Binary Options trading are known for their simplicity and all-or-nothing nature. Moreover, a few reasons are behind to give this trading type name binary option. Options are derivative instruments. It can be traded as forex pairs, cryptos, stocks, indices, commodities, etc. Furthermore, for traders, it is a lucrative trading type because of its quick and high return percentage. But according to the research, binary traders should pay close attention to the rules of trading before diving with real money. So consider this article as a binary options guide for dummies.
You will learn about how to trade in binary options market successfully without the usual loss or risk involved in your capital by following simple steps mentioned here step by step. So let’s start now!
What is Binary Options trading?
Binary options trading is a form of options trading where the trader can predict whether an asset price will go up or down. The trade ends either in the money or out of the money, either way, you lose your investment. In binary options trading, you are not investing for some time as it’s all about knowing whether the asset price will go up or down. If you guess right, the return is high.
Common terms in Binary Options trading
The Binary Options market has some unique features that distinguish it from other types of traditional options trading:
Put/Call option– The binary options trader needs to decide whether the asset price will go up or down. The call option means that the market price of the underlying assets will go up while the put option means that the market price of the underlying assets will go down.
Investments made over a specified period
Investors can choose how much time they want to spend on each trade. Different times typically result in increased payouts and other benefits, such as allowing the option to close automatically before expiration.
The price at which an underlying asset will finish by the end of an options contract. This is referred to as the strike price.
In this strategy, you just need to predict if the market price will either be above or below a certain price. Most binary options brokers offer “high/low” options on indices, stocks, currency pairs, and commodities.
Typically, binaries are quoted as follows: “Asset price at $100 by $110” meaning if you buy binary option here you need to predict if an asset will be above 100 at expiration time or below it for your investment to pay off. So, if the price of the asset you purchase is $105, your investment will pay off and you will receive a payout of $10.
Expiry Time- In binary options trading, you have a limited period for your trade to end. You must predict correctly before the expiry time or you lose your investment. You can’t postpone the expiration time as it’s a fixed amount of time which is known as a ‘barrier’.
Amount Allocated- The amount you allocate to place a trade.
Asset- Assets are the things which you are trading in binary options trading, like currencies or commodities.
This is where you invest your money. You need to predict whether the market price will go up or down before your trade ends. If you guess right, the return is high.
The price at which you can either buy or sell an underlying asset. Expiration Time- An expiration time has been assigned to every option contract before it expires, where you will either win or lose depending upon your prediction. You can also close your position anytime before the expiry time to end the trade without any loss.
This is the amount you’ll make when you correctly predict an asset movement. Some brokers offer 90% returns which means for every $10 traded, you’ll get $90 back. Loss potential- This is the maximum amount you can lose if your prediction is wrong. To trade binary options, the trader needs to allocate a certain amount as return and loss potential.
Types of binary options
Higher/Lower- When you choose a lower option, it means that the asset price will go down and when you choose a higher option, it means that the asset price will go up. If your prediction is correct, the return is high. Asset- It’s an economic or financial instrument that can be traded in. Underlying Asset- It’s an asset that is traded and is profitable for the trader to trade on.
In / Out or Boundary:
In this strategy, you need to predict if the market price will be within two boundaries. In this type, there are two strike prices that you need to consider. High/Low operations can be simplified into just predicting whether an asset will expire above or below a certain strike price.
For example, give EUR/USD as your underlying asset and say that you think it will be between 1.20 and 1.50 at the end of a contract period (the number of periods depending on the broker).
In the money option: If you guess right and asset goes up or down. You make a profit and this is called ‘in the money which means that you made money on your trade.
Out of the money option: If you guess wrong, you will be losing your investment which is known as out of the money which means that your prediction was wrong.
Boundaries: Boundaries is another kind of binary options trading strategy where you just choose between two boundaries.
Touch/No touch- This is simply when you predict whether the price of an asset will hit a certain number before expiry time or not. If the asset touches the boundary line, then it’s known as the touching option and if the asset doesn’t touch the boundary line it’s no touch option. In this strategy, you need to predict if the market price will either touch a certain price or not. For example, give EUR/USD as your underlying asset and say that you think it will touch 1.20 at some time during an option period (the number of periods depends depending on the broker).
Another example: you can choose ‘Touch’ if gold’s closing price in 30 minutes is greater than 1205.00 and for this particular type of option, lower numbers are better. You can also choose ‘No touch’ if the price is less than 1205.00 in 30 minutes.
Ladder: The ladder option is when you predict whether the price of an asset will hit a certain number before expiry time or not. A ladder is one of the most popular types of binary options strategy where you guess whether the asset price will go up or down three times in a session. In this strategy, you need to predict if the market price will be on either of two or more price points in a given time frame. For example, give EUR/USD as your underlying asset and say that you think it will be between 1.20 and 1.50 at 10-minute intervals (the number of intervals depends on the broker).
In general, there are four types of binary options trading strategies- In the money, out of money, boundaries, and ladder.
Binary options are notorious for being easy to understand and have an all-or-nothing quality. Furthermore, there are several reasons behind the invention of this trading strategy. Options are a type of derivative instrument. It may be traded as forex pair, cryptocurrency, stock, index, commodity, and so on.
Furthermore, for traders, this is a lucrative trading style because of its fast and high return percentage. However, according to study findings, before diving with real money, binary traders should be aware of the trade regulations.
An example of how to trade binary online
Consider the following scenario: You own a stock and you think it’s going to shoot up, but it doesn’t quite reach your price objective. In this situation, you might take out an options trade based on your predetermined risk tolerance. If you place a high-risk bet on one side of the equation and a low-risk wager on.
You’re particularly interested in trading the EUR/USD pair. For this asset, the payout percentage offered by the broker is 90%. The first step is to figure out when your contract will expire. Say you have decided on a 10-minute expiration period. Next, you must determine whether the market price of EUR/USD will rise above or fall below your current purchase price. You acquire a call option if you believe the price will rise higher. If you think the market price will decline, you buy a put option instead.
It makes no difference whether the price is above or below the target. All you have to do to win a payout is guess correctly. The phrase “guess” is a little bit sloppy here. It included both technical and fundamental analysis, as well as trading tools, indicators, and following market developments for that underlying asset. You choose to purchase a call option after conducting your market study because you believe the price will rise from the strike/buy.
Let’s look at the two cases.
If your forecast proves correct ( EUR/USD rises above $1.14 after expiration), you will receive $10 + (90 percent of $10) for a total of $19. If you’re incorrect, you won’t get anything in return, which is to say that the EUR/USD price will fall below $1.14 after the conclusion (EUR/USD price falls below $1.14 after the conclusion).
Which underlying Binary Options asset should you trade?
There are several underlying assets that you can trade on. The most common ones are:
Stocks– You can trade by buying or selling stocks from various companies. Forex- You can trade by trading on various currencies from various countries.
Forex: You can trade by trading on various currencies from various countries. Commodities- You can trade by buying or selling oil, gold, etc from the commodity exchanges of different countries.
Indices– You can trade indices from various countries and you have the option to choose from a variety of indices including stocks.
Cryptocurrency– a new way of trading. You can trade cryptocurrencies such as Bitcoin using binary trading.
How to trade Binary Option
1. Choose a regulated broker
Search for a broker who is regulated in the country you reside in and also outside your jurisdiction. Make sure they have a good reputation in the industry and understand all the risks involved before you sign up with them.
2. Choose the market & and asset
To trade binary options, you need to choose a reliable and regulated broker so that there is a trust factor involved. You also need to choose the market and assets you want to trade on as there are several types of binary options available. There are different expiry times which you can choose, mostly ranging from 1 minute to one month.
3. A proper expiration time
Set an expiration time for your option contract before it expires, so that you can make the right decision at the right time. Different types of options have different expiration times, make sure you set an appropriate expiration time to avoid loss.
4. Allocate the amount
You need to decide on an amount which you are willing to invest in both winning and losing options. In binary options trading, there is risk involved and you need to decide on allocating a certain amount as return and loss potential.
5. Place a trade
To trade binary options, you need to choose an asset and expiry time before placing a trade. You can place both call and put options depending upon your prediction of the market movement. If your prediction is right, you get a high payout, if it’s wrong, the investment is lost.
Is Binary Options legal?
Binary trading is legal in most countries but there are certain restrictions in some countries. Every country has its regulations regarding trading binary options so choose wisely! Don’t trade with unregulated brokers who provide fake services and don’t pay you.
Binary trading advantages
1. High Payout Percentage
The payout percentage is higher in binary options trading as compared to other types of contracts because there are only two possible outcomes- either the price rises or falls, therefore the chances of winning increase exponentially if your prediction is correct.
2. Simple Nature Of Trading
The nature of binary options trading is simple because the prediction is either right or wrong. This means that you need to just choose a direction and wait for your prediction to be proved right. You don’t have to go through complex calculations to predict what the price will be at the expiry time, which becomes extremely difficult if you are not a professional.
3. Fast Placed Trading
Another great benefit of binary trading is that you can place a trade and wait for its outcome within minutes, unlike other contracts where the payout might take weeks to come through. In binary options trading, you can choose from different expiry times depending on your requirement and then just wait till the prediction comes true.
4. Flexibility In Time
You can trade binary options at any time of the day, unlike other contracts where you have to monitor the price movement continuously. You are free to choose your preferred expiry time depending on your availability and convenience which means you don’t have to be glued to the computer for hours together to carry out the trading procedure.
5. Low Investment
The minimum investment is also very low in binary options trading as compared to other contracts which means you don’t have to put a huge amount of money at risk if the prediction goes wrong. You can start with a small sum of money and increase it gradually as your knowledge and experience grow.
Disadvantages of a Binary system
Binary options are typically regarded as a secure investment choice by traders of all stripes. However, any sort of investment comes with some degree of danger. Trading binary options have several advantages and drawbacks.
We’ve identified the major drawbacks below:
1. Consider Trading Binary Options As A Gambling Activity
In binary options, you are betting on the underlying asset’s price fluctuations. In other words, you’re guessing about future value in an uncertain scenario. However, it is a highly contentious issue, with some traders contending that employing a trading method rather than blind gambling prediction is more effective.
2. It can lead to significant losses
If you’re wrong, you don’t get anything back, and your initial investment is lost. Identically, if you have made a major trade worth thousands of dollars, you can lose it all in an instant. So, if you’re planning on trading options, start with a little deposit.
3. Binary Options Are Not Allowed In Some Places
Binary options are a popular type of trading. However, they are illegal in several nations, including Europe. Furthermore, you can’t utilize offshore trading brokers in some countries. The European Securities and Markets Authority has prohibited retail traders from purchasing binary options.
4. Riskier Than Other Forms Of Trading
You can’t control your losses in CFD or forex trading; if the market moves against you, your position may quickly get out of hand. You can’t set stop losses or take profits to protect your gain and cut your losses.
In binary trading, you risk losing everything if your prediction is incorrect. The midpoint of the buy price and the selling price may be used to forecast whether or not a trade will be successful. On the other side, the success rate is generally between 10 and 20 percent. It all boils down to how well you do in your trading analysis.
Finally, there is the potential for your counterparty. It will be difficult for you to get your money back if your broker fails to deliver.
Making use of trader bonuses and promotions
Many binary trading platforms offer sign-up and deposit bonuses to new and current traders. Traders may receive free money or contests to test their strategies and make a profit before using an initial investment.
There are several ways you can maximize the value of your promotions:
1. Use Bonuses To Learn And Practice Free Of Charge
You can use your free money to practice and improve strategies before you risk any of your own.
2. Use Bonuses To Cut Down On Your Trading Costs
If a broker has a deposit or trade-related promotion in place, you can save a significant amount of money on commissions. This will allow you to maximize potential returns from trading binaries. Just remember that the deposit bonus is only available on your initial deposit.
3. Refer Your Friends For Even More Bonuses
Some brokers will give you an added commission for referrals. This could help you maximize your profits even further, so be sure to refer as many people to join binary trading with the same broker as possible.
4. Don’t Get Carried Away
It’s important not to get too caught up in the promotions offered; you should keep trading at a level where you can manage potential losses. Never start betting on high-risk trades if it could wipe out your account.
Can You Trade Binary Options On Your Own?
Yes, binary options can be traded by individual traders. You can make predictions via online accounts and receive your payouts based on the outcome of events. As a trader, you have the opportunity to place buy or sell orders within a specific time window to either close or extend your positions should you win a prediction.
Is There The Possibility Of Making A Living Via Binary Options?
There’s no guarantee you can make a living through binary options. However, traders and investors have proven that anyone could trade binaries to generate profits for their personal or professional finance needs. It truly is up to the individual as this type of trading offers different opportunities and risks than other forms of day trading and investments.
What If I’m New To Binary Options?
If you’re new to binary options trading, a good practice is to start with a demo account. This is a virtual money account that mimics real trades and allows traders to test their skills without the pressure of losing real money. By learning how binary options work, you can become familiar with different trading techniques and strategies.
What Is Binary Options Trading?
Binary options are simple-to-use investment tools that allow investors to predict whether the price of an asset, security, currency, or index will rise or fall in a specific period. By predicting correctly, you could receive returns that are many times higher than your initial investment.
If you get it wrong, however, you will not only lose the money you used to invest in that specific trade but also your initial investment.