The Four Fathers of Binaries – Currencies

Trading Currencies: Facts

I bet there are a lot of questions on the lips of most new traders when they first look into Binary Options trading. We know that Binaries are derivatives and that means that their value and consequently their movement are derived from the value (movement) of the underlying asset. But what influences the movement of currencies? They are traded in pairs, but the pair is never perfectly balanced. Think of the two currencies in a Forex pair as two athletes on the track, both with similar capabilities: they will constantly shift places and overtake each other. Now let’s think of the EUR/USD pair: when the Euro is stronger than the US Dollar, the pair will go up and when the Dollar is stronger, the pair is going down. The balance of power between the two changes constantly and that is what generates price fluctuations, trends, retracements and reversals. Incidentally, the word “retracements” is a financial term meaning: A temporary reversal in the direction of a stock or currency price that goes against the prevailing trend. A retracement does not signify a change in the larger trend.

 

Although a very large number of currencies can be traded in the Forex market, the most frequently traded ones are called the Majors. A characteristic of the Majors is that they all contain the US Dollar. These pairs constitute about 85% of the Forex market volume. The remaining 15% is composed of currency crosses (pairs that do not involve the US Dollar) and exotic pairs. The Majors are: EUR/USD, GBP/USD, USD/JPY, AUD/USD, USD/CHF, USD/CAD and NZD/USD. These pairs are so often traded that traders even gave them nicknames and the most interesting one for me is “Cable” for the GBP/USD pair. The pair got its nickname from the time when an actual communications cable under the Atlantic Ocean synchronized the quote for GBP/USD between New York and London. Good thing we have wireless technology now, right? Most Forex pairs can be traded 5 days a week, 24 hours a day and usually brokers offer Binary Options trading on currencies according to this schedule, but it would be a good idea to check your broker’s “Asset Index” to make sure. Trading hours can differ from broker to broker.

 

 

Trading Currencies: Effects

The charts are in constant turmoil, with each currency trying to get the upper hand on its counterpart. But what drives them and how can we benefit from that? Well, a country’s currency is strongly influenced by the overall state of the economy, important political and financial news, central bank rates, speeches by bank chiefs, natural disasters, geopolitical events and sometimes even rumors. Based on these factors, but not limited to them, a currency can strengthen or weaken but we must also take a close look at the influencing factors for the other currency in the pair. For example, if good news is released about the Euro and worse than expected numbers come out on the US economy, we can expect the EUR/USD pair to go up, because now the Euro is stronger than the US Dollar. And finally we get to what matters to us Binary Options traders. If we expect the underlying asset (in our example the EUR/USD currency pair) to go up, then it’s time for a Call on EUR/USD. The Binary Option is a derivative instrument, and its value will go up, making our Call profitable, assuming the currency pair did the same and our analysis was correct.

 

News and all the events we talked about in the last paragraph constitute the fundamental part of currency movement, but there is another type of analysis that plays a big role in the financial markets: Technical Analysis. This type of analysis is done by identifying trends, support and resistance levels and using different technical indicators or tools. A trend is basically an extended move in either direction and good profits can be achieved by trading in the direction of the main trend. Support and resistance levels are potential turning points. Resistance can be identified above current price and it is a zone from where price returned on several occasions in the past. Support is always lower than the current price and the same principles apply. Support and resistance levels and trends are the main ways of applying technical analysis to currency trading. You can read more detailed explanations in my other articles.

 

 

My Tip on Trading Currencies

One of the most important financial events is the announcement of the Official Interest Rate by the European Central Bank (ECB), followed by a press conference where Mario Draghi, the President of the ECB gives a speech and then answers journalists’ questions. Usually volatility is crazy during the press conference and Draghi’s words are immediately analyzed (and sometimes misinterpreted) by traders. This can generate a lot of whipsaws, and false moves, especially on the EUR/USD pair, but other pairs are affected as well. One minute you can get the impression that the price is going up and the next minute it reverses and moves furiously down. I went into some bad trades, receiving some false signals from the market during the ECB press conference and then I decided (and I recommend it to you too) to stop trading when Draghi is speaking at the press conference. All currencies have specific news that has a great impact on their movement. Usually all Central Bank Rates announcements have great impact on their respective currencies and one of the most important financial events for the US Dollar is the Non-Farm Payrolls (NFP) release. You should let the market cool down during these events and start trading afterwards. Also, don’t forget to check out a Forex calendar to be aware of the major events of the pair that you are trading.

 

 

High Profile Currencies Info and Trading Tips

EUR/USD Overlook

Trading Exchange: EUR/USD is traded on a decentralized, worldwide and around the clock market for exchanging currencies, known as the Forex market.

Trading Hours: Around the clock, 5 days/week. Check with your broker for exact times

Brokers offering Binary Options on EUR/USD: Almost all Binary brokers offer binaries on EUR/USD

 

My Advice on EUR/USD in 50 Words: It is highly volatile during news announcements so you should stay away from this currency pair at least 30 minutes after the release. False moves and whipsaws are frequent at those times and that makes technical analysis very difficult and unreliable. One more tip: if Mario Draghi (Current President of the E.U. Central Bank) or Ben Bernanke (Current Chairman of the U.S. Federal Reserve’s) is speaking, let them finish before trading. The reason is the same as the one mentioned above.

 

USD/CAD Overlook

Trading Exchange: USD/CAD is traded on a decentralized, worldwide and around the clock market for exchanging currencies, known as the Forex market.

Trading Hours: Around the clock, 5 days/week. Check with your broker for exact times

Brokers offering Binary Options on EUR/USD: Almost all Binary brokers offer binaries on USD/CAD

 

My Advice on USD/CAD in 50 Words: Canada is one of the largest Oil providers for the United States. Due to the large volume import – export business, the economies of the two countries are highly interconnected and this makes their exchange rate to be pretty stable, having a low Daily Range. Oil price can affect the rate.

 

USD/JPY Overlook

Trading Exchange: USD/JPY is traded on a decentralized, worldwide and around the clock market for exchanging currencies, known as the Forex market.

Trading Hours: Around the clock, 5 days/week. Check with your broker for exact times

Brokers offering Binary Options on USD/JPY: Almost all Binary brokers offer binaries on USD/JPY

 

My Advice on USD/JPY in 50 Words: Due to the relation between the US Dollar and the Japanese Yen, this pair tends to be less volatile in normal conditions. It is known that Bank of Japan intervenes in the market in order to stabilize or modify the exchange rate and this can lead to sudden spikes.

 

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