Have you ever heard the term, “Money runs the world?” In many ways, that term is very true; and currency is just another way to say money. There are several currencies around the world; each designated to a specific region and given a specific value based on several factors having to do with economic and geopolitical data. That value changes so very often that entire financial markets have been created in an effort to exploit those movements in value for profit. These markets are now known as forex markets or “Foreign Exchange” markets.
The Role Of Currencies In The Binary Options Market
Currencies are one of the four main asset types traded in the binary options industry (Stocks, Indices, Currencies, and Commodities). When related to the binary options market, currency pairs are used. A currency pair will provide two currency symbols. Here’s an example.
The currency pair above reflects both the United States Dollar and the Canadian dollar. The pair asks a simple question, “How many of the second currency (Canadian Dollar) can be purchased with a single unit of the first currency (United States Dollar)?”
Binary options traders who focus on currency pairs make predictions with regard to the fluctuation of the answer to the question above. If the trader believes that the United States Dollar will rise in value in comparison to the Canadian Dollar, the trader would purchase a call option. Adversely, if the trader believes the opposite to be true, he or she would purchase a put option. When the option expires, if the trader’s prediction is correct, they will earn a return of up to 80%
What Causes Movement In The Value Of Currency Pairs
As mentioned above, each currency pair represents a regional economy. And since money and economy are one in the same, by watching economic movements in the regions represented by the currency pair, accurately predicting the movement of the pair becomes a more simple process.
If you believe that the economic conditions in the region represented by the first currency in the pair are currently better than or growing at a faster rate than economic conditions in the region represented by the second currency in the pair, the value of the pair will most likely increase. Adversely, if the opposite is true, the value of the pair will most likely decrease.