Forex Crunch Binary Options Guide

Binary Options Guide
Forex Daily Outlook – April 7th 2010
Parity Party for the Loonie
EUR/USD – 3 Reasons Why This Fall Will Be Strong

Posted: 06 Apr 2010 10:00 PM PDT

What are Binary Options? Are they as complex as they sound? How would I get started?

What are Binary Options?

Binary Options are considered by many to be the simplest and easiest way to trade financial instruments. This is perhaps surprising, if judging only by the name 'Binary Options' a.k.a. 'Digital Options', but names can be misleading. In fact, a much more fitting name would perhaps have been 'above-below options' or 'all-or-nothing options' because Binary Options offer only 2 possible outcomes: above or below the initial price. This simplified choice of 2 possibilities is the source of the name Binary Options.

Figure 1 shows random outcomes of price evolutions within a 25 minute timeframe, with expiration at time 0 on the right. As figure 1 illustrates, a Binary Option trade expiring at the end of the hour, if placed at a price of 101, can be shown to have a 50-50% of ending above or below the price of 101 at the end of the hour. Therefore, not only is the initial choice binary, having only 2 outcomes- above or below the purchase price, but the outcome also has a binary result- with a 50-50% chance of success of ending above 101, as the 101 line helps to illustrate.

Another important feature of Binary Options which emerges from figure 1 is the notion of option expiration. Unlike traditional options which are worthless at expiration except if realized, Binary Options only attain value at expiration. Again, as the name Binary Options

indicates, the value at expiration can only have 2 possible values- all or nothing. As figure 2 illustrates, the all-or-nothing value of the Binary Options at expiration is divided at the initial price at purchase- the area to the left of 101 is considered 'out of the money', and the area to the right of 101 is considered 'in the money'. Simply put, if your initial assumption that the price at the end of the hour would be above 101, your return on investment would be 100 if the end price at expiration is above 101 or -100 if below 101. For the advanced reader, it is worth noting at this point that many Binary Options vendors offer better return on investment than the one illustrated, although still binary in nature. For example, StartOptions.com will generally return 10% instead of 0% if your trade ended 'out of the money'.

Figure 1. 1 – Random walks show how Binary Options have a 50-50% chance of ending above-below the strike price

Figure 1.2 – At expiration, your return on investment is also binary in nature, returning all-or-nothing

Are they as complex as they sound?

After reading the above, you probably already feel a little more comfortable with the complex term Binary Options. This is not surprising because many of the aspects of Binary Options can be thought of as simplifying the process of trading underlying instruments. This is certainly not true for traditional options. However Binary Options take out the complexity of trading by fixing the initial trading choice, fixing the expiration or close of the trade, as well as by fixing the return on investment and the odds of winning. As a result, many Binary Options vendors, such as StartOptions.com, continue to simplify the process of trading itself, which is illustrated in figure 3.

.How would I get started?

Figure 3 illustrates trading at a Binary Options vendor, in this case StartOptions.com. The reason that StartOptions.com is chosen in this case is that their platform is cutting-edge, simplified, and their pricing is straightforward and open. In figure 3 we can see that investing is a simple 2 step process: choose the investment amount (and immediately see the return-on-investment calculation), and chose CALL (if you think the price will end above the current price at the end of the hour) or PUT (if you think the price will end below the current price at the end of the hour). We can also see a graph of the price evolution as time ticks away toward the end of the hour, as well as your trade indicated by a dot. Every aspect of trading has been simplified in order to help you enter your trade as well as view the evolution of the price toward expiration. Since often opening an account is a quick and painless online process, and funding your account can be done using a credit card, get started with trading has been greatly simplified since the days of traditional online brokerages. As you can see, Binary Options can be a simple and rewarding investment tool, and simple trading strategies exist to improve your chances of success. For more information: StartOptions.com

Figure 1.3- One of the advantages of trading Binary Options is simplicity

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Disclosure: I’m affiliated with StartOptions.

Forex Daily Outlook – April 7th 2010

Posted: 06 Apr 2010 04:26 PM PDT

Traders returned to the markets in a storm after the Easter holiday, and this day also provides lots of action: a rate decision in Japan, Ben Bernanke’s speech and many important figures from all over the world. Let’s see what’s awaiting us today.

A quick reminder of yesterday: the Aussie enjoyed another rate hike, the Euro dived on fresh Greek problems and USD/CAD parity was reached. Now, let’s see what will happen today.

Japan starts the day with the rate decision. The Japanese interest rate (Overnight Call Rate) is expected to remain unchanged at 0.1%. The focus will be on the forecasts for the future – seen in the Monetary Policy Statement and later echoed in the BOJ Press Conference. This will strongly move the Japanese yen which is making a nice recovery.

In Europe, we’ll get the Final Services PMI for starters: it’s expected to be confirmed at 55.5 points which is rather good. We’ll later get a confirmation on the GDP for Q4 of 2009 which will probably reiterate the 0.1% growth rate.

European PPI is expected to rise by 0.2%, less than last month’s 0.7%. A serious rise in inflation is necessary for a rate hike.

The more interesting event in Europe comes from Germany: factory orders are expected to drop by 0.8% after a leap of 4.3% last month. This might move the Euro higher.

For more on the Euro, read the EUR/USD forecast and Casey Stubbs’ latest analysis.

Swiss retail sales are expected to rise at an annual rate of 3.8%, lower than last month’s 4.4% rise. This usually moves the Swissy, although the SNB interventions have their share as well.

In Britain, the Services PMI release has a tendency to rock the Pound. This indicator is expected to slide down from 58.4 to 58.1 points.

For more on the British Pound, check out the GBP/USD forecast.

The Canadian dollar, which matches the American one, expects two figures today: Building Permits are predicted to correct the 4.9% drop and rise by 2.1%. This volatile sector needs to stabilize in order to match other Canadian indicators.

Later in Canada, the Ivey PMI will probably jump from 51.9 to 55.1 points. This is an important indicator for the economy.

Also in Canada, BOC Deputy Governor John Murray will make a public appearance in Washington DC, and might rock USD/CAD.

For more on the loonie, read the Canadian dollar forecast.

In the US, Ben Bernanke will appear in a conference in Dallas, just one day after the FOMC meeting minutes were released. He usually rocks the markets. Also note speeches by his colleagues William Dudley and Thomas Hoenig.

On the background of rising oil prices, Crude Oil Inventories are expected to grow by 1 million barrels, less than last time’s rise. This usually affects USD/CAD more than other pairs.

That’s it for today. Happy forex trading!

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Parity Party for the Loonie

Posted: 06 Apr 2010 07:58 AM PDT

USD/CAD made it to parity. Riding on the dollar’s weakness and rising oil prices, the Canadian dollar matches the US dollar for the first time in 20 months. Where will it go next?

The Canadian dollar equals one American one, and even more. USD/CAD dropped under 1.00 for the first time since July 2008 – just before the financial crisis. The move began on thin Easter Day trading. Most of the world, including Canada is on holiday. The final move happened on high volume on Tuesday, during the overlapping period between the London and New York sessions.

The Canadian dollar broke under 1.02 on the previous job figures, breaking under the 2009 low. The pair had a hard time breaking under 1, as this was a very strong support line. This ultimate round number was eyed by many traders, analysts and politicians. Canadian officials expressed confidence that the economy will continue to advance despite the strong currency.

USD/CAD – Where next?

If the break under 1 holds, the next support lines are 0.98 followed by 0.97. Both lines served already worked as support lines when the pair traded under 1.0000 at the beginning of 2008.

The all-time low of 0.9056 reached in November 2007 probably won’t return so fast. It was a swing move back then.

If the pair fails to hold under 1, the next resistance line is at 1.0060. This minor area held the pair on the way to parity. 1.02 is already an important line, followed by 1.04.

The state of the Canadian economy is good – employment is improving, GDP is growing at a fast pace and the recent rise in the price of oil completes the puzzle – Canada’s oil exports are a significant part of the economy.

This USD/CAD parity doesn’t change my sentiment that the pair is headed even lower.

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EUR/USD – 3 Reasons Why This Fall Will Be Strong

Posted: 06 Apr 2010 05:58 AM PDT

EUR/USD is below 1.34 once again, erasing the neat recovery made after the Greek accord. Here is why I think this move will be sharper and why the pair will drop lower.

EUR/USD began a dip on thin Easter Day trading on worries about the Greek austerity plan. These worries became stronger. The Greek crisis made a big comeback. But things changed:

The comeback of the crisis means a reversal of the upwards move that began after the leaders of the EU reached an agreement regarding the crisis. Just a few days after EUR/USD made a dive below 1.3423 all the way to 1.3267, the optimism sent the pair higher, and it eventually touched 1.36.

Now it’s back to 1.3360, below last week’s low of 1.3380. The move is still on.

Here are the reasons why I think EUR/USD will continue down:

Greek colossal failure – strong fall: The European leaders put all their weight on the resolution. Even Jean-Claude Trichet became optimistic. If the big ones fail, this is a failure for the Euro. The Greeks currently deny their U-turn, but they make it clear that it’s hard to work with them.
Hard climb – strong fall: In the past few months, EUR/USD made steady and slow moves higher. The pair traded in an uptrend channels, failed to continue climbing and made a sharp fall. This pattern of “rise before the plunge”, repeated itself. Learning from the near past, the pair should fall lower this time.
Dollar strength: Although there are many doubts about the Non-Farm Payrolls, lots of figures, from housing through manufacturing and up to GDP point to real growth. US dollar strength is EUR/USD weakness.

The next support line is 1.3267, the year-to-date low. Below that, it’s only 1.3080 which was the level before the Euro began the long-term rise last March.

What do you think? Where will it go next?

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