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What Are Binary Options and How To Make Money Trading Binary Options
Learn About Binary Options
What Are Binary Options? | An Explanation
What are binary options? Binary options provide traders a way to bet on the direction that various financial products will trade within a specified period of time, which could include a time limit of hours, days, or weeks. The financial products that binary options are written against include specific stocks, exchange traded funds (ETFs), stock market indexes, currencies, and commodities. If a trader buys a binary option, it will pay a predetermined limited payout, if the price of the financial product that the option is written against is exceeded either to upside for a long binary options bet or the downside for a short binary options bet. A binary option expires worthless if the option’s target price is not exceeded when the option reaches its expiration time.
Binary options are also known as “all or nothing options,” since they either pay their full pre-determined amount or they pay nothing at all, depending upon the price of the underlying financial product upon option expiration. Traditional options, which are the other kinds of options that can be traded, pay out at various levels if the price of the underlying financial product exceeds the option’s target price upon option expiration. Traditional options have much greater reward potential than binary options, but are also more difficult to trade and harder to understand.
While many individual investors have trouble understanding the often complicated options trading strategies that professional traders use when trading traditional options, binary options offer a simple way to place a bet on the movement of stocks and other financial products. A binary option either exceeds the target price at the end of the specified expiration time that the binary option is written for and pay the amount advertised or it does not reach the target price and expires worthless.
The casino game craps provides a good example regarding how binary options work. While craps has a myriad of complicated bets that many inexperienced players do not fully understand, one can place a simple bet that the thrower of the dice will either succeed “pass” or not succeed “no pass”. Binary options operate in the same manner. A binary options buyer is betting that a financial product will succeed at reaching a target price before the expiration date and time.
How Binary Options Are Traded and How Money Is Made Trading Them
To understand the answer to the question “What Are Binary Options?” take a look at an example of a binary options trade.
If a trader expects Apple Inc’s stock (AAPL) to close above $500 per share at the end of a trading session because Apple has a new iPhone product rollout during the afternoon, they might buy ten binary cash call options to try to make money on an anticipated price spike in AAPL above $500 per share. The ten binary cash call options would have a strike price of at $500 at the end of the regular trading session, with a hypothetical payout of $100 on each option, if the strike price is exceeded at the time of option expiration. The ten binary cash call options would hypothetically cost $30 each, or a total of $300 to establish the binary options trade.
If AAPL closes at the end regular trading below the $500 per share strike price, the ten binary cash call options would expire worthless, and the purchaser of the options would lose the $300 that was spent buying the options. If AAPL closes at the end of regular trading above the $500 per share strike price, the ten binary cash call options would pay $100 each, or a total of $1,000, which would result in a net gain of $700 (minus any commissions paid) for the purchaser of the options ($1,000 payout minus the $300 spent purchasing the binary options). This binary option trade could also be made on the short side by purchasing binary cash put options on AAPL’s stock, if one believes AAPL’s price will close below $500 per share at the end of the regular trading session.
Binary options are essentially short-term bets on the closing price of various financial products that provide specific payouts, if the strike price is exceed at the time of option expiration. Some traders prefer binary options over traditional options because the amount of money that can be made from a binary options trade can be quantified when the options are purchased. Binary options either pay a specified amount or they don’t, based on the underlying financial product’s price at the time of options expiration, whereas traditional options could have a range of profit amounts, depending upon the price of the underlying financial products at the time of options expiration.
An Example of a Binary Options Trading Screen
Learn More About Binary Options
A Word of Warning Regarding Binary Options Trading Websites
It is important for individual investors to understand that there are many different binary options trading websites that facilitate trading in binary options online. The websites offer a wide variety of binary option products and various payout percentages, if the options reach their target price. They also have a variety of trading rules that differ from site to site. Not all binary options websites are located within the country one resides in and not all of the sites are overseen by financial regulators. Therefore, it is important to read the fine print and understand the products and payouts available at the various binary options trading websites prior to proceeding with trading. To avoid problems, it is a good idea to only do business with reputable, established binary options trading websites that are domiciled within the country in which you live.
Disclaimer: This article was not written by a financial professional or a registered financial advisor. This article is for informational purposes only, and is not intended to be solicitation or recommendation to binary options or any financial products. Please consult a registered financial advisor to ensure you understand the risks and rewards associated with buying and selling binary options and other financial products.
Read More About Binary Options Trading
Binary Options | Example of successful trading in binary options
To Learn About Traditional Options, Read The Following Article
- How to Trade Options
Understanding what options are and the basic principles of how to trade options can alleviate traders and investors fear of trading options and open up a whole new realm of trading choices.
Binary Options Poll
Are You More or Less Likely To Trade Binary Options After Reading This Article?
How To Make A Binary Options Trading System
What Are 0-100 Binary Options
Why you should avoid trading binary options
Options Trading – Calculate Options Price – and Calculate Options Greeks Using Excel
Binary Options Strategy: The Stochastic Triple Cross
Tips For Trading Options In Expiration Week
Gambling = Probability + Skills. So if you have some trading skills i would say that you have more probabilities to win.
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There are also softwares and signal that can predict.
4 years ago from New Jersey
aesta1 – Please keep in mind that binary options and regular put/call options are two different animals. Binary options have more of a gambling aspect to them, as you are betting that either one of two outcomes will be achieved. Regular put/call options can be used to leverage or protect stock positions. Read up on options as much as possible. A good idea is to paper trade when investing or trading in a new financial area. Just keep a log of the trades you would make (without committing any money) and see how they work out.
4 years ago from Ontario, Canada
I am seriously studying options trading now to enhance my investment. This binary trading when supported by good research seem to be a winner. It still scares me though.
It’s very interesting, thank you for sharing
6 years ago from New Jersey
Hi Andera, Binary options have a lot more in common with gambling than investing. I wouldn’t call them a form of investing either. But, they certainly can be used to make quick money by betting on which direction financial products will move in the short term.
People that don’t understand what makes stocks and other financial products move could get burned trading binary options. For example, it is common for stocks to sell-off after a big news announcement, if it is already widely anticipated, such as a new iPhone release. That’s called “sell on the news”. If one is using binary options to bet AAPL will surge higher with a new iPhone release, they may be sorely disappointed when stock traders sell their AAPL positions after the news and send the price of AAPL share lower. Stocks generally surge higher when news is positive and unexpected, or expected and much better than anticipated. Otherwise, look out for the downdraft.
Binary options seems like an exciting way of betting on stock market prices without any underlying strategy. I would hardly call it a form of “investing”, but I see how people could be drawn to it.
6 years ago from Louisiana
It sounds interesting but even so too complicated for me.
6 years ago from New Jersey
Thanks for commenting Eric. I used the casino game “Craps” as an example of binary options trading for that very reason. Binary options trading is gambling pure and simple. There’s not much more to it. You place a bet and win or lose based on the closing price of the financial product the bet is placed upon. Regular options actually have other functions besides gambling, such as leveraging a trading position or conversely protecting a trading position.
6 years ago from Spring Valley, CA. U.S.A.
Sounds like a lot of fun. Clearly this is one where if you do not have it to lose do something else.
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What is binary options trading?
Binary options trading is a relatively simple way of betting on whether or not a certain outcome will occur. The name ‘binary’ (meaning ‘two’) reflects the fact that you must choose from just two scenarios – yes or no.
In financial trading, this is typically whether the price of an asset will be lower or higher than a certain level at a pre-determined point in time.
The most common type of binary option is a digital option, sometimes broken down further into ‘up/down’ or ‘call/put’ options.
With a simple call/put option, if you think the price of the underlying asset will end at or above the strike price, you buy a ‘call’ option. If you think the price will be below the strike price at expiry, you purchase a ‘put’ option.
If you are correct, the option is ‘in the money’ and pays out a fixed amount of compensation.
This compensation is typically money but in some contracts can be a quantity of the underlying asset itself.
If you are wrong, it is ‘out of the money’ and you receive nothing.
Because of this, binary options are sometimes called ‘all-or-nothing options’.
The attractions of binary options trading
Because you have just two possible outcomes to consider, binary options trading is considered simpler than many other kinds of financial trading.
Typically, all you need to decide is in which direction you think the price of the underlying asset will move.
Unlike with other forms of financial trading where your potential profit or loss is determined also by the size of a price movement, it doesn’t matter to a binary options trader how far prices have moved above or below the agreed strike price when the option expires. With binary options, a winning trade always produces the same payout.
Because of this, you have a clear picture of your risk-to-reward ratio before you enter a trade.
This is in contrast to traditional options, where profits and losses can be limitless.
With binary options, therefore, you don’t have to sit at your trading terminal, anxiously watching prices – once you have made your trade, you don’t need to check in until the contract has expired. You also don’t have to worry about applying complicated risk management tools like stop losses.
Binary options are flexible, with brokers typically offering contracts for a wide variety of underlying assets – from foreign exchange or commodities to company shares or indices like the FTSE or S&P 500.
Contracts can also run for anything from 30 seconds to several months, depending on what your broker offers. This means you can tailor your trading to your own areas of expertise or trading style.
If you’re an experienced trader in other markets, such as foreign exchange or shares, you can apply some of the skills you have already developed.
Fundamental and technical analysis, for example, can both be used to help you form a view on future price movements.
The risks of binary options trading
With binary options, it is possible to lose all the money you have invested if none of your trades are successful.
Careful money management (see Lesson 6 https://learn.tradimo.com/lessons/1278) should however ensure that you do not wipe out your entire trading account.
An example trade
All or nothing call:
The current price of Uncle’s Apples shares is $10. If you think the price will go up and trade above $10 this time tomorrow, you can profit from this expectation by buying a one day binary call option.
Before buying the option you need to decide how much money you put on the trade. This will be your investment (your risk) and your payout will be a certain percentage of this amount. If the broker is offering a 50% payout, it means, if you win, you get your investment back plus 50% on top of it.
Let’s say you invest $20 in a one day Uncle’s Apples binary call option with a 50% payout. You come back same time tomorrow to see how your trade performed. You were right, the price is above $10 per share, that is, your option expired in the money. You get your $20 investement back plus 50%, that’s $10. So you get $30 altogether.
However, if Uncle’s Apples shares were below $10 when the contract expired, the contract becomes worthless. Then the option would be out of the money and you would lose your initial investment of $20.
Other types of binary option
With a ‘one touch option’, you predict that the price of the underlying asset will at some point during a defined contract period touch (reach or surpass) a certain level. If it does, you receive a payout. If it doesn’t, you receive nothing.
With a ‘no touch option’, you predict that a certain price will not be touched during the contract period, and are compensated if you are correct.
With a ‘double touch option’, you define two price levels and predict that at least one of them will be touched during the contract period. You receive a payout if this happens. If the price stays within the range of these two prices and touches neither, you receive nothing.
Note that the closing price at the end of the contract period is irrelevant with any kind of touch option. This makes them perfect for traders who believe that prices will be volatile but aren’t confident about predicting a sustained price move.
They are therefore particularly popular for trading volatile assets like foreign exchange and for very short-term trading with contract periods as short as one minute.
So far you have learned that:
- binary options got their name from the fact that there are only two scenarios to consider: the market ends up either above or below your target price when the option expires
- you get paid a set amount, typically a certain percentage of your investment if you are right or you lose your investment if you are wrong
- it is because of these two reasons that binary options have gained a huge popularity in the last few years
- brokers have created a variety of binary options contracts so you can take advantage of special market conditions, such as ranges, breakouts, tests of significant price levels and trending markets
What are Binary Options? – Honest Review
Binary Options is a financial instrument to trade on long or short markets in a certain period of time. The Trader only got 2 options: Win a high amount of money (75% – 95%) or lose the investment amount for this trade. It is like betting on rising or falling markets. Binary Options are very flexible. It is possible to trade any financial market and use different time horizons (starting from 30 seconds).
- Call (Higher): Make a forecast for rising markets
- Put (Lower): Make a forecast for falling markets
Make a forecast for the future price direction
In this article, I will show you exactly what are Binary Options and how do they work. Knowledge is the key to success. Read about the risk and the opportunities to make money in the following text.
Where to trade Binary Options in 2020?
In the next steps, I will show you how Binary Options (Wikipedia article) work. You will understand it in a few moments. But first of all, where to trade Binary Options?
You will need a Binary Options Broker (see the table below). I searched after the safest companies which give the highest return for traders. There are different companies around the world who provide this financial service. You can open a free demo account. This is an account with virtual money so you can learn how to trade without risk.
- You need a company (broker) which provides the financial service (Binary Options)
- Open a free demo account with virtual money (Virtual trading without risk)
|1. IQ Option||(5 / 5)
High Yield 92%
Is Binary Options Trading safe or not?
Safety is the most important point in online investing. You should choose a good and reliable broker which is safe. I recommend using a regulated company for your investments. Have a look on my full Binary Options Broker Review to find the best one. There are regulated and unregulated companies for trading. It always depends on the broker to trade safely Binary Options.
I did a lot of research and clearly, I can say that a regulated broker does not cheat to its clients. Normally unregulated brokers do not cheat too. But it is not 100% safe because sometimes these are small and unknown companies.
It is safer to trade with a regulated broker than with an unregulated one.
In conclusion, you should use a regulated broker for trade Binary Options safely. It always depends on the Broker if it is safe or not. Do the research by yourself and read my review about the broker on this website.
Example of regulation or license
Safe and well-known regulators are:
What you really need to know about online platforms:
There is a huge diversity of Binary Options Platforms and you have to check out what is your personal favorite. Nowadays developed software is very flexible and available for any device. It is possible to trade with the computer (browser and desktop), smartphone and tablet. That means you can trade from everywhere around the world if you got access to the internet.
Especially for a beginner sometimes it is hard to learn to trade with a new platform. There are a bunch of options which can confuse you. Most brokers will give you education material like video tutorials or step to step guides. Also, you can ask the support for help by phone, chat or email.
A platform for any device
Flexibility and charting are provided by the platform. You can do a personal chart analysis with indicators, technical tools, and different chart types. Sometimes you will get access to economic news directly in the platform. Indicators are known for giving you feedback on the market price at the moment. They are customizable like you want. So it is possible to analyze different timeframes.
Today Mobile Trading is one of the most important factors for trade successfully. It is a great opportunity to boost your profit. In the past traders could not trade online or via mobile phone. So the options were much lower for making a profit. Apps are available for Android and iOS users or any other device. Check out your trading account 24 hours per day via your mobile phone.
In my opinion, it is better to use the web-based platform with your computer for analysis. Often there are a lot more functions than in the app. Furthermore, you can see the chart more detailed and a higher range of it. Professional analysis can be made by using a computer.
Binary Trading Tutorial | Step by Step Guide
As a trader, you can choose between a lot of different assets on a Binary Options Platform. You can trade Forex, Stocks, Commodities, Cryptocurrencies and more. This trading tutorial will show you how it exactly works to trade the financial product. The process is always the same as you see in the video and picture below. Just practice it in a free Demo Account.
Learn how to trade successfully
Now you have to imagine and predict the asset price direction for the future (forecast):
You can use the specially programmed trading platform of a Binary Options broker to analyze the charts and get trading ideas. It is very important to have a good working strategy for maximum profit. Beginners should use technical analysis for trading the chart. On the broker platform, you can learn more about it in different education videos/centers.
Therefore every Binary Option expires after a specified time. You can use the time horizon between 30 seconds or 5 months or more. Sometimes it depends on the broker. As you see you can trade short-term or longterm Binary Options.
After you have decided on the direction and the expiry time for your trade you can “sign” the contract with your broker. Just click the call or the put button. On some platforms, you have to confirm the trade.
- Call (Higher): The price will go up in your expiration time
- Put (Lower): The price will go down in your expiration time
If you are right in your decision, the broker will pay you a high asset profit of 75-95%. The trade automatically closes after the expiry time. Sometimes the broker allows you to close the trade before the expiry time ends. That is a way to reduce the impact of a wrong decision.
That means if you invest the amount of 100$, you can earn the amount of 195$ on a certain time horizon. 100$ is the return of your investment and 95$ is the profit.
Binary Options Platform Tutorial for beginners
- Search for an asset with a high profit. If you trade the assets with the highest yields in conclusion from my experience the result will be much better in the end. Some Binary Brokers offer you different account types with different asset profit.
- Analyze the chart on the platform. You can choose different time frames, indicators or financial news for your strategy. Every Binary Broker offers you some educations, too. Learn in webinars, videos or coaching the best strategies of the world.
- Now you should select the expiration time of your Binary Option. There a lot of possibilities for your trade. Some traders like it to trade short-term options and some other traders like it to trade longterm options.
- Choose an amount you want to invest in your trade. The most time it starts at 1$.
- At latest trade the Binary Option with a call or put. There are only 2 options in the market, that’s why it is called “binary”. In the end, you earn a high yield or you lose your selected amount.
What are the conditions Binary Options Trading?
You can trade any asset with Binary Options. It can be stocks, commodities, forex or cryptocurrencies! Most brokers give the option to trade more than 100 different assets. The expiration time depends on your broker. Some companies provide Binary Options with a time horizon of 30 seconds or less. These days you get a lot of different options on every broker.
- Trade stocks, forex, commodities, cryptocurrencies, and more markets
- Choose between a diversity of time horizons (short-term – longterm)
Yield – The return of investment can be high as 95%+
As the time horizons, the yield (return of investment and profit) depends on the broker. Often there is a possibility to get a high payout of more than 90% of your investment but there is no rule for the value of the yields. Sometimes short-term trades got the highest payout and sometimes long-term trades got the highest payout. In comparison to my experience, the yield is between 70% and 95% for standard accounts.
Another way to boost the yield is to get a VIP account type. Most of the brokers offer different account types, which are linked to the deposit amount. For example, you will get a VIP account if you deposit more than 3000$ on IQ Option. Not every broker got the offer of account types but you should search for it if you plan to invest a high amount of money.
Are Binary Options risky or not?
Binary Options are risky to trade, but there are advantages why the risk is less than trading other financial products. Especially new traders fear the loss of a high amount of money. With binary trading, you can only lose your bet amount. Traders clearly see what they can lose in a trade. Compared to other trading instruments this is a big advantage because the risk is limited always.
Another advantage is that you get a high asset payoff no matter how much the market moves. The asset price just has to be above or under the entry point. Traders like this financial product because it is so easy to understand and to calculate the risk and the trade profit.
Only invest the money which you can afford to lose in the worst case.
Binary Options Demo Account – Yes or no?
It is very important for beginners and new traders to practice the Binary Options Trading. Most brokers give you a free demo account. It is an account with free virtual money. You can always recharge the account with one click. It is risk-free trading.
Every trader should learn more about the trading platform before he is going to invest real money. Also, you can learn new strategies or try out different methods on the market. First, develop your own strategy with virtual money.
Most brokers offer a free demo account.
Opening your first real account
For trading with real money, you have to fulfill different criteria. On most brokers, you can trade and deposit without verification of your account. In my opinion, every trader should verify his account before deposit money. This can prevent annoying errors and waiting times. For a full verification, you need to complete the account setup.
Sign in with your real personal data. That includes full name, birthday, real address, email, and your phone number. After that, sometimes you have to upload the required documents for the broker. The company checks if you are a real person. Upload a picture/copy of your Passport. Sometimes they require a utility bill too. In most cases, the verification only takes 24 hours or less. With some companies, you do not need this verification process.
How much money do I need for Binary Options Trading?
You can start trading with a very low amount of money. Especially on IQ Option, you can open a live account with a 10$ deposit. The minimum trade amount is 1$. The upper limit is open for your trades. Have a look at my reviews to find a broker which fulfill your requirements
From my experiences as a trader, it is possible to make a huge amount of money with the right strategy. Binary Options are the tool for trading with a small or big amount of money.
Facts about the deposit:
- Start with only 10$ in your account
- Trade with 1$ per trade
- You can easily trade with high amounts too
- The minimum deposit depends on the Binary Options Broker
Easy deposit and withdrawal
As mentioned before the deposit is easy as the withdrawal of profits. On most brokers, there are not any fees for deposit and withdrawal money. For payments, you can use more than 20 different methods. It is possible to capitalize on the trading account in a few seconds. In most cases the payout takes the time of 24 hours depends on your broker.
Payment methods are depending on the broker:
- Credit Cards (Master/VISA)
- E-Wallets: Skrill, Neteller, FasaPay, ePayments, Yandex, and more
Get a free Bonus for your deposit
The most brokers offer a free bonus for your deposit or risk-free trades. The bonus amount depends on the deposit amount. It can be a 20%,30%,50% or 100% bonus. In other words, they give you a higher bonus for a higher deposit. Furthermore, some brokers allow trading risk-free trades. If you lose a trade, the broker pays back the lost money in the form of a bonus.
The bonus is not completely free. Sometimes traders have to trade a high turnover of the bonus. For example, make a turnover of 30x of the bonus to get the bonus withdrawn. If you are not satisfied with the conditions in most cases you can deactivate the bonus. A bonus is a good opportunity to grow a bigger account and trade with more money.
Get a free bonus now
Can you really make money with trading Binary Options?
The key to your success is to get a good education and find a professional strategy. In addition, you have to control the risk with sensible money management. In this article, I showed you an insight into profitable trading with Binary Options.
It is easy to make money with Binary Options but you have to be prepared. The markets are not easy to trade for beginners and it takes time to trade profitably. You will not see success directly. From my experience educated traders do not blow up the account. They earn money constantly. Read through my other pages to get deeper knowledge.
- Education: This is the most important point for beginners. You should be prepared for the markets and know how the financial product works. There are different tutorials on the broker webpage or on my website to learn the functions. In addition, it should be easy for you to use the trading platform of your broker. Just practice in the demo account until you feel comfortable. Moreover, most brokers offer deeper knowledge. There are webinars, coachings, and tutorials. Education and knowledge is the key to making money with Binary Options.
- Strategy: Develop or learn a professional strategy for trading. You have to know what you are doing in the market. It is like a system for you which always have to repeat. Without a proper strategy, you will blow up your account. There are different ways to learn a strategy. Use the knowledge of a broker or my website.
- Money Management: most traders fail to control the risk. In my opinion, money management should be sensitive by using 0,5 – 3% of the account balance per trade. Sometime a losing streak will occur. By using sensitive money management you can trade without emotions and you can trade enough trades without running out of money.
In conclusion, you can really make money with trading Binary Options but you have to learn and invest your time in the right knowledge. The demo account is the best way to practice before you start investing real money.
Are Binary Options legit or not? – My scam review
In my opinion, Binary Options are not a scam for your money. The financial product gives you the possibility to invest in short or longterm opportunities in the market. Binary Options are so popular because they are so easy to understand and you can make a lot of money in a short time.
It is very important to choose a good broker. Some small brokers are scamming users, that’s why a lot of people think Binary Options are a scam. Definitely, it is not a scam if you trade with a safe company.
Basic trading checklist for beginners:
- Choose an asset you want
- Forecast the price movement
- Choose a variable expiry time of the trade
- Bet an amount starting 1$
- Trade a call (long) or a put (short) option
- Get profit
- Payout the profit
On this site, I have shown you how the financial product is working. I think you can easily understand it now and start trading with more security. On my other sites, you can learn more about Binary Options. Happy trading.
How to avoid scams as beginner
The problem of Binary Options is that they are not a scam, but some brokers or financial educators are scammers. Every time before you start investing real money you should do a sort of research. You should pay attention to real reviews or advice from professional traders.
Best Choice For Beginners!
Free Trading Education!
Free Demo Account!
Big Sign-up Bonus!
Perfect For Experienced Traders!