Monday, April 14th, 2014 by Tim Lanoue
Trading binary options can be difficult and is much harder than what is made out to be. In order to become successful in this field it takes a strong foundation about the fundamentals, experience and a small bit of luck. Today we are going to discuss currency pair trading and how volatility can effect one’s ability to accurately trade currency pairs with binary options.
What are Currency Pairs?
Currency pairs are assets that reflect the value of one currency value directly against it’s matching pair. The first currency pair is known as the base currency while the second pair is known as the quote currency. Currency pairs are continuing to grow in popularity and are among the most popular traded assets aside from popular stocks and commodities. An example of a currency pair would be the Eur/Usd 1.3785, where the Euro dollar is our base currency and the US dollar is our quote currency. The number 1.3785 reflects the value of our pair currencies, where one Euro dollar is equivalent to $1.3785 US dollars.
Correlating pairs can be a great way to take advantage of strong trading signals generated when watching targeted currency pairs. When it comes to trading correlations in binary options it is important to take notice on how the movement of one asset can affect the movement of a different asset. Popular correlating currency pairs would be the Eur/Usd with the Usd/Chf, Gpu/Usd, and Aud/Usd. Other correlating currency pair assets would be the Eur/Jpy, Usd/Jpy, and Aud/Jpy. When watching our targeted currency pair it is important to watch the movement of their correlating pairs, if we see a big movement or change in direction then you can bet that the correlating pairs are most likely moving in the same direction. The benefits of correlating pairs would be that they allow traders to have more trade opportunities allowing them to potentially profit more.
What is Volatility?
Volatility is the tendency and probability that an asset will change directions due to minor changes in market conditions. Volatility can be an issue when it comes to trading currency pairs because even the smallest changes to market conditions can cause an asset to become unpredictable. So when trading with currency pairs we want to make sure we trade assets that have a low volatility level, meaning that they are less prone to drastically change directions due to changing market conditions. If we trade assets that have high volatility then we are putting ourselves at risk because these assets are much harder to predict. Popular, low volatility currency pairs that we should focus on trading would be the Eur/Usd, Aud/Usd, Gpu/Usd, and Nzd/Usd.
Currency pairs are a great asset to trade when trading binary options. Now that you have a basic understanding on what they are and how volatility can be a significant factor hopefully you can use this to your advantage. Make sure to pay special attention to correlating pairs along with volatility. If you have any questions or comments please feel free to leave them below.