How To Trade Binary Options: Beginners Guide

Binary options trading offers a practical way for beginners to enter financial markets. This guide aims to provide a clear understanding of binary options trading, covering the basics, top brokers, and risk management. We’ll also include a step-by-step guide on making your first trade. By the end, you’ll have the knowledge to confidently navigate this trading instrument and make informed trading decisions. Let’s begin.

Key Facts Binary Options Trading
  • Binary options trading offers a straightforward entry point for beginners to speculate on the price movement of various assets, with outcomes based on a yes-or-no proposition.
  • Traders need to choose a reputable broker, open an account, and decide on the amount and direction of their trade within a specific time frame.
  • Successful trading involves selecting the right broker, analyzing the asset’s future value using technical and fundamental analysis, and managing risk effectively.
  • Beginners can practice with demo accounts to gain experience without financial risk before transitioning to real money trading.
  • Making money with binary options requires accurate market predictions, effective risk management, and a commitment to ongoing learning and strategy refinement.

Definition: What Are Binary Options?

Binary options are financial instruments that allow you to speculate on the price movement of various assets, such as stocks, currencies, indices, commodities, and cryptocurrencies. They are called “binary” because they have two outcomes: a fixed monetary gain or complete loss of the investment, based on a yes-or-no proposition.

With binary options, the trader must speculate on the future value of the underlying asset within a specific time frame. For example, you might bet that the stock price of Company X will be above $50 in one week. If, at that time, the price is above $50, you receive a predetermined payout; if not, you lose your investment.

Steps to Trade Binary Options

Before we take a more in-depth look at how to trade Binary Options, here is a short overview how it works:

  1. Choosing the Right Binary Options Broker
  2. Opening a Binary Options Trading Account
  3. Deposit Money or Start With a Demo Account
  4. Choosing the Underlying Asset
  5. Assessing the Asset’s Future Value
  6. Determine the Position Size
  7. Trade the Binary Option
  8. Wait for the Expiry

Most Important Binary Options Terms Explained

  • Underlying Asset: The financial asset upon which the binary option is based.
  • Expiry Time: The predetermined time the binary option will expire.
  • Strike Price: The price level that the underlying asset must exceed for the option to become profitable.
  • Payout: The amount paid out on a successful trade.
  • Put Option: A trade in which the price of the underlying asset will decrease.
  • Call Option: A trade in which the price of the underlying asset will increase.

How to Trade Binary Options

Trading binary options is straightforward, but without the necessary information, it can seem complicated. Here is an easy-to-follow guide for making your first trade.

1. Choosing the Right Binary Options Broker

Selecting the right broker is the first step in binary options trading because this is where you’ll make all your trades. Therefore, choosing the best option will enhance your overall investing experience. However, beginners may not know what to look for when reviewing a broker, so here are some criteria to consider.

  • Regulation: Check if the broker is regulated by a well-known authority like SEC or CySEC. This ensures the platform adheres to strict standards and protects investors.
  • Trading Platform: The platform should be user-friendly and easy to navigate. Look at the charting tools and features to ensure they suit your trading style.
  • Asset Selection: Look for brokers that offer a wide range of assets to trade because it allows you to capitalize on emerging trades quickly. 
  • Payout Percentages: Compare payout percentages among brokers. Higher payouts mean you’ll make more profits on successful trades.
  • Customer Support: Good customer support is important for receiving help with issues or receiving information about the platform. Check what support methods are available and the response times.
  • Demo Account: A demo account is essential for beginners to try out the platform without risking funds. It’s a great tool for testing strategies, learning how to use indicators, and making mistakes without consequences.
  • Educational Resources: Check if the broker provides learning material to help expand your trading knowledge. The platform should have guides and tutorials on how to use its services. Also, some brokers offer trading strategies for free, along with video guides.

2. Opening a Binary Options Trading Account

Once you have selected a broker to trade on, you’ll need to create an account. The process differs for each platform, but the steps are similar. Here’s a universal step-by-step guide for signing up:

  1. Visit the Broker’s Website: Go to the broker’s website and look for the registration button. Then click it to open the signup page.
  2. Fill Out the Registration Form: Provide the necessary information, like your name, email address, and phone number. Next, accept the terms of service and follow the instructions to open an account.
  3. Verify Your Account: Afterward, you should get an email to verify your account. Open this email and click the link, which will redirect you to your dashboard. 
  4. Verify Your Identity: Next, verify your identity and address. Brokers accept government-issued ID cards, passports, and driving licenses. For proof-of-address, you can upload a utility or phone bill showing your address.

3. Deposit Money or Start With a Demo Account

Before trading with real money, starting with a demo account serves as a practical training ground, providing a risk-free environment to experiment with different trading strategies, understand market movements, and get familiar with the trading platform’s features without the stress of losing real money.

For beginners, this is an invaluable learning tool. It allows you to gain hands-on experience in the market, helping you to understand the nuances of binary options trading and build confidence. Practicing with a demo account can also help you develop a disciplined trading approach, learn to manage emotions, and refine your decision-making process under market conditions that mimic real trading environments.

Transitioning to real money trading should come after you feel confident in your trading strategy and understanding of market dynamics. The experience gained from a demo account can significantly increase your chances of success when trading binary options.

How to Fund Your Binary Options Account

When you’re ready to transition from practicing trades on a demo account to real money trading, depositing funds into your account is the next step. Here’s a quick guide on how to fund your account:

  1. Log In to Your Account: Access your trading account using your broker’s platform.
  2. Navigate to the Deposit Section: Find the “Deposit” or “Add Funds” option, typically visible on the dashboard or under the account settings.
  3. Select Your Deposit Method: Choose a payment method. Most brokers offer various options, including e-wallets, bank transfers, cryptocurrency, and credit cards.
  4. Enter Deposit Amount: Decide on the amount you wish to deposit. Start with an amount that corresponds to your risk management strategy.
  5. Complete the Transaction: Follow the instructions to complete the deposit and begin trading once the funds enter your account.

4. Choosing the Underlying Asset

Selecting an underlying asset is a foundational decision in binary options trading, as it directly influences both the strategy and potential success of your trades. The diversity of available assets allows traders to find opportunities that align with their market knowledge, trading style, and risk tolerance. Commonly traded assets include stocks, crypto, indices, ETFs, commodities, and forex.

When choosing an asset, consider its historical performance, volatility, and how certain events or economic indicators might affect its price. Also, using assets you’re knowledgeable about can significantly enhance your decision-making process and lead to more profitable outcomes.

5. Assessing the Asset’s Future Value

Successfully trading binary options hinges on your ability to predict an asset’s price movement within a specific timeframe. This requires a keen understanding of the market and the factors influencing prices. Two primary analysis methods traders use are technical analysis and fundamental analysis.

Technical analysis is particularly popular among binary options traders because it focuses on price movements and trading volumes, offering insights that can be used to predict short-term price directions. For instance, traders might use moving averages to determine the asset’s momentum or RSI (Relative Strength Index) to gauge whether it’s overbought or oversold. 

On the other hand, fundamental analysis provides a broader view, considering how macroeconomic factors like interest rate changes, inflation rates, and political instability might impact an asset’s value. Successful traders combine these approaches to gain a comprehensive market overview, enhancing their ability to make predictions.

6. Determine the Position Size

Effective position sizing is crucial for managing risk and ensuring longevity in binary options trading. It determines how much of your trading capital is allocated to a single trade, balancing between maximizing profits and minimizing risk exposure. The goal is to find a sweet spot where your trades are large enough to generate meaningful profits but not so large that a few unsuccessful trades could significantly deplete your trading capital.

A common strategy is to risk a fixed percentage of your capital on each trade. For beginners, it’s often recommended to risk no more than 1-2% of your trading capital on a single trade.

7. Trade the Binary Option

After selecting an asset and completing your analysis, placing a trade is the next natural step. Here’s a quick guide on how to set up a binary options trade:

  1. Select the Asset: Choose the asset you want to trade based on your analysis.
  2. Choose the Expiry Time: Decide on the trade duration, from minutes to hours or even days.
  3. Determine Your Investment: Decide how much you’re willing to invest, keeping in mind the position sizing principles.
  4. Predict the Price Movement: Choose “Call” if you predict the asset’s price will rise above the strike price at expiry, or “Put” if you expect it to fall.
  5. Place the Trade: Execute your trade and wait for the outcome.

8. Wait for the Expiry

After placing a binary options trade, the “wait for the expiry” phase begins. During this time, traders have no control over the trade; the initial decision-making and analysis phase is over, and the result now depends entirely on market movements. This waiting period can be used to analyze the market to make more trades or as free time to spend on educating yourself more on binary options.

Once the option expires, you’ll get your results. Either you have won the trade or taken a complete loss. Beginners should reflect on the trade outcome and analyze what they did correctly or what needs improvement. 

How to Earn Money With Binary Options?

Beginners can earn money through binary options by learning to predict market trends, utilizing technical analysis, and implementing effective risk management. To be profitable in binary options, you must accurately predict price movements consistently. As long as you make more profitable trades on average than losing, you’ll make money through this trading instrument.

Example: Loss

Let’s consider a scenario where you invest $100 in a put option for the EUR/USD currency pair, predicting the exchange rate will fall below 1.0850 in one hour. If the exchange rate remains above 1.0850 when the option expires, the trade is unsuccessful, and you lose your $100 investment. 

Example: Profit

Conversely, if you invest $100 in a call option for the same EUR/USD pair, predicting the rate will rise above 1.0850 in one hour, and it does, your prediction is correct. Assuming a payout of 80%, you would earn a $80 profit on top of your initial investment, totaling $180.

The Best Binary Options Platforms and Brokers

When trading binary options, you’ll need to use a broker to interact with markets and set up trades. Below are our top 3 picks for beginners looking for a trading platform that offers comprehensive trading tools, multiple asset types, and in-depth educational content.

Pocket Option

Pocket Option stands out as one of our premier choices for trading binary options, catering to beginners and seasoned investors. Founded in 2017, it has quickly gained a reputation for its user-friendly interfaces, extensive asset selection, and innovative social trading features. Traders can choose from over 100 assets, including forex, commodities, stocks, and crypto, making it easier to find trading opportunities.

What sets Pocket Option apart is its social trading function, allowing users to observe the strategies of successful traders and copy their trades. This feature is particularly beneficial for beginners who are still learning the ropes, as it enables them to leverage the experience of experienced investors.

Moreover, Pocket Option offers a demo account loaded with virtual funds, so new users can practice without risking real money. Pocket Option also excels in terms of customer support and educational resources. The platform offers round-the-clock support via live chat, email, and phone, ensuring traders can get help whenever they need it.

The educational material includes trading tutorials, strategies, and market analysis, helping traders make informed decisions. With competitive payouts, flexible trading conditions, and a minimum deposit of only $5, Pocket Option is an attractive choice for beginners looking to explore this trading instrument. 

FeatureDetails
Educational MaterialTutorials, webinars, market analysis, and trading strategies.
Minimum Deposit$5
Assets Available Forex, cryptocurrencies, Commodities, stocks, and indices.
Customer SupportEmail, phone number, live chat support.
Trading PlatformsMetaTrader 5

Quotex

Quotex is a relatively new player in the binary options market. Nevertheless, it has quickly distinguished itself with its advanced platform and a wide array of trading tools, making it one of our top choices for beginners. Launched in 2020, Quotes offers a proprietary trading platform designed with the modern trader in mind. It features a sleek, intuitive interface and includes advanced charting tools, numerous technical indicators, and customizable trading options.

Quotex offers a great range of assets to trade, such as currencies, cryptocurrencies, stocks, and indices. The platform is designed to facilitate quick and easy trades, with features that allow traders to make fast decisions. Moreover, Quotex has great payout rates, which can significantly increase profitability compared to other platforms.

Another notable aspect of Quotex is its in-depth educational content that helps beginners learn the basics of binary options. The platform offers trading courses covering various topics like market analysis, risk management, and trading psychology. 

FeatureDetails
Educational MaterialTrading courses
Minimum Deposit$10
Assets Available Forex, cryptocurrencies, Commodities, stocks, and indices.
Customer SupportEmail and social media.
Trading PlatformsQuotex trading platform

IQ Option

IQ Option is widely regarded as one of the leading binary options brokers, with a large global user base and winning multiple awards. The platform offers a user-friendly trading experience and an extensive range of assets, making it one of our top brokers for binary trading. Traders can access over 250 assets, including forex pairs, stocks, crypto, commodities, indices, and ETFs.

The variety ensures traders can diversify their portfolios and take advantage of market opportunities as they arise. IQ Option features an easy-to-navigate interface, making it easy for users to manage their trades and utilize in-depth analysis tools.

IQ Option also places a strong emphasis on education and trader development. The broker offers a comprehensive educational section filled with video tutorials recorded by experienced traders. Here, you can learn the basics, how to apply technical analysis, and what margin trading is. 

Furthermore, their blog contains hundreds of articles covering multiple topics regarding binary options. Therefore, you can expand your knowledge even more after completing the video tutorials. Starting with IQ Option only requires a minimum deposit of $10, and you can begin trading for as little as $1.

FeatureDetails
Educational MaterialVideo tutorials and blogs.
Minimum Deposit$10
Assets Available Forex, cryptocurrencies, Commodities, stocks, ETFs, and indices.
Customer SupportEmail, live chat, and phone number
Trading PlatformsIQ Option trading platform

Trade Types

Binary options trading offers several types of trades, each catering to different strategies and market conditions. Knowing how the work will help you decide which strategies to implement based on your skill level and current market conditions.

One-Touch or No-Touch

In a one-touch option, you predict that the asset will reach a certain price point before the option expires. The option wins if the price reaches that level during the trade; it does not matter if the asset’s value is below or higher at the expiry time. However, with a no-touch option, you bet the asset will not reach the specific price level at any point during the trade. 

High or Low

The most common binary options trade is the high or low option, also known as call/put. In this type of trade, you predict whether the price of the underlying asset will be higher or lower than its current price when the option expires. If you anticipate the price will rise, place a “high” option. Conversely, if you expect the price to drop, select a “low” option.

Range Trades

Range trades require predicting whether the price of an asset will stay within a predetermined range before the option expires. This option is great for stable markets where no significant price jumps are likely to happen.

Short-Term Trading

Short-term options are designed for traders looking to make fast profits. These trades can last as little as 60 seconds or up to several minutes. 

Long-Term Trading

Long-term binary options are available for traders who prefer a more measured approach, allowing more time for their predictions to unfold. These options can have expiry times that last for days, weeks, or even months. Long-term trades are beneficial for strategies that rely on thorough analysis of fundamental factors that influence market movements over extended periods.

Pairs 

Pairs is a type of binary options trade where you predict how two assets will perform relative to each other. For example, you might bet on whether the stock of Company A will outperform the stock of Company B by the time the option expires. This trade type is great for those who like comparing companies and have insights into the relative performance of related assets.

Ladder

Ladder options allow traders to set multiple price levels at varying distances from the current price; each level has its own risk/reward ratios. When the asset price reaches high levels on the ladder, traders receive higher returns.

Pros and Cons of Binary Options Trading

ProsCons
✅ Easy to get started❌ Highly risk to trade as you can lose your entire investment
✅ High-profit returns❌ Many platforms are not regulated
✅ Can start with small amounts of money❌ No ownership of the underlying asset
✅ Ability to manage and control risk effectively❌ Unpredictable market volatility can impact your profitability
✅ Availability of demo accounts❌ The fast-paced nature and high rewards of binary options can become addicting
✅ Many platforms do not charge a commission on trades❌ Risk of scams from unregulated platforms
✅ Plenty of educational resources available❌ Limited profit potential as rewards are fixed for each trade
✅ No need to own the asset to trade❌ Some platforms have withdrawal fees impacting profitability
✅ Leverage is available for trades❌ Beginners may find learning technical analysis difficult at first
✅ Option to trade multiple assets in various industries❌ Chasing losses in binary options often leads to more losing trades

Can You Really Make Money With Binary Options?

Yes, making money with binary options trading is possible, but it’s not without challenges. Success demands a well-thought-out strategy, a deep understanding of how the markets function, and disciplined risk management. 

Traders who approach the market with education, patience, and realistic expectations have a better chance of achieving profitability. However, it’s crucial to remember that, like any trading instrument, it involves a significant risk of loss, and not everyone will find success.

Trading Education

The importance of education in binary options trading cannot be overstressed, and knowledge is a trader’s most valuable asset. Beginners should focus on learning about market analysis, trading strategies, risk management, and the psychological aspects of trading.

Consider enrolling in a trading course at Witzel Trading. His courses cover everything you need to know about trading and contain useful insights into how to become profitable. After completing the basics, you can watch webinars about the best trading strategy and have personal contact with Andre Witzel, along with other professional traders. Having someone to learn from is invaluable and will significantly decrease the learning curve to get started with binary options.

Furthermore, you can participate in webinars several times a month that cover multiple trading topics. However, if you need extra help, a professional will analyze your trades to help you become a better trader.

Strategy

Implementing a strategy when trading binary options is essential because it provides guidelines on entry points, risk management, and how to analyze the market. Beginners should start with basic strategies focusing on one or two assets and learning how different events affect their prices. A few strategies you may want to consider trying are news trading, trend strategy, and the Pinocchio strategy. As experience grows, more complex strategies involving multiple assets and technical indicators can be explored. 

Risk and Money Management

Effective risk and money management are crucial for long-term success in binary options trading. Knowing how to preserve your capital will help prevent losses and allow you to maintain profitability. Here are some principles to consider:

  • Set a Budget: Before you start trading, determine the amount of money you can afford to lose. Stick to this budget to avoid financial strain.
  • Use the 1-2% Rule: A common rule is to risk only 1-2% of your trading capital on a single trade. This helps manage risk and allows you to place more trades over the long run.
  • Diversify Your Trades: Don’t put all your capital into one trade or asset. Spread your risk by investing in different assets so volatility or breaking news does not impact your portfolio heavily.
  • Regularly Review Your Strategy: Analyze your trades to identify what’s working and what isn’t. Adjust your risk management strategy accordingly.

Trading Signals

Trading signals are actionable recommendations provided to traders, indicating potential opportunities to buy or sell a particular asset. These signals can be based on various forms of analysis, including technical, fundamental, and sentiment analysis. They can help traders make decisions, aiming to increase their chances of profitability. 

  • Technical Analysis Signals: Generated from chart patterns, technical indicators like Moving Averages, Relative Strength Index, Moving Average Convergence Divergence, and other tools analyze past market data to predict future price movements.
  • Fundamental Analysis Signals: These signals are based on economic indicators, financial news, and events that can influence market prices. They look at GDP reports, employment rates, and interest rate decisions, among other aspects, to help traders understand how the market may perform.
  • Sentiment Analysis Signals: Sentiment signals reflect the overall state of investors in the market or particular asset, often derived from an analysis of market commentary, investor sentiment, and other data.

Tax

Tax obligations from binary options trading vary by country and should not be overlooked. Profits from trading are generally subject to capital gains tax, but regulations can differ depending on the region. It’s advisable to consult with a tax professional to understand your tax liabilities and ensure compliance with local laws.

Conclusion: Binary Options trading requires education

Binary options trading offers beginner traders an accessible way to bet on financial markets. However, it’s not a guaranteed path to easy profits. Success requires education, a solid strategy, and disciplined risk management. We’ve covered everything you need to know to get started, such as finding a suitable broker, how to set up a trade, and a few strategies you might want to implement.

If you want to decrease the learning curve and fast-track your knowledge, consider joining Witzel Trading. This course offers several webinars a month, one-on-one help with professionals, and an exclusive community group with no spam.

Frequently Asked Questions on Binary Options Trading:

How Does Binary Options Trading Work?

Binary options trading requires predicting whether the price of an asset will rise or fall within a set time period. If your prediction is correct, you earn a predetermined profit. However, if you predict incorrectly, you lose the entire investment put into the trade.

Is Binary Options Trading Good?

Yes, binary options trading can be good if approached with a sound strategy and realistic expectations. However, it is not suitable for everyone due to its high-risk nature.

Are Binary Options Just Gambling?

No, while binary options trading involves risk and speculation, successful trading is based on market analysis, strategy, and risk management, making it different from gambling. With gambling, you cannot better your odds and rely on luck.

What Are the Cons of Binary Options?

The main cons of binary options are the high risk of losing money, regulatory concerns, market volatility, and the potential for addiction.

Why Are Binary Options Risky?

The risk comes from the all-or-nothing payouts, meaning you lose the entire amount put into the trade if you predict incorrectly. Also, market volatility can swing prices in the opposite direction, leading to quick losses.

How Do Beginners Trade Binary Options?

Beginners should educate themselves on market analysis, choose a reputable broker, practice with a demo account, and utilize winning strategies. We recommend joining the Witzel Trading program to get a solid foundation compared to trading by yourself.

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