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Are You an FX Spot Trader or a Binary Trader?
There are traders who swear by standard forex spot trading, while others are devotees of forex binary options. There are still others who enjoy both forms of trading. If a pair is going to be very volatile, a binary option is one way to make money without getting stopped out of the market.
Spot trading in currencies is about trading on the spot, in contrast to futures trading. It’s the old school method that relies on trading in the moment. Trades are settled within two days of the trade’s execution rather than on some distant future date. Spot traders usually hold their positions for less than one day.
Unlike stock trade Forex systems, with FX binary options, you’re risking much less than your potential reward. There are only two outcomes: either a pair hits a certain price or it doesn’t. You won’t get stopped out of the market because of a sudden but temporary price fluctuation. You’re taking advantage of a price moving in a certain direction and hitting a strike point. While you risk losing a small amount if you guess incorrectly, you also receive a great payoff if you guessed correctly.
Some traders prefer binary trading because they feel that it offers a certain level of risk management. Others prefer spot trading because they can take advantage of small moves without having to worry about the trading price at an exact future moment in time. Still others (more experienced traders) like to use binary options as a hedge against their spot trading. If you end up losing money in your spot trade, it may be partially offset by what you gain in your binary trade option.
There is room for both styles of trading in the vast currency market, and you don’t have to choose. You can be an occasional binary trader if you’re already comfortable with old school spot trading.