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Liquidity in Forex and binary options trading
The impact of liquidity on currency pairs and Forex trading
Liquidity is just as important for those trading Forex or binary options that have currencies as underlying assets. While the term can be a little confusing it really refers to the number of seller and buyers who are out there and trading those currencies. In order to be attractive for traders, a currency has to be used a lot in the world and this is why the USD and EUR are the most liquid ones.
Sometimes less is more when trading binary options
There are several other currencies which are very popular besides the US dollar and the Euro and they are known as The Majors. The British Pound, Australian and Canadian dollars, the Yen and the Swiss Franc are the other currencies that enjoy excellent liquidity. This makes them attractive, but in conjunction with the stability they are famous for, they can become less profitable, especially for the scalpers who are only hunting quick profits. By using these currencies as underlying assets, the profits will be smaller than with less liquid currencies, but the risks are greatly reduced. Occasionally the nice liquidity of the major currencies combines with a sudden instability generated by an outside event, and this is the signal for a gold rush. Trading Forex during those moments without reliable information is close to gambling, and the results are similar. In this context, traders should seek accurate live information which is worth much more than the charts stating former performances of the currency pairs. This will make binary options trading a very lucrative business overall, with spikes of profits when these kind of rare events occur.
Seek competitive spreads to maximize profits
Those who do not want to wait so much and are willing to make Forex trading more exciting and risky, can choose the exotic currencies. These are basically less traded because their use is limited to the country they are coming from and a few other neighboring ones, and they are difficult to trade in the standard brokerage account. Such currencies are unstable and when the binary option involves them, the profits and losses can exceed normal levels, something that most traders don’t find very attractive. Those who are not afraid of taking their chances with currencies that are not very liquid, need to find a company that allows trading them through their brokerage accounts. There are certain risks attached to trading online options having as an underlying asset exotic currencies, but you can mitigate them by learning more about the subject. The biggest problem is that due to their terrible liquidity they are traded in low volumes and have a larger bid-ask spread, which will constantly eat into your profits and leave no room for trading errors.
Choosing the right strategy is very important! This is why we created Binary Options That Suck Strategies Center.