but any investor will tell you 7.5% gain on a one year investment would be considered palatable – not great, but OK. The problem lies in that 99% of the options contracts available for trade (i.e. someone is willing to be your counter-party) are less than 1 year until maturity. Good luck covering your 7.5% on a 3 month option expiration. I’m not saying it can’t be done (after all, I have done it MANY times) – it’s just a big hole you have to dig out of and not all contracts go your way.

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