June 7, 2013
Should You Trade The 5-Minute Binary Markets?
If you are a seasoned forex trader, you will know that there are quite a few different markets you can trade nowadays.
The easiest way to start trading the markets is to open an account with a forex broker, and open either a long position or a short position on one of the major currency pairs, depending on whether you think this pair will rise or fall in the immediate future.
By doing this, you may find yourself opening one or two trades a day or maybe just one or two trades a week.
However if you are a short-term adrenaline junkie who wants to trade all day long (with the aim of making a lot more money), you can either scalp the markets looking for a few pips profit per trade, or trade the 5-minute binary markets, which is what I want to discuss today.
Binary betting has become increasingly popular in recent years, and more and more companies are starting to offer this service.
IGIndex, for example, offer 5-minute binary markets on the major currency pairs, as do a few other companies, and there are also companies that specialize in offering binary betting services.
They are really easy to understand. A new market is created every 5 minutes, and it is settled on the closing price of a particular pair at the end of that 5-minute period. You simply need to determine whether the price will finish above or below its opening price.
The quotes will be between 0 and 100, and the markets will be settled at either 0 and 100, depending on the outcome.
So if the GBP/USD opens at 15574.5, for example, like the current market I am looking at, the quote for the price to finish above this level after 5 minutes may well start at 48-52.
So if you think the price will rise in the next 5 minutes based on your short-term technical analysis, you could choose to stake £1 per point at 52.
If you are right and the price closes at 15577.5, for instance, the market will settle at 100 and you will earn 48 (100-52) times your stake, ie 48 x £1. If the price closed just 0.1 pips below this level, however, you would lose 52 times your stake because it would settle at 0.
This sounds like an easy way to make money, but it is actually extremely difficult. You will find that the quotes change at exactly the same time as the live prices, so you cannot gain any kind of edge there.
You will also find that there is no easy money to be made by backing so-called certainties. For instance if the price suddenly moves 5 pips higher with just 2 minutes left, the quote will instantly reflect this fact and may suddenly change to 92-98 (or higher).
So yes you could make 2 times your stake by taking the 98 quote, but you could also lose 98 times your stake if a quick reversal happens, which does happen every so often. Just one of these reversals could wipe out any previous gains trading this way.
This is why the people who tend to make the most profits from binary betting are those who are able to anticipate price moves before they occur. By doing so, it is possible to take positions in the 30-70 range before the big price moves occur, and either let them expire at 0 or 100, or close them out early for a small profit, which is also possible.
I myself have dabbled with these markets on a few occasions, and personally found it very difficult to make consistent profits. The major problem is that technical analysis doesn't always work that well on the shorter time frames, and many of the price moves during the day are pretty random and unpredictable.
The 20-minute, 1-hour and daily binary markets, where available, are a little easier to trade because you have more time to think, and more time to analyse the markets.
However I myself still prefer to open long and short positions in the usual way, rather than trading these binary markets, and although it's a lot of fun, I wouldn't really recommend this form of trading to other forex traders.