What are Binary Options

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What are Binary Options? How to Trade on Binary Options? Complete Guide

Anyone who surfs the net regularly must have come across the term binary options trading. Many people wonder, are binary options real? Yes, they are! If you have not heard about them, I am sure you had about forex trading or stocks trading. Binary options trading uses the same concept as forex or stocks trading. There is a slight difference between binary options and forex trading though. Do binary options really work? Yes, they do. Binary options trading involves speculating on the trend of particular assets in the market for a certain duration. At the end of the duration, you get predetermined profit if you are right, or lose all the staked money if you are wrong. That’s why it’s called binary options. There are only two outcomes. These aspects make it quite interesting, and a lucrative trade for some as well as scary and a no-go zone for some.

IMP NOTE:

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My Recommended Brokers

You have probably heard or read from various quarters that you can make a killing trading in binary options. Maybe you read that you could lose all your money and decided to keep off binary options. Trading in binary options does not require you to be a financial expert. However, some analytical skills could work in your favor. It is a grave mistake to either get involved in trading binary options trading or brush it off before you have all the information. It is true that you could make money or lose your money trading in binary options. What makes the difference, is how knowledgeable you are about the trade. By knowledgeable, I mean understanding how binary options trading works and the various dynamics involves, not necessarily being a financial expert. How do you trade in binary options? Are binary options legal in the first place? Binary options can you make money? Let’s dive in and expound more on what binary options trading is.

What are Binary Options?

The word binary represents a situation where you can only have two outcomes. Either a yes/no or 1/0. This situation has no middle-ground outcome or value. Conventional Forex and stocks trading (these are still the instruments used to trade in binary options), involves fluctuating values. The amount of profit or loss you make fluctuates depending on your speculation and the market trend. You cannot be certain of how much you will profit when your speculations turn out to be right. That’s where binary options trading come in.

In binary options the same instruments are used to trade (forex, stocks, indices and commodities movement), you stake a set minimum value and the value you are set to profit with when you get it right is pre-determined. You are sure of the amounts you can either win or lose before you start the trade. You get to choose the duration you want to speculate on. Are binary options legit? Yes, 100% legit.

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Binary options make it easy for novice traders to get involved. They get to learn the ropes while they are in a position to mitigate their losses. They may also seem quite easy to understand from the surface, and many newbies make a mistake of misguiding their understanding of the trade. Another common mistake by newbies it treating binary options trading as a game of chance. In as much as there is an aspect of luck involved, you will certainly no make anything on binary options trading if your speculations are based on chances.

How to Trade on Binary Options

So, after understanding what are binary options, where do you start? There are over 400 online options trading platforms. These platforms are run by binary options brokers (we will discuss these later on). You choose the platform to trade on depending on your country of residence and the applicable laws and regulations (we will look at these too). Some of the platforms have do not admit people from particular countries. There are several other factors that should inform your choice of binary options broker. They are;

  • Minimum deposit – you will be required to have a particular minimum deposit before you start trading. Different brokers will ask for different amounts. Explore the various brokers available to you and choose the one whose deposit requirements you can meet. Many of the brokers have broken down their services in packages to cater for people with different financial capabilities.
  • Licensing and regulation – the broker you work with will be bringing you a chart of market trends and will be handling your money. Such aspects require an entity that can be trusted. To protect traders from getting duped, there are regulatory authorities that govern the operations of these broker platforms. The regulators are also responsible for keeping unscrupulous brokers out of the industry. Ensure the broker you settle for is regulated by a relevant authority and has a license to operate.
  • Maximum payout – the payout is determined by the binary options broker you are working with. The payouts normally range between 80% and 95% profit on the stake. This is the percentage used to pre-determine your winnings if your speculations are right. Higher payouts are always desirable. However, you should also consider other services the broker offers on their platform. Most of the times, brokers with low payout percentages offers resources, tips, and signals that can help you win more., and vice versa. Try to get a balance between the two. If you are a novice trader, it is prudent that you go for the broker who can offer you more tips, signals, and educational materials.

My Recommended Brokers

Broker Min Deposit ($) Min Stake ($) Max Payout (%)
IQ Option 10 1 95 1st Choice
ExpertOption 50 1 95 2nd Choice
Olymp Trade 10 1 92 3rd Choice

Once you have chosen a binary options broker, you need to get on their platform and sign up for an account. Many of the brokers operate proprietary wed and App trading platforms. Sign up for an account depending on the amount of money you have for the initial deposit. Go for an account that can offer you as much support as possible. You will be prompted to fund your account with the initial deposit, and once you do, you will be set to go.

Different accounts have different trading instruments and assets (we look at these next). You choose the instrument you want to work with, then the assent you want to trade with, and you put up a stake amount. Different accounts have different amounts for the minimum stake. You will need to set an expiry time for your trade too. Different accounts offer different durations. For instance, you can look up for the best 5 minute binary options strategy or the best 60 second binary options strategy. Usually, the durations range from a couple of seconds to a month.

The trade will be live, and you will be required to confirm the trade before a set deadline. Once you do, you wait till the expiry to see the outcome. Some accounts also offer you trading signals. For instance, you can get the best 60 second binary options indicator. You need great analytical skills to be able to find the best accurate binary options trading indicators though. Money management is the best binary options strategy for beginners. Current affairs and company financial records are some of the best indicators for binary options. Do binary options signals work? Yes, but you cannot rely on the broker’s signals. You have to watch out for other signals depending on your strategy.

The best strategy for binary options depends on the traders themselves though. There is no best time to trade binary options. You trade when the circumstances give you a strong conviction that the asset you’ve chosen will behave in a particular manner.

So, are binary options safe to trade in? Well, it all depends on how good you are in making financial markets predictions. So, do binary options brokers make money? Yes, if you can keep winning. If you keep losing you lose money. How long will binary options be around? You might ask. They will be around for as long as the financial markets are running. You just have to find out enough on how to trade binary options successfully.

Instruments and Assets

There are two common types of trading instruments in binary options trading. Binary trading instruments are sets of guidelines on how to speculate on the market trend in order to trade. The commonly used instrument is the high-low instrument. This instrument allows you access to various assets, and you can choose to work with any. You can work with this instrument in two ways as follows;

  • High or Low – you can speculate the market trend with below the current point by the expiry on the trade. You will lose if the trend does not go below the current point by the expiry of the trade. You can also speculate on the market to be above the current point. It works the same way.
  • High and Low – you can speculate that the market will remain within certain points above and below the current points. You will lose if the market ends up above the chosen high point or below the chosen low point.

Another instrument used the one-touch trading instrument. It is not very common though. A number of the binary trading brokers do not allow it. One-touch trading instrument involves speculating that the market will touch a certain level with a given duration. You win if it does regardless of where it will be by the expiry of the trading duration. This instrument usually has odds as high as 300%. It requires a certain level of financial analysis prowess and experience. Most of the brokers do not advocate for it.

Assets are the actual basis of the trade. They are what is moving in the market represented by the money values. They can be currency pairs, company stocks, indices, or commodities. You choose the asset depending on what you are most comfortable with. If you have traded in forex successfully before, trading in binary options with currency pairs as the asset would be quite straightforward for you. If you are a beginner, company stocks are always a great place to start. They are not as volatile as currencies. Make no mistake! The volatility of any asset is good news for some experienced traders, who know what to do when.

The different binary options brokers offer different assets. Some may have all or several of the types of assets mentioned above, while others will only have one. One types of assets will have many assets within it. For instance, they are many company stocks that some can trade in. A broker might have company stocks as the only type of asset and have many stocks to trade with. Some of the brokers offer you stocks from the biggest companies in the world for you to trade with. Brokers trading with currency pairs are the assets offers you the most common and profitable currency pairs in the market. Some offer you the option to trade with cryptocurrencies too.

Best Binary Options Brokers 2020

As mentioned earlier, binary options trading is enabled by binary options brokers. They are the operators if the platforms you engage in. There are many binary options traders that you can work with. These broker accounts can be connected to some of the best binary options robots. The robots will be making the trade on your behalf, depending on the trade and risk indicators set. Many people always wonder, do binary options robots work? Some do while some are scams. You just have to find the right one. Risk management is one of the best binary options strategies ever. Among the best and most popular binary options brokers are;

My Recommended Brokers

Broker Min Deposit ($) Min Stake ($) Max Payout (%)
IQ Option 10 1 95 1st Choice
ExpertOption 50 1 95 2nd Choice
Olymp Trade 10 1 92 3rd Choice

1. iqoption.com

IQ Option is a binary options broker from Seychelles. The broker is under the regulation of CYSEC. The broker prides itself in being one of the fastest growing binary options brokers in the world. IQ Option’s platform has gathered over 25 million subscribers from 2020 up to now. They offer over 10 million digital trading options. IQ Option offers up to 77 assets for you to trade with. It is one of the best binary options brokers for beginners. IQ Option does not admit traders from USA, Japan, Canada, Israel, Syria, Sudan, and Iran.

Trading Platform

IQ Option operates proprietary web and Android or iPhone Apps platforms. You can use any of these platforms to log in to your account. IQ Option offers three types of trading accounts. They are;

Demo – The demo account is meant for green beginners. You do not want to put up your money of the trade when you know nothing about it. Demo accounts are virtual accounts that mimic the market conditions in the real world. You can first experiment with the demo account and get to understand the ropes.

Real account – this account requires a minimum deposit of $10. It has a cash back option of up to 45%. This account makes you eligible to enter the web of brokers trading competition. If you can deposit $100 and above, IQ Option will be giving you free trading signals, and you have access to trading opportunities. IQ Option is one of the best binary options brokers with low minimum deposit.

VIP account – this account requires a minimum deposit of $100. It gives you access to trading opportunities and refunds of up to 60% in case of wrong predictions. You will also get a personal account manager and trading analysis from IQ Option’s resident analyst.

  • The minimum deposit on IQ Option is $10 for a real account or $3000 for a premium account
  • The minimum investment is $1
  • The maximum returns are 95% profit on your stake
  • IQ Option offers no bonuses.

2. Raceoption

Raceoption is a very popular and high-rated binary options broker. It is based in the UK. The UK is known to have strict rules and regulations governing binary options brokers. Raceoption has been in operation since 2020. It offers a user-friendly and intuitive trading platform. You can access the platform via their website or Android or iPhone Apps. Raceoption is one of the few binary options brokers that admit traders from the US. Raceoption has up to 1570 traders currently and records up to $1.9 million in trader earnings in a month.

Trading Platform

The Raceoption trading option offers over 100 trading assets. Raceoption has three types of trading accounts. The accounts require different minimum deposits and have different privileges. The accounts are as follows.

  • Bronze – this account attracts a minimum deposit of up to $250. The account has 24/7 live video support, a demo account, a copy trading tool, 1-hour withdrawal and up to 20% in burnouses.
  • Silver – this account needs a minimum deposit of $1000. The account has all the privileges of the bronze account, plus a master class training, an individual account manager, three risk-free trades, and up to 50% in bonuses.
  • Gold – this is a premium account on Raceoption. The account attracts a minimum deposit of $3000. It features all the privileges in the silver account plus, integrated technical analysis, and up to 100% in bonuses.
  • Raceoption offers up to 90% profit on stake payouts
  • The minimum investment is $1
  • Laws and Regulation Governing Binary Options Trading

As noted earlier, binary trading involves money exchanging hands in high frequency. The players in the trade, need to be regulated to ensure everything remains in order. The laws and regulations differ depending on the country in which the binary options broker is based. Binary options traders are usually concentrated in these seven countries.

We are going to explore the three countries that have the most-strict regulations. The regulatory bodies in these countries command a lot of respect. The three are USA, UK, and Cyprus.

USA

Binary options trading and brokerage are legal in the US. However, most brokerages block trader from the US because it has the strictest regulations concerning binary options trading. US Financial markets are regulated by the CFTC (Commodity Features Trading Commission) and the U.S SEC. (Securities exchange commissions). These authorities have the mandate to license financial market players operating in the US. They reserve the right to revoke the licenses too if the players are found to be in breach of the regulations. The strict regulations make binary options trading complex for offshore brokers and the traders too.

UK

Binary Options trading is also legal in the UK. The UK is home to many of the pioneer Binary option brokerage companies. There is a sharp contrast in how UK’s binary options brokers operate, as compared the those in other countries though. The British FCA (Financial Conduct Authority) is mandated to license and regulate binary options trading players in the UK. The authority constantly monitors the brokerage firms located in the country to ensure they are compliant with the applicable laws and regulations.

Cyprus

Cyprus is home to some of the most flexible binary trading brokerage firms. Many binary options brokerage firms were established in Cyprus after it recognized binary options as a financial instrument. Cyprus formed CySec (Cyprus Securities and Exchange Commission) to regulate binary options trading. CySec’s laws and regulations are in line with EU regulations. CySec is one of the most respected regulatory bodies in the binary trading industry. Many binary options brokers under CySec have client bases from various countries all around the world.

What are binary (digital) options?

Modern trading has changed in comparison with previous years. Modern platforms offer trading in fixed High/Low trades. This is easier and more affordable for beginners than forex or ordinary stock exchanges. Technically, the trading process has been simplified as much as possible. Next, we will take a closer look at what modern online trading platforms are and how you can earn on them.

What are fixed contracts?

They are trading operations with a known result. The amount of profit and loss is fixed and negotiated at the time of purchase of the contract. For example, when buying a $10 contract for an increase with a yield of 85%, the trader will either end up with a profit of $8.50 or a loss equal to the value of the trade ($10).

A distinctive feature of High/Low contracts is that they are not tied to the intensity of price fluctuations. If, for example, the line on the chart deviates in the right direction by just 1 point, the trade will still close with 85% profit. In the case of more pronounced movement (100-200 or more points), the result would be the same.

This is the main difference between fixed High/Low contracts and classic trades on the stock exchange, including forex. Standard trading operations on the exchange are closely tied to market volatility. The earnings on an operation directly depend on the intensity of price fluctuations. Therefore, traders used to need to make calculations to predict the intensity of upcoming trend movement. Now they just need to indicate the direction – an increase or a decrease. Modern platforms for online trading have become simpler and more accessible than before.

How to earn on trading?

The trader opens the chart of the asset of interest (for example, EUR/USD). Then they add to it indicators or chart figures to help them recognize the cyclical patterns of the market. After a reversal signal is formed, they open an “Up” or “Down” trade, depending on the forecast. If the signal was correct, then a profit in the amount of 70 to 89 percent is credited to their account.

To an outsider, it looks quite simple. The relative complexity lies in another aspect: effective market forecasting. Beginners are aided in this by ready-made strategies with step-by-step trading instructions.

5 steps for a novice trader

  1. Choosing a trading platform. This is a crucial step for every beginner. It is important not to get involved with a fraudster, of whom there are many on the internet. Therefore, when choosing one, you should put your trust in an established source rather than some spam email you’ve received. For our part, we recommend the Binomo trading platform to all beginners. They are a time-tested company operating worldwide.
  2. Trading on the demo account. You should take your first steps on the demo account before investing real money. You need to at least learn the terminal interface first.
  3. Mastering the theory. A beginner must gain an understanding of how the market works and how profits are earned. Why the price moves and isn’t static. Basic theoretical concepts are the foundation for further development.
  4. Practice. You need to start practicing how to trade with technical analysis techniques. Indicators and chart tools make it relatively simple to effectively predict market behavior. There are clear action plans that you just need to learn and, most importantly, understand.
  5. Transition to the real account. After gaining enough confidence and being successful on the demo account, you can move to the real market. In the beginning, you should trade on ready-made strategies, strictly following all the instructions and rules. With practice, your personal experience will serve as a solid foundation for developing your own trading systems.

Conclusion

Modern traders earn the same way exchange players did 100 or 200 years ago. The principles remain the same. However, modern technology has significantly simplified this process from a technical standpoint. Now online trading is available to any internet user. And to earn successfully on the stock exchange, you do not need a degree in economics or several millions of dollars in capital. You just need to have an interest in this topic and at the very least a small reserve of dedication to acquire the basic skills of independent market analysis.

You can learn to trade on your own using video tutorials, articles, books, and by practicing, including on the demo account. It is absolutely free, it just requires some time. There is a faster and easier way: training under the guidance of a personal manager on an individualized program. This way is faster, but it is only offered to premium level Binomo users. To obtain this status, you will need to make a real deposit in the system. When doing so, you won’t need to pay directly for your training.

What is Binary Options? How to Trade Binary Options in 2020

What if you could trade a stock and know exactly what you will win or lose? Binary options are a lure for new traders because they are simple to use and your potential gain or loss is known in advance.

Do you think the price of gold will be above or below X amount in 10 minutes – Yes or No?

If your bet is correct, you get a fixed pay out. If you are wrong, you lose the cost of the options contract. The outcomes and your risk are clearly defined.

If you bet on the horses or football games, then you are very familiar with this win or lose proposition called gambling. Binary options have been compared to bets on a roulette wheel – Do you expect the ball to land on an even or odd number? – and even Russian roulette.

If you are looking to make easy money, you are not likely to find it in binary options trading. Whether or not binary options are a form of gambling or investing depends on the learning, skill and experience you dedicate to trading them. If you toss a coin – heads the price will rise, tails the price will fall – your chances of winning are 50/50. After trading fees, you will inevitably lose money. This is gambling. Alternatively, like any good trader, you can use fundamental and technical market analysis to decide whether to buy or sell a binary option.

What Are Binary Options?

Binary options are an all-or-nothing bet on the future price of an underlying asset. The trader receives a fixed payout if the price of an underlying asset (e.g., currency pair, stock) hits a preset level at a preset expiry date. The expiry date may range from a minute to a month, but is generally intraday (minutes to a few hours). Here are two examples of fixed-return high-low binary options:

Market price – In a simple high-low binary option trade, the trader chooses whether the expiry price will be higher or lower than the market price (the strike price). The trader buys a binary option betting the gold price will rise above the current market price of $1,300 in the next five minutes.

Set price level –The trader buys a binary option betting the price of gold will reach 1,310 in two hours. If in two hours the price of gold is above the strike price, the trader receives a payout. If it is below the strike price, the trader loses the cost of the option.

If the expectation is the stock price will rise above the strike price, the trader takes a long position and buys a call option.

If the expectation is the stock price will fall below the strike price, the trader takes a short position and buys a put option.

Why Should I Trade Binary Options?

Binary options allow you to easily place money behind your opinion on a market? Do you expect the price of gold to rise above $1,300? Will Netflix stock rise or fall after today’s earnings announcement? Will the unemployment rate report show an increase or decrease?

Let’s take the unemployment report as an example. A falling unemployment number is a bullish signal for the US market that can strengthen the USD against the EUR. If US unemployment falls, traders short the EUR/USD. If unemployment rises, traders typically go long the EUR/USD.

There are many barriers to buying an option on the bet that the EUR/USD will rise based on a higher US unemployment rate.

  • Your broker may require a higher account minimum to trade options
  • The size of potential losses if the EUR/USD price falls is unknown
  • The price could rise but not enough to cover the bid-ask spread after fees
  • The orders of large traders with faster executions speeds will be filled first, which could result in price slippage
  • The use of leverage will magnify any losses
  • In the event of losses, you could receive margin calls

Th binary option, in comparison, has two possible outcomes:
��The price rises above the strike price – The unemployment report is negative, the USD price falls and the EUR/USD price rises. You get a payout.
��The price falls below the strike price – If the currency pair falls below the strike price before the expiry time, you lose the cost of the option.

How the payout is calculated can differ among binary options providers. See the binary options broker and exchange examples below for two popular payout models.

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Broker Min Deposit ($) Min Stake ($) Max Payout (%)
IQ Option 10 1 95 1st Choice
ExpertOption 50 1 95 2nd Choice
Olymp Trade 10 1 92 3rd Choice