Binary Option Trading vs. Forex Trading

Before we take a look at comparing binary options with forex trading, it would be very interesting to take a recap of how binary option trading works.
At this point in time, you must have known that binary option is a kinda “all-or-nothing” trade.
Just by a push of button to a call or put options, the payoff has already been known by the investor. It is usually calculated by adding or subtracting the closing price at the expiration date from the "strike" price of the contract minus the cost of the option position (aka premium paid).
In binary option, it’s like a contract where the investor chooses whether or not the market will be at, above, or below a certain price level at a particular date and time. The price of the underlying asset will either be in-the-money, for the full reward to be paid to you, or out-of-the-money, which means you lose the premium paid to enter the option.
Binary options contain several underlying assets to trade with, e.g Currency Pairs, Stocks, Metals, Commodity, etc.

Ok, now what's the difference between Forex Trading and Binary Option Trading?
You should understand that in both trade, there is a component of analysis and speculation as needed to form an idea of where the market may be heading to at a particular point in time.
The main difference comes in the form of profit and loss calculations, and the trade duration.  

Let’s look at it with an example;

In binary options trade, your profit or loss is pre-known as soon as you pick up a contract. And it does not matter where the market goes, what you stand to gain is constant and loss your staked premium, should market goes against you during expiration.
For example;
Jojo bought a binary CALL option on GBP/USD with a strike price of 1.5200, expiring in 2 month time by staking $500. In this case, he believes the GBP/USD will be at or above 1.5200 at the end of the contract, and the broker’s payout for this contract is $2000. This implies that at the end of the two months, and if GBP/USD is trading at or above 1.5200, Jojo will make $2,000 - $500 = $1500. On the other hand, if it GBP/USD is NOT at or above 1.3500, he lose the premium amount ($500).

Conversely, in forex trading, your profit or loss calculation is carried out by multiplying the numbers of pips you are up or down by the value per pip, and it is bases the size of your position. In this case, the profit or loss is changes steadily as the market moves until you close the trade.
For example;
Let's assume Jojo opened up his trading chart and after careful analysis, decided to go LONG on GBP/USD on 1 lot size as the market is at 1.5400.  
Let’s also say Jojo was right and the GBP/USD at 1.5400 jumped to 1.5500 in a day, and he decided to close out position. I think this is a huge profit. This means Jojo have made 100 pips, giving him a profit of 100 x $10 = $1,000.
This is calculated as; Nos of pip gained X Lot size.

Let’s also take a look at the negative point of view. Supposing that the market immediately turned against Jojo and he decided to close the position at 1.5350, he would have lost 50 pips x $10, or $500.
Or to be on the safer side, if he closed the position at 1.5400, he would have broken even (no gain and no loss).

You see, the major differences between the two types of trading are the maximum potential profit / loss and the duration of the trade.
In forex trading, the profit and loss can be huge with strong trends and there is not really an expiration time factor attached to it. You can close position whenever. But in binary options, risk and reward is known and can be taken only if the contract expires. 

You have your decision to make on which one to choose. And this depends on your trading personality.

Market Analysis for Binary Options

If you have studied the forex market properly, you must have come across the three major ways to analyze the fx market namely:

Technical Analysis

Fundamental Analysis

Sentiment Analysis.

If you have known this basic analysis, you could also use it to trade binary options.
Just as simple as that!!!
We will also look at the difference between trading the Forex market and Binary Options in a nut shell. For now, can we move on with the technical….?

Technical Analysis

This is strictly the use of chart to analyze the market. The use of indicators like Moving Averages, Relative Strength Index, Bollinger Bands, and Stochastic are very important here.
Don't be afraid to use those indicators on your trading charts when planning to trade binary options.
Indicators help you gauge where price action may be headed next. These are used across all sorts of trading markets and not just the currency trading. Just make sure you have a good understanding of how each indicator works before applying it into your analysis. It could be even better to use combination of two or more indicators to make your analysis.
You can take a look at my killer setting below;

It’s simple and has a rule you must adhere to in order to trade successfully.
From the chart, there are 3 crosses to give you a signal for a CALL or PUT option.
The first is the MAs. The red must cross from under the blue for a call or above for a put.
Secondly, in stochastics, the red acts in the same manner like that of the MAs. There should be a cross from below or above to warrant a Call or Put entry.
Lastly the RSI must cross the green line above for a call or below for a put option.
We will learn more about the set-up when we’ve got to Trading Systems in this blog.
You must wait for the 3 crosses to take place to warrant an entry. That’s is to say, the three put together gives a reliable result than depending on only one or two of them.
Is that all?
Oh hell NO!! There is need to study technical levels and point of inflection to prove your decision making ability when you are trading binary options.
Have you ever heard of Double Top and Double Bottom, Head and Shoulder, Bullish and Bearish Peanants, Ascending and Descending Triangles, Rising and Falling wedge…….etc.

What about the Candlesticks pattern?
Do you know of the Dojis, the Hammer and Hanging Man, Three inside Up and three inside down, The tweezers….. etc.

One more, you should have some knowledge about Fibonacci, Support and Resistance levels.
You may ask; can I learn all these?

The only answer is YES. Because it will help you to make good trading decision
Let's take a look at this example on the chart below.

Price has just broken down from the head and shoulder. With this pattern, price normally continues to trade lower at a distance equivalent to the height of the head and shoulder

In this kind of pattern, you could take on the One-Touch trade.
Assuming this is GBP/USD and the broker offers you a strike price between 1.5450 -1.5550, which is within the height of the H & S, buying a "Put" option might be a setup worth considering.
Other patterns have different way of approach, and the type of trade you can apply to it when you come across such setups.

Let’s take a look at the Fundamental and Sentimental ways of analyzing your trades.