Binary Options Trading: Everything You Need to Know


What are binary options?

Binary options are financial options that come in two options: a fixed amount or nothing. In essence, it means a trader has to choose whether he believes a trade will be above a certain price at a specific time. Traders, therefore, have to choose between yes and no making binary options trading one of the simplest assets to trade. These are the guidelines when trading binary options in the USA.

What is the structure of binary options outside the U.S.?

Well, binary options traded outside the USA have a different structure. However, they are an ideal alternative especially if you are speculating. They often come with a fixed payout and are offered by individuals.

Unlike U.S.-based binary options, non-U.S. options do not have commissions, have a fixed risk, and come with an expiry date. However, there’s little regulation and the winning payout is less than the losses incurred.

Types of binary options

High/low

This is the simplest and most common type of binary option. All you have to do is look at an asset such as a currency, stock, or index and predict whether the price at expiry time will be higher or lower. Now, you can select “call” or “Up” if you think it will go higher. If you think it will drop, you can choose “put” or “Down” on the platform you are using.

The expiry time varies between options brokers. Some even set the time, especially when using the “Option Builder” feature. Most brokers provide an expiry time of between 15 and 60 minutes. However, a few offer longer than a day. If your prediction is true, you win, otherwise, you lose your money.

One touch/no touch

Unlike high/low where you make your own prediction, this binary option presents you with a question. For example, will asset Y reach Z strike point by X expiry time? The strike point or trigger point is placed anywhere on the chart. The further it is from the current price, the higher the payout and vice versa.

A closer point offers reduced risk but lower payout. Most traders prefer a closer point. If the asset hits the trigger point before the expiry time, you win, however, if it doesn’t, you lose. One touch/no touch offers higher payouts compared to high/low thanks to its volatility.


Boundary/range

This binary trading option uses channels. A channel is a popular term in technical analysis. The resistance and support levels determine the upper and lower positions. While the price stays within this range, it will eventually break out into another range.

You win if the price stays within the range until the end of the trade. However, if it enters another range, you lose your investment. This type of trading allows you to make profits even when the price of an asset is stagnant. You can only find it in binary options trading. Besides, it is not common with most options brokers.

60 seconds

This trading option has become a favorite for many traders. In fact, it is poised to overtake high/low trade. It is also popular with at least all binary options brokers. It works similar to the high/low trades; however, it expires within a minute. The thrill that comes with fast trading makes it popular with most traders.

60 seconds trades are also referred to as short terms. These trades are ideal for avid traders who are skilled at making decisions within a short timeframe. Most novice traders get into these trades only to lose their money within 60 seconds. Avoid it if you are not well-versed in trading.

Ladder

Ladder trades have not been in the game for long. They are not popular among established binary options brokers. Furthermore, they are complicated keeping most traders at bay. As the name suggests, they give you several strike prices within a specific timeframe. As such, you can make partial profits with each expiry time.

This means you have to choose several expiry times and predict what the price will be at that time. If you win correctly predict all the strike prices, you may win more than 100% of your initial deposit. It is similar to high/low but you break it into smaller expiry times. As such, you can have small wins or losses along the way.

Long term

Long-term is yet another exciting trade you should try. Unlike 60 seconds, which expires within one minute, the long term can expire after a few weeks or months. As such, it enables you to make huge profits. Conversely, you can make huge losses. While a profitable trade, it is not common with novice traders. However, most brokers encourage their users to try it.

Besides, long-term trades allow you to learn the ropes as you get accustomed to binary options trading. Another benefit is you can correct your trades, which is impossible when using 60 seconds trades. With long-term trades, it is hard to include emotions when trading. This means you do not make irrational decisions.


Pairs

Finally, we have pair. It is a relatively new trade option with a few brokers offering it. however, traders on these brokerage firms use it regularly. StockPair was the pioneer with other brokers following suit. Here, you trade against two assets. For example, you can predict Tesla will outperform Facebook at the expiry date.

If Tesla does outperform Facebook, you win the trade. If your prediction is wrong, you lose the trade. Interestingly, if both fall with Tesla outperforming Facebook, you win the trade. This is the reason why most traders are opting for this trade.

Best binary options strategies

Following the herd

If you want to make money quick trading binary options, then you have to follow the trends. This is an absolute strategy for a beginner. As expected, traders determine how a price movement will go. And since this happens in real-time, you are at a better chance of making profits rather than losses.

You should however keep in mind the trend won’t be a straight line, rather, it will form a zigzag shape. However, it will follow a general direction; either go up or down. You can choose to trade with swings or the overall trend.

Following news events

While a basic strategy, it can enable you to make huge profits. However, it requires you to stay abreast of the news. It is therefore advisable you follow reputable news channels and sites. Subscribing to breaking news is also a good idea. The aim is to understand factors that affect a certain asset. An economic calendar is a must-have if you want to use this strategy.

Straddle strategy

This strategy works hand in hand with the news strategy. If an important announcement causes the price of an asset to go down, you can call an option with the expectation that the price will rise again. Here, you are working with trend swings.

As such, you can make money regardless of the trend flow. However, you should have advanced technical analysis skills to pull through. Otherwise, you might lose your money.

Pinocchio strategy

Pinocchio strategy is similar to straddle where you bet against a trend. For example, if an asset is registering a downward trend, you should place a call expecting the price to rise. The same case applies if the price is going up.

Candlestick formation patterns

This is a useful strategy especially if you are well-versed in technical analysis. You should also know the different parts of a candlestick such as the body and wicks. You can draw trendlines to predict the overall direction of the trend. You’ll notice that patterns tend to repeat themselves after a certain period.

Why should you invest in binary options?

Fixed risk

Binary options have a fixed return and risk. This means you know how much your stake will win or lose. As long as your prediction is right, you get your money.

High returns

Due to the high volatility in binary options trading, the returns are high: as high as 90%.

Beginner-friendly

Unlike forex where you have to learn terms, do analysis, and follow the news, beginners only need to choose between two options. Besides, the user interface of most websites is user-friendly with all the needed features at your fingertips. You also get informative videos, tutorials, and other educational materials.

Final verdict

Binary options trading is by far one of the simplest trading alternatives you can choose. Not only does it come with fixed risks and rewards, but also enables you to make high returns.