Fundamentals Of Binary Options FX Trading


Hey all – I am a 28 year old trader and I have been trading for a living since 2006. My main concentration is Spot Forex and specifically clearing of large positions for clients, but also trade to some extent commodities and stocks. I will be blogging about the strategies I adopt when trading Forex binary options. Also as a heads up english is not my native language so I apologies for bad grammar etc. I am sure if you can put up with my writing style then you will learn something useful.

I am a founding partner of a money management and trade advisory firm, and we have 36 employees. On the eve of the financial crises we took a bet against the current trend (bullish) with 90% of our capital, and the rest is history.

The strategy I want to talk about is nothing secret – however it is also not very common – and the reason for its success is its simplicity.

The currency pair that I mainly (90%) trade is the euro dollar pair. This is simply because it is the most volatile and predictable pair. Euro-Dollar is the most traded pair, and since the opening of the Forex market to retail investors, its daily volume has increased dramatically. Euro-Dollar is also a common pair used by financial firms to hedge their client’s revenues against market swings.

The main problem I see every day when reading through options forums, is the sheer number of different strategies. It seems that traders think that the more complex the system, better the profits.  Then, when they fail, they blame the system they were using, when in reality, the problem is behind the screen. No system will adapt itself to ever changing market conditions; it is up to the trader to adapt his/hers approach.

I know that some will argue that this won’t work in this or that market conditions, but they forget that the market itself is binary; the price can only go up or down. Such thing as ranging market doesn’t exist; it is a definition of a common excuse used by losers.  Also every trading system is at its core the same, the system and its indicators job is to detect the best entry and exit point for the trader.

As an example: A seasoned trader will detect fast by naked eye the support and resistance levels on a chart. A rookie will not. The rookie will implement a strategy using stochastic, MACD and RSI, but what he doesn’t realize is that these indicators give him the same entry points as the seasoned trader uses.

For binary options, the knowledge of finding the best entry point accompanied with excellent prediction on the next price move is primordial. With binary options every 10th of a pip counts.

I hope that my article will give rookies advice on how to turn to profitability and for seasoned traders something extra to implement in their own trading strategies.

Disclaimer: This blog post and any future blog posts represent my sole opinions and represent a strategy that I personally use. Please read through everything carefully, and do not jump to using the high-risk strategy before understanding fully how the evolution of this strategy works. Also, if you do encounter losses, it may be because you are doing something wrong, so please demo trade before going live. This strategy is the Holy Grail for me because I do not get too greedy and if I do not feel the trade I simply pass, and wait for the next one.


It is important to understand what forex is and what is its main usage: Exchange of currencies that is ruled by the laws of supply and demand.

Everybody knows the above, but can you define its meaning and how it works?

Simple Hypothetical Example: Apple sells 1 million Iphones in Europe in September for 500 euros a piece with Euro as base currency, they deal through HSBC, meaning their invoicing receiving account is under HSBC. But Apple reports in dollars, and the governing account is with BOA.

So Apple made 500 million euros that now sit in their HSBC account in Luxembourg. That money has to be now transferred to their BOA account and changed to USD.

Now it gets interesting. The transfer order comes in on Tuesday at 4 pm GMT. It won’t be transferred right away. The bank accumulates all the dollar orders during the night. The orders can be from yesterday or a month ago.  The bank sends operation orders to their partners (like us) and the commission structure, and order deadline.

Euro-Dollar is trading on Wednesday at 6 GMT at 1.27000. Apple’s account at BOA will receive 635 million USD at 8 am EST. The order is fixed at 1.27000. So how do us, and both banks get the maximum profit from that order?

BOA get their commission from Apple, but what about HSBC?

At 8 am GMT, London open, the liquidity is 380 million euros, and price is 1.27010. So 500 million euros is equivalent of 635 050 000 USD. Not good enough yet, and not doable as there isn’t enough money yet in the market.

Euro outlook is bullish, Asian markets rose during the night, and US fiscal cliff is getting resolved. Awesome, millions of retail investors and outlets take BUY orders and place their stops 10 pips under the current price.  The market pending liquidity is 300 million euros and current liquidity is 380 million euros. SO, the total equivalent liquidity in USD on the market at the moment is (1.27010) 482 638 000 USD and 381 030 000 USD pending (equivalent of stops).

The data tells us that the stops are at 1.26910, so at 8.15 am GMT, the order comes to SELL 2,8 times the available liquidity (840 Million Euro sell order) this pushes the price to 1.26905, where OUR (Banks + us) BUY orders are triggered and retail investors make new buy orders to cover their losses. The price flies to 1.27099, and this is when we start to exit our BUY positions gradually, and because the trend still seems strong, people buy our orders. On your chart this is shown by the green candles getting smaller in size after a good run upwards.

So the market liquidity jumped to 380 + 300 = 680 million euros, and we exit at 1.27099 for a profit of 9.9 pips (from 1.27000). Not a lot you say, but we were provided with a leverage of 10 from Barclays on our position for a commission of 0.1 pip. So our 500 Million euros had a leveraged market value of 5 billion euros, or 5 billion / 100 000 = 500 000 lots X 10 USD = Pip value 5 million USD X 9.9 pips = 49.5 Million USD, or 36.1 million euros. This is then shared between HSBC, us and Barclays.

The numbers above are just an example, the truth is that the volumes are huge (4 trillion USD daily) and a lot of players, but that example is to show you how FX works, and this is necessary when analyzing SR levels and trends.

SR levels are defined by the Big players (Smart Money) and they also hold really well because retail investors use them as well. The smart money cycle happens in 3 price cycles, and then we see a short-term channel where the price is stuck for a bit accumulating strength (GBPUSD last week during US session).

These price cycles do not happen randomly, they have a sequence, and in fact every candle or price move has an inside cycle and sequence. This sequence is defined by a set of numbers called Fibonacci numbers.

Fibonacci numbers were not developed for trading, and they happen everywhere around us. Even our subconscious uses the sequence inside our body. So it is only natural that each price cycle can defined in terms of Fibonacci numbers.

The big players don’t use indicators like RSI, CCI or MACD, their algos are based on the Fibonacci numbers.

And combining Fibonacci algos with extremely precise price channel calculator and information on how others trade, you got the formula to rule over all other systems and strategies.

Now, why would you as a binary options trader care less? Because unlike with spot FX, you need to be right every time, basically you have to have the ability to predict is the next candle going to be red or green.

I kind of gave it away just above. So during day trading that doesn’t involve Smart Money orders, I want to bag easy pips, so I need to use something that defines for me the price cycle moves and reversals.

For binaries and spot fx day trading I use 3 indicators with very precise functions – I will discuss these in my next post later this week. In the meantime, I know my english is not great and I may have jumped into some advanced concepts too quickly so please leave any questions you have below.

My next post is available here.

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