Fundamental Concepts of Binary Options

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Contents

Binary Options Fundamental Concepts

You will learn about the following concepts

  • Basic fundamental concepts
  • Currencies and what drives them
  • Commodities and their link to currencies
  • Crude oil

This article will delve further into fundamental analysis to uncover many of the specifics in trading some of the most popular binary options. We will speak about the main driving forces on the currency markets, as well as commodities, and the link between the two. So lets get this lesson started.

Currencies

One of the most important forces that move currencies are interest rates differentials. In order to battle the negative effects of the 2008 global financial crisis, many central banks resorted to very, and in some cases record low interest rates. However, with the gradual improvement of the global economy, central bankers in some parts of the world began to tighten rates and the widening of interest rate differentials between some currencies brought the so-called “carry trade” back on the table. In this article we will cover only the basics of interest rate differentials and carry trades. To learn more about carry trades and a relative Forex trading strategy, read “Using Carry Trades to Maximize Profit“.

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The value of a currency, given that it has a floating exchange rate (it is not pegged to any other currency), is determined by the demand for it. Generally speaking, a currencys attractiveness grows depending on a number of factors. For example, if the country has a developed manufacturing sector, it will attract many foreign investors who want to open new factories there, or acquire existing ones. In order to invest capital, they will need to exchange their local currency for the currency of the nation they are investing in.

Another example is a developed tourism sector. The more attractive a countrys resorts are, the more foreigners will come to spend their vacation there. In order to conduct their everyday payments (buy food, pay for museums, pay for transportation), they will need to purchase a certain amount of the local currency in exchange for some other.

Both of the cases above presented an example where demand for the local currency rises as the respective individuals or entities need it to conduct payments on a local level. The biggest mover on the currency market, however, are interest rates. The higher the interest rate, the higher the demand for that currency will be as foreign investors are drawn to invest their capital there in order to yield a higher return.

And given that on the Forex market currencies are traded in pairs, their respective interest rate differentials will play a major role in the crosss movement. Let us assume we are trading USD/CAD. If the Federal Reserve decides to hike borrowing costs, or if traders are only speculating that an increase is likely, this will lead to the strengthening of the US dollar. As a result, its counterpart (the Canadian dollar) will weaken, provided that traders do not anticipate any change in Bank of Canadas monetary stance and there is no supportive economic data.

Thus, with some of the currencies already experiencing interest rate hikes, the carry trade is back in business. In carry trades, a trader sells a low-yielding currency (or borrowing money to do so) and buys a high interest rate currency. Thus, demand for high-yielding currencies is typically high, which further raises its value.

However, keep in mind that a very strong national currency is bound to begin dragging on growth. An expensive currency will leave the country with a disadvantage on the international trade scene, and as export growth begins to stall (or exports even decline), this will have a direct impact on the economys performance.

Central banks possess the power

When the national currencys value leaves the boundaries generally targeted by the central bank, so that economic growth and price stability are no longer ensured, the central back has the influence and means to intervene and bring it back in the desired range. Each trader, including binary options traders, should be on the lookout for central bank interest rate decisions, as well as speeches by central bankers.

Due to the central banks impact, in most cases they dont even need to take any measures, rather just speak out how the currency is undervalued or overvalued and that they dont like that. As a result, the general public almost always reacts in the way the bank desires. Very often you will see central bankers step out in front of media and hint that possible action might be taken, but usually they resort to these measures only, if the verbal interventions fail.

Demand for commodities has strong positive correlation to economic growth. During times of recession, commodities are generally trading at lower levels as economic activity, particularly industrial production, stalls. However, this principle does not apply in full force for all commodities, and we will mention some of the specifics in the next paragraphs.

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Crude oil

Crude oil prices are driven by the supply-demand balance and any accompanying speculations regarding a possible imbalance. Logically, demand will be high when the global economy is in an upturn, and lower when economic activity declines.

On the supply side, prices will tend to drop when supplies are ample and there are no fears of disruptions. Conversely, when an infrastructure accident curbs output, or geopolitical tension threatens to decrease production and exports from a country (especially a major producer), this is seen as bullish for oil.

Crude oil prices are also influenced by the strength of the US dollar. Because oil is priced in dollars, the two tend to have an inverse relation. Strengthening of the greenback makes not just oil, but all dollar-denominated commodities, more expensive for foreign currency holders and limits their appeal as an alternative investment. In addition, when oil prices are high, this widens the US trade deficit (since the US is a major oil importer, while exports are capped at a fraction of total consumption), which lowers GDP.

Moreover, prices of certain commodities seem to be strongly correlated to the currencies of major producing nations. A prime example for that link is presented by the Canadian dollar. Canada is a major exporter of crude oil, and one of the few highly-developed economies with a net export of energy. Thus, the higher oil prices are, the more Canadian dollars foreign buyers will need in order to purchase oil. This in terms will drive demand for the currency up and add to its value. To read more on the subject, read our article “Profile of the Canadian Dollar – Economic Overview and Monetary Policy“.

Thus, an alternative way to trade oil is to bet on USD/CAD, but in an inverse manner. When you think of it, its quite logical. When oil is on the rise, the Canadian dollar will most likely follow (given there is no downbeat economic data to pressure it). If the US dollar does not draw support from any other factor, it will likely decline. However, if you are trading CAD/USD, then the pair and oil should move in the same direction.

Fundamental Concepts of Binary Options

Binary options trading has been around for a while now and is spreading in popularity throughout the world. More and more traders are joining in on this trading form as they are able to notice all of the unique advantages offered to them.

While this type of trading is ideal for entry level traders, there are certain elementary facts that you should understand about. This is the only way to ensure that your endeavor commences on the right note. In this article, you will find the fundamental concepts of binary options. It will provide you greater insight into what binary options trading has to offer:

There are Several Forms of Options

There are several options that you can utilize with each binary option trade. The most commonly used one is known as the Call/Put or High/Low option. This is when you just decide whether or not the value of a certain asset will increase or decrease within a certain time period. Call is tied with the price of an asset going up while the Put option indicates that the price will be dropping. This, however, is not all that is available.

Next in line, in terms of popularity, are one touch and no touch trades. One touch is when you decide that a certain price point will be reached by the end of the trade. No Touch is when you determine that a particular price point will not be achieved within the set time period.

Then there are boundary trades, which are also known as range trades. With this option there is a channel created between the high price point achievable and the lowest price point possible. In this scenario, you are establishing that the price of the asset will remain within these extreme boundaries.

The Trade Time Limit

The trade time limit with binary options trading is actually a common misconception. Most people simply assume that there are only short trades available with binary options. It is true that this form of trading offers some of the shortest trades. However, while short trades tend to be more popular, there are not the only ones that you can use. With binary options, short trades can be as quick as thirty seconds, with the sixty second trades being the most desirable ones.

The short trades can last anywhere from half a minute to a full day. There are longer trades as well, nonetheless. These can run from a couple of days to weeks, or even months. Traders face restricted time limits due to the brokers that they are registered with. There are some brokers that do offer traders greater flexibility when it comes to choosing their trade times.

Binary Option

What is a Binary Option?

A binary option is a financial product where the buyer receives a payout or loses their investment, based on if the option expires in the money. Binary options depend on the outcome of a “yes or no” proposition, hence the name “binary.” Binary options have an expiry date and/or time. At the time of expiry, the price of the underlying asset must be on the correct side of the strike price (based on the trade taken) for the trader to make a profit.

A binary option automatically exercises, meaning the gain or loss on the trade is automatically credited or debited to the trader’s account when the option expires.

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Basics of a Binary Option

A binary option may be as simple as whether the share price of ABC will be above $25 on April 22, 2020, at 10:45 a.m. The trader makes a decision, either yes (it will be higher) or no (it will be lower).

Let’s say the trader thinks the price will be trading above $25, on that date and time, and is willing to bet $100 on it. If ABC shares trade above $25 at that date and time, the trader receives a payout per the terms agreed. For example, if the payout was 70%, the binary broker credits the trader’s account with $70.

If the price trades below $25 at that date and time, the trader was wrong and loses their $100 investment in the trade.

Key Takeaways

  • Binary options depend on the outcome of a “yes or no” proposition.
  • Traders receive a payout if the binary option expires in the money and incur a loss if it expires out of the money.
  • Binary options set a fixed payout and loss amount.
  • Binary options don’t allow traders to take a position in the underlying security.
  • Most binary options trading occurs outside the United States.

Difference Between Binary and Vanilla Options

A vanilla American option gives the holder the right to buy or sell an underlying asset at a specified price before the expiration date of the option. A European option is the same, except traders can only exercise that right on the expiration date. Vanilla options, or just “options,” provide the buyer with potential ownership of the underlying asset. When buying these options, traders have fixed risk, but profits vary depending on how far the price of the underlying asset moves.

Binary options differ in that they don’t provide the possibility of taking a position in the underlying asset. Binary options typically specify a fixed maximum payout, while maximum risk is limited to the amount invested in the option. Movement in the underlying asset doesn’t affect the payout received or loss incurred.

The profit or loss depends on whether the price of the underlying is on the correct side of the strike price. Some binary options can be closed before expiration, although this typically reduces the payout received (if the option is in the money).

Binary Options and Regulation

Binary options occasionally trade on platforms regulated by the Securities and Exchange Commission (SEC) and other regulatory agencies, but most binary options trading occurs outside the United States and may not be regulated. Unregulated binary options brokers don’t have to meet a particular standard; therefore, investors should be wary of the potential for fraud. Conversely, vanilla options trade on regulated U.S. exchanges and are subject to greater oversight.

Real World Binary Options Example

Nadex is a regulated binary options exchange in the United States. Nadex binary options are based on a “yes or no” proposition and allow traders to exit before expiry. The binary option’s entry price indicates the potential profit or loss, with all options expiring worth $100 or $0.

Let’s assume stock Colgate-Palmolive Co. (CL) is currently trading at $64.75. A binary option has a strike price of $65 and expires tomorrow at 12 p.m. The trader can buy the option for $40. If the price of the stock finishes above $65, the option expires in the money and is worth $100. The trader makes $60 ($100 – $40).

If the option expires and the price of the Colgate is below $65 (out of the money), the trader loses the $40 they put into the option. The potential profit and loss, combined, always equals $100 with a Nadex binary option.

If the trader wanted to make a more significant investment, he or she could change the number of options traded. For example, selecting three contracts, in this case, would up the risk to $120, and increase the profit potential to $180.

Non-Nadex binary options are similar, except they typically aren’t regulated in the United States, often can’t be exited before expiry, usually have fixed percentage payout for wins (whereas Nadex payouts fluctuate based on the price paid for the option) and may not trade in $100 increments.

Binary Options Academy for Beginners – Binary Option Trading 101

Education and experience are the main constituents that ensure success in any venture. The same holds true for binary options trading as well, unless you are among the lucky few individuals who can make a considerable amount of profits out of sheer fortune alone. However, don’t entrust your savings on blind luck, as even the luckiest gamblers in the world face massive losing streaks from time to time. Binary Options trading does not reward gamblers, or luck for that matter, unless traders are willing to take calculated risks in their trading decision.

As a beginner, it is imperative for traders to be well-versed about their investment opportunities, and have a thorough knowledge of the different aspects of binary options trading and the trading strategies in general. Our innovative binary options training program is designed for beginners and traders who are just starting out in the industry and provides comprehensive information on all aspects of binary options trading. Our binary options guide for beginners is designed to offer a relaxed learning platform that reduces the learning curve for all types of traders, irrespective of their trading expertise.

Beginner Level Table Of Contents:

Getting Started In Binary Options Trading

It is relatively easy to get started in binary options trading and does not usually involve any complicated procedures. Unlike the traditional financial markets, traders can open a binary options trading account for a very small initial investment, with several binary options brokers offering their services for a very insignificant amount. The average investment required for a binary options account is $250, but some companies offer binary options products and services for a small investment of $1.

There are countless binary options brokers in the market that cater to beginner traders, and we have reviewed some of the leading and reputed companies in the market to offer you the best option for your investments. You can open an account within minutes, and make a deposit to your trading account using multiple online payments. Some brokers may also require its traders to send in verification documents before commencing trading, while other brokers may request for identity proofs and other documents at the time of withdrawal.

Nevertheless, traders should make it a priority to open a demo trading account and practice their trading strategies before putting real money on the line. Beginner traders are largely unaware of the dynamics of the financial markets, and even though it may be exciting to dive into the markets without any precaution, you should consider the implications of losing a significant chunk of your trading capital within the matter of a few seconds. Therefore, we can’t stress the importance demo trading enough before commencing your live trading journey.

Grasping The Different Concepts & Components In Binary Options Trading For Beginners

As a first step, traders must learn binary options trading by understanding the different terminologies and concepts used in the exotic financial market. Binary Options trading involves making a call or put option to bet on the movement of the market. The call option is simply the possibility of buying an underlying asset in the hope of the price going up, while the put option is the option of selling an underlying asset to take advantage of the price moving down.

Binary options trading has only two outcomes and is entirely different from the traditional forms of investing. In conventional FX, CFD, and Stock trading, the profit and loss of trading are determined by the money invested in a trade, the magnitude of movement, and the cost of trading. On the contrary, binary options trading has two outcomes, a fixed ROI for in-the-money trade and a loss of the entire invested capital for out-of-the-money trade.

Binary options trading is a unique concept in financial investments that involve different components that contribute to the overall trading environment. Traders will have to understand the core trading attributes such as expiry times, payouts, binary options products, entering trades, exiting trades, rollover, double up, and refunds, in order to ensure clarity of trading. One must only attempt to trade the markets after gaining a proper understanding of the multiple components and concepts in binary options investments, which can indeed pave the way for deeper market analysis and enhanced success in trading.

Trading Strategies & Money Management

Although the binary options market has a very straightforward concept that basically comes down to a call or put option, there are multiple strategies available in the markets that are aimed to offer different trade outcomes. Not all trading strategies are guaranteed to be profitable, as it depends on a wide variety of conditions. One trading strategy might be profitable for one trader, while the same strategy may not work for another. It depends on different trading factors such as the psychology of the trader, market conditions, money management, and trade management. The strategy can also vary depending on the underlying financial instrument, the expiry times, and the type of analysis performed by a trader.

Even if a trader is disciplined in his/her approach to learning by keeping track of all the technical analysis, fundamental factors, and the different strategies in the market, he/she can only enjoy profitable trading by exercising proper money management and reducing the risk by controlling the capital outflow. A trader can gamble a huge sum of money and win quite a few trades consistently, but that doesn’t make him/her a complete trader. In stark contrast, a trader that can be profitable despite having a string of profits and losses in their account can guarantee of long-term profitability without succumbing to severe account drawdowns.

Money management is a result of extensive practice, emotional strength, and a capability to withstand market pressures without acceding to greed and emotional instability. A majority of successful traders in the market stress on the importance of having a trading plan, and being able to stick with it, despite the adverse market conditions. At times, even the most lucrative trading strategy won’t work, but it is up to the trader to go in and tweak their strategies to get back to their winning ways. Of course, during times of drawdown, a trader must have the strength and the tolerance to keep the losses to a minimum, which can indeed help in preserving the trading capital for taking advantage of the winning streaks in the future.

Inherent Risks Of Binary Trading

It is essential for traders to know the risks of binary options trading before investing. There are multiple risks associated with binary options trading and is not exclusively reserved to losses incurred in trading. Other risks include loss of trading capital due to broker scams, loss of money due to faulty trading signals, losses induced by trading platform malfunctions, and outright financial malpractices perpetrated by trading companies. Each of the risks outlined here is all detrimental to the profitability and bottom line of a trader’s career, as even a profitable trader can find it difficult to acquire profits if faced with adversities.

In our binary options school and training academy, we cover a wide range of risks associated with binary trading. We will not only offer better insights into mitigating risks, but we also give advice into being proactive against financial scams. It is always a better option to take the safer route in the investment market, rather than taking the risk with your hard-earned money.

Binary Options Robots & Trading Signals For Beginners

Automated and social trading is an integral part of the financial markets and is proving to be insanely popular with binary options traders. Automated trading is usually an established trading strategy among professional traders, but these trading concepts can be replicated in a beginner’s trading account for improved profits. Beginners can take advantage of the trading robots, trading signals, and even social trading to enjoy better returns for their trading ventures, all the while using all the binary options learning resources available in our Binary Trading Academy to learn the trading concepts.

How Can Beginner Traders Benefit From Our Learning Resources

All of our binary options tutorials are created with the beginner trader in mind, and can not only make the job of learning easier but can also help traders to stay safe in the binary options market. We cover all the major aspects of binary options trading, which in turn help you to stay informed, despite the uncluttered information that is available through online sources. We don’t want to confuse our readers, and we have taken every precaution to create a feature-rich binary options education program for beginners.

Our beginner binary options training program is not only suitable for amateur traders but can also come in handy for intermediate and even expert traders. During the course of a trading career, it is natural for traders to miss out on several basic concepts of trading. It is also possible for traders to forget what they have learnt from their earlier days of trading, and might want to refresh on some of the beginner concepts in trading. Therefore, our beginner binary options courses should also be of greater assistance for all categories of traders, without any distinction.

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Binary Options Trading

Binary Options trading is one of the newest concepts in trading and investments, with several new-age traders turning towards more exotic financial products to take advantage of the fluctuating market conditions. Binary options trading is indeed a fast-paced and exotic financial product that involves wagering on the direction of the movement of an asset, rather than investing in stock, commodity or index through outright ownership. In fact, binary options trading combines the best of both worlds and has more in common with FX/CFD trading, rather than the conventional forms of investing.

Binary options trading is a risky proposition for all investors. Regardless of the proficiency of a trader or the amount of expertise, binary options trading carries a tremendous amount of risk, both internal and external. Binary options brokers also play a vital role in determining the success of a trader’s career, while high-quality education and efficient trading resources can prove to be the ultimate deciding factor between a winning and a losing trader.

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Evolution Of Binary Options Compared To The Traditional Financial Products

The turn of the 20th century witnessed a rise in popularity of financial markets and allied investment opportunities among retail traders, which were previously reserved for larger investors and institutional market participants. Regardless, the popularity of FX and CFD trading among individual investors peaked during the 2000s, but some investors felt that they lacked the opportunity to make hefty profits from the constant fluctuations of the markets.

Traditional investors always leave a considerable amount of profits on the table, and it is common for traders to make a few compromises in their trading strategies to accommodate for market volatility. Traditional forms of investing involve significant trade times, where open positions would be held for days, months, or even years. At times, traders may be forced to close their positions at a loss, even after holding the underlying asset for a substantial period. This is when in 2008, retail traders were treated to something known as ‘Binary Options Trading’, which revolutionised the industry to include fast-paced trading products into the mix.

It was also common for traders to lose their entire investment on a single trade, only to find out that the markets turned in their favour, but there were no longer able to take advantage of their original analysis. Therefore, in 2008, the concept of binary options trading quickly captured the imagination of high-frequency traders and scalpers, as it allowed traders to profit from the direction of the movement of the market, rather than depending on how much the market moved in their preferred direction.

In the current context of the financial markets, binary options trading continues to gather popularity among all sectors of the retail trading market. Of course, there are some issues that concern the reliability of binary options brokers and the overall regulatory aspect of binary trading, but dedicated traders make considerable sums of profits on a consistent basis. Modern changes in regulatory frameworks are paving the way for creating a safe trading environment for investors, and it can only get better as time passes.

How To Trade Binary Options

Binary options trading allows a trader to profit from the direction of the movement of an underlying asset, or bet on the future price of an asset, all within a specified time period. There are different types of binary options products available in the market, and the profit and loss of each option are dependent on a wide variety of factors. We outline all the basic essentials on how to trade binary options to help you get to grips with the fundamental factors affecting the binary options markets.

– Choosing A Binary Options Company

Choosing a reliable trading partner is the most important aspect of trading binary options. The reliability of a binary options broker can often lead to a favourable trading environment, as non-regulated and scam brokers may create more harm than good. The safety of your investments should receive primary importance, regardless of the trading strategies or the ability of a trader to make consistent profits. If traders are unable to withdraw their funds from a broker, they may as well lose their entire investments on the markets. Therefore, ensure that you opt for a reliable binary options trading company, and you can indeed make use of our excellent binary options broker reviews to aid you in your broker selection process.

– Making An Initial Binary Options Deposit

Making a deposit is the next step to start your trading career. The deposit amount will serve as your trading capital for as long as you continue your trading career, and the profits generated from the trading capital should be representative of your ROI on your investments. In most cases, the binary options minimum deposit for accounts at regular brokerages would be around $250 to $1000, while some brokers may be able to offer an account for as low as $1. Some brokers may seek higher minimum deposits of up to $10,000; hence, you should choose a broker that offers an account for an investment amount that suits your preferences.

– Learning The Trading Platform – Opt For A Binary Options Demo Trading Account

A trader must familiarise with the binary options trading platform, of which there are plenty of choices in the market. There are dedicated desktop trading platforms, as well as web-based interfaces that can be accessed on both desktop and mobile devices. Most brokers also offer the option of dedicated mobile trading apps for iOS, Android, and Windows devices, which should provide a personalised trading interface for smartphone and tablet users. A demo trading account is usually offered as a free-of-cost feature at some binary options brokers, but at times, traders may only be able to enjoy a binary demo account by opening a real account and making an actual deposit. Take some time to learn all the aspects of a trading platform before you actually commit to the markets.

– Choosing The Financial Asset

One of the main reasons behind the popularity of binary options trading over traditional markets is the availability of the sheer number of financial assets from different financial markets across the globe. Binary options trading allows a trader to invest in any type of underlying instrument, including assets from stocks, commodities, indices, ETFs, and Forex markets. Binary options trading does provide an incredible opportunity for traders to invest in their preferred financial instrument and are at liberty to choose as many instruments as they desire. Even though traders are free to pick any underlying instrument of their choice, you must make sure that you don’t go overboard with your selections. You should restrain yourself from choosing a large number of tradable instruments, in order to prevent being overwhelmed by the markets.

– Analysing The Markets & The Price Of An Asset

Once you have selected your top picks of assets according to your particular preferences, the next logical step is to analyse the performance of the asset and deduce the future price changes according to the core financials of the instrument and the underlying market conditions. Making an accurate prediction of the markets can help in achieving high returns, but it is inherently difficult to make correct predictions all the time. Even professional traders fail to reach an average of 60% accuracy at the best of times. Therefore, if you wish to make consistent profits, you should be aware of your limitations and work on improving your accuracy through proper education and research.

– Selecting The Binary Options Product

Binary options trading is categorised according to the different types of binary options products available to traders. The first and foremost type of binary options is the classic high/low option, which allows the trader to bet on the direction of the movement of an asset at a specified time of expiry, in relation to their original entry price. The trader profits from the trade if their prediction comes true, while they lose their entire investment if the market moves contrary to their position. Other binary options types include touch/no-touch, range, and ladder options, where the potential payouts can range from 60% to 500%. Losing trades pretty much cost the entire investment on a trade, but there is a probability of winning back around 15% or even up to 25% of the losing trade at a select few brokers.

– Minimum Investment Per Trade

Trading binary options allow investors to invest anywhere from $1 to $25,000 per trade, but the average investment amount may realistically be around the $5-$2500 range. Some brokers are designed for larger traders who have a greater risk appetite and higher trading capital, but most retail traders stick to smaller brokers that grant market access using a small initial investment. Choosing the investment amount depends on your money management strategies, your account balance, and of course, the maximum risk you are willing to take per trade.

– Picking The Expiry Time

The binary options expiry times are broadly classified into short-term and long-term options. Short-term options are generally trades that are over within 60 seconds, but other short-term trades may have expiry times ranging from 5 minutes to one hour. Longer time-frames are used for trades that are held for more than a few hours, as most long-term trades are over within 24 hours. Some binary options brokers may also offer weekend trades, which can extend for days, in return for a higher payout. Binary options products such as range, touch, no-touch, and ladder options are more dependent on the price or direction of an asset, but these trades may also have an expiry time that is determined by the broker.

– Call/Buy & Put/Sell – Trade Options

Binary options trading signifies the opportunity to either make a profit or lose an investment per trade, and there are only two directions for most trades. If you believe that the underlying asset that you have chosen should rise at the time of expiry of the option, you can choose to call or buy the option. Conversely, if you anticipate the asset to drop in value at the time of expiry, you can opt to put or sell the option. The trading platform should offer all the necessary information about the trade options, the payouts, and the expiry times, which should help in making an informed decision.

– Managing Trades

The primary difference between binary options trading and other conventional forms of investing is that traditional investments allow traders to manage their positions, while binary options trading only offers limited access to managing their trades. Under most circumstances, binary options trades cannot be managed, especially for short-term trades, but long-term binary options positions may be managed as per the broker’s specifications. Standard trade management features include rollover (extension of the expiry time in exchange for a fee or larger investment into the position), double-up (double the investment in the hope of achieving higher payouts), and premature closure of trades (trade can either be closed at a partial profit or a partial loss). Trade management is a feature that is widely representative of the broker’s services and platform functionalities.

– Trade Outcome

Ultimately, it all comes down to the outcome of the trade, whether it’s profitable one or a losing one. Binary options trade will only result in a profit or a loss, but if the entry price and the exit price are the same at the time of the expiry of the option, the trader can receive a complete refund of their investment. In other cases, winning or in-the-money-trades can receive a fixed payout while losing or out-of-the-money trades result in a loss of the invested amount.

Don’t Gamble – What It Takes To Trade Binary Options For Positive Returns

If you are looking to make a quick buck by gambling on the markets, you may be better off by gambling on other gaming products such as casinos and sports betting. The financial markets are quite ruthless, and luck and complacency don’t stand any chance in the highly risky binary options markets. Even if traders get lucky for a few consecutive trades, the drawdowns can be quite massive for a continuous losing streak. Therefore, it is imperative for traders to have a disciplined approach to trading, and have a good understanding of the dynamics of the market.

It may take years to develop the skill and expertise to make money in binary options, which should be complemented with a sound money management plan and a reliable financial brokerage. Traders should avoid the temptation to risk all in a single trade, instead focus on gaining small, but consistent returns over a period of time. Making profits in binary options trading is indeed possible, provided you are willing to work for it.

Pros & Cons Of Binary Options Trading

Advantages Of Binary Trading

  • Trading binary options is simple; there is no need to exercise any complex strategies or trading methods, unlike conventional markets.
  • Traders can be aware of the risks and rewards of a trade beforehand.
  • Capital outflow is reduced when compared to traditional investments.
  • Trading times are significantly lower. Most trades can be completed within seconds or minutes.
  • Traders can enjoy flexible trading schedules.
  • Higher payouts offered for traders. Payouts can reach as high as 500%.
  • Success in trading is not determined by the scale of movement, but by predicting the direction of trade.
  • Large collection of financial instruments.
  • More exciting and fast-paced than other markets.

Disadvantages Of Binary Trading

  • One of the riskiest trading products in the market.
  • Inability to manage trades, particularly for short-term trades.
  • Trading involves a direct conflict of interest between a broker and the trader.
  • Regulation of trading may vary from country to country. Some countries have banned binary options trading.
  • A large potential for broker scams and financial malpractices.

How Is Binary Trading In The US Different To Other Countries?

Binary trading was banned in the US until recently, but the US authorities such as the CFTC and the NFA have since approved binary options trading with a few modifications. Binary options trading is actually a contract between a broker and the trader, which induces a direct conflict of interest between the two parties. Therefore, brokers may try hard to create unfavourable conditions for their clients to lose their investments. All the funds lost by a trader goes straight to the broker’s account, and a trader’s winning money comes from the broker’s operating capital. The nature of the contract between the broker and trader is the main reason why traditional investors consider binary options trading to be a form of gambling.

In the US, however, CFTC has specified several regulatory guidelines that prevent brokers from being a counterparty to a binary options trade. Therefore, binary brokers are only allowed to act as exchange houses, where binary contracts are generated between traders. These exchange houses should work in a similar manner to the traditional stock exchange, where sellers meet buyers to determine the price of binary options, the expiry time, and the potential payouts. Therefore, the increasing number of regulatory requirements and broker restrictions have forced several companies from avoiding the US retail trading market. Nevertheless, there are US-specific binary options companies that are regulated by the CFTC and the NFA, which provide excellent binary options products to traders from the US.

Key Factors To Consider Before Investing In Binary Options

  • Invest in good quality education.
  • Choose a reliable binary options broker.
  • Only risk what you can afford to lose.
  • Create an investment portfolio that you are comfortable with.
  • Concentrate on consistent returns, rather than gambling with your trading capital.
  • Try binary options robots and social trading to increase your chances of success.

Who Benefits From Binary Options Trading? A Conclusion.

Binary options trading, in its purest form, is simply a financial product that is similar to most FX and CFD products available in the market. Of course, there are some core differences between the traditional forms of investing and binary options trading, but professional traders should be able to find common ground in both products. Several established traders try their hand at binary options trading to hedge against market volatility, and the basic concept of binary options trading has been around for decades.

Binary options trading should benefit new traders, in particular for traders who don’t have any pre-conceived misconceptions or notions about the binary options market in general. Of course, having a fair amount of experience in analysing the markets may provide some advantages, but learning the fundamentals of binary options from the ground up can have its distinct benefits. Binary options trading is also suitable for Forex traders and other investors who have been facing difficulties in enjoying consistent returns through such investment strategies.

Best Binary Options Brokers: 2020 Ranking
  • Binarium
    Binarium

    Best Choice! The leader in our ranking!
    Perfect for beginners!
    Free Demo Acc + Free Trading Education!

  • Binomo
    Binomo

    Good choice for experienced traders!

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