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7 Binary Options
All the binary options traders who are currently investing in the financial market or are aspiring to trade in binary options are mainly motivated by the earning potential presented by this trade. As a matter of fact the majority of professional traders in this industry are here to make a fortune and continually profit while trading binary options on the various online binary options trading platforms. In this regard, the majority of traders in the binary options trading industry are out to build wealth and retire early, but is it possible to make millions while trading in binary options?
This is the main reason why a good number of online binary options forums are full of discussions and trading tips on how to make millions while trading in binary options. While many traders on the various online binary options trading platforms are aiming at this, you must be wondering whether this is really possible and if so, can you do it? In order to ascertain whether this target is realistic in the binary options trading world, you first need to understand how the actual trade works. This way, you will be in a better position to understand whether making a million is possible while trading binary options.
Basically, binary options are some of the simplest financial products. Over the recent year, this form of trade has grown in popularity across the globe. This increased popularity of the binary options trading trade may be attributed to the fact that it is easy to understand and carry out. To many binary options traders, this form of trade is appealing because of the high payouts it offers. Again, the traders do not have to wait for a long time before they earn the profit. With most of the reputable online binary options trading platforms, traders are able to get payouts of between 70 and 90 percent, depending on the type of asset they have opened a trade for.
The majority of investors in this industry prefer to choose a shorter expiry period for the positions they open on their preferred binary options platform. This way, it is possible for traders to profit from their open trades in a matter of minutes. The main idea behind trading binary options is not the buy and hold onto an investment idea. Instead, the traders get a certain percentage of their invested amount as profit, if their prediction is right at the expiry time of their open positions.
For you to come up with the easiest way of making profits continually while trading in binary options, it is important that you understand mathematical compounding that is applied in this form of trade. Basically, any trading strategy in the binary options trading market may apply compounding. Additionally, the concept is not as difficulty as it may sound. The main idea behind the compounding returns concept is to gradually build on the trader’s returns while trading binary options.
In this case, the trader needs to use the original stake he or she initially placed on the trade, in addition to the subsequent returns from the trade while opening the subsequent trade. For instance, assume that you have an account balance of $2000. Suppose you use 5 percent of the account balance, equivalent to $100 to open a position, whose payout is 70 percent, on your preferred binary options trading platform. Assuming that your prediction on this trade is accurate, you will get $170 from the trade, $100 is the initial stake in the trade and $70 is the profit you have made from the trade. Since the compounding returns concepts requires traders to wager this entire amount in the next trade, your investment for the next position will be $170. If you win the subsequent trade, you will earn $289. Try this with Banc de Binary, 24option, IQoption or Porter Finance .
From this example, you can see how easy it is to gradually grow your money, provided that you continually make the right predictions in the financial market. The financial compounding principle is very popular in the financial market, with regards to accelerating the rate at which traders earn returns while trading binary options. As compared to other betting strategies used in the binary options trading world, the compounding returns strategy appears to be more appealing to many traders. This is mainly because it only risks the initial wager in the trade and subsequent profits. This is to say that although your stake in the trade for the subsequent trades will have increased, you are just risking the initial amount you placed on the trade, which is $100 for the above mentioned example.
This trading concept allows investors in the financial market to magnify their profits, while limiting their risk to their initial stake in the trade.
The Random Factor
Earning a million dollars in profits while trading in binary options is possible, but traders need more than just the compounding returns concept to achieve this. Although the concept of compounding returns will help you magnify your profits significantly, it is also important that you consider the probability of winning in any given position that you are opening. In this regard, you need to understand that the prices in the financial market move randomly over time. This being the case, you have a 50:50 probability of winning any trade you open in the binary options market. This is to say that traders in this industry have an equal chance of making the right prediction of the direction the price of any given asset will take within a certain period. In this case, the assumption is that the strategy you are using and your statistical analysis does not alter the probability.
With this concept in mind, it is possible to calculate the probability of making the right prediction in this industry. Assuming that you need to hit 14 wins consecutively for you to achieve the million dollar profit target and that the probability of winning on any trade is 50:50, you can calculate your chances of succeeding as follows:
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0.5 14 = 0.000019 or 0.0019 percent,
I.e. multiply 0.5 by 0.5, 14 times and the solution will be 0.000019.
By using trade signals while trading binary options, it is possible for traders to adjust the probability of winning any trade to about 70 percent. In this case, the chances of succeeding will change to:
0.7 14 = 0.0047 or 0.47 percent.
Although this increase in probability is possible, it requires the trader to take a great risk. In most cases, the probability of winning 14 trades in a row is about 0.5 percent. This is to say that the chances are slim, but still possible.
Based on the above calculations, the chances of hitting 14 wins in a row are pretty slim. As such, it is wise to conclude that making a million dollars in profits using this method is not easy. This calls for a change in notion and expectations on the part of the binary options traders. Rather than thinking that you can bet your way to a million dollars in profits while trading binary options, it is advisable that you come us with a well structured trading agenda. Additionally, you will need to make use of tips from the experts in the industry and apply an efficient money management strategy.
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A Guide to Trading Binary Options in the U.S.
Binary options are financial options that come with one of two payoff options: a fixed amount or nothing at all. That’s why they’re called binary options—because there is no other settlement possible. The premise behind a binary option is a simple yes or no proposition: Will an underlying asset be above a certain price at a certain time?
Traders place trades based on whether they believe the answer is yes or no, making it one of the simplest financial assets to trade. This simplicity has resulted in broad appeal among traders and newcomers to the financial markets. As simple as it may seem, traders should fully understand how binary options work, what markets and time frames they can trade with binary options, advantages, and disadvantages of these products, and which companies are legally authorized to provide binary options to U.S. residents.
Binary options traded outside the U.S. are typically structured differently than binaries available on U.S. exchanges. When considering speculating or hedging, binary options are an alternative—but only if the trader fully understands the two potential outcomes of these exotic options.
Now that you know some of the basics, read on to find out more about binary options, how they operate, and how you can trade them in the United States.
U.S. Binary Options Explained
Binary options provide a way to trade markets with capped risk and capped profit potential, based on a yes or no proposition.
Let’s take the following question as an example: Will the price of gold be above $1,250 at 1:30 p.m. today?
If you believe it will be, you buy the binary option. If you think gold will be below $1,250 at 1:30 p.m., then you sell this binary option. The price of a binary option is always between $0 and $100, and just like other financial markets, there is a bid and ask price.
The above binary may be trading at $42.50 (bid) and $44.50 (offer) at 1 p.m. If you buy the binary option right then, you will pay $44.50. If you decide to sell right then, you’ll sell at $42.50.
Let’s assume you decide to buy at $44.50. If at 1:30 p.m. the price of gold is above $1,250, your option expires and it becomes worth $100. You make a profit of $100—$44.50 = $55.50 (minus fees). This is called being in the money. But if the price of gold is below $1,250 at 1:30 p.m., the option expires at $0. Therefore you lose the $44.50 invested. This called out of the money.
The bid and offer fluctuate until the option expires. You can close your position at any time before expiry to lock in a profit or a reduce a loss, compared to letting it expire out of the money.
A Zero-Sum Game
Eventually, every option settles at $100 or $0—$100 if the binary option proposition is true and $0 if it turns out to be false. Thus, each binary option has a total value potential of $100, and it is a zero-sum game—what you make, someone else loses, and what you lose, someone else makes.
Each trader must put up the capital for their side of the trade. In the examples above, you purchased an option at $44.50, and someone sold you that option. Your maximum risk is $44.50 if the option settles at $0, and so the trade costs you $44.50. The person who sold to you has a maximum risk of $55.50 if the option settles at $100—$100 – $44.50 = $55.50.
A trader may purchase multiple contracts if desired. Here’s another example:
- NASDAQ US Tech 100 index > $3,784 (11 a.m.).
The current bid and offer are $74.00 and $80.00, respectively. If you think the index will be above $3,784 at 11 a.m., you buy the binary option at $80, or place a bid at a lower price and hope someone sells to you at that price. If you think the index will be below $3,784 at that time, you sell at $74.00, or place an offer above that price and hope someone buys it from you.
You decide to sell at $74.00, believing the index is going to fall below $3,784 (called the strike price) by 11 a.m. And if you really like the trade, you can sell (or buy) multiple contracts.
Figure 1 shows a trade to sell five contracts (size) at $74.00. The Nadex platform automatically calculates your maximum loss and gain when you create an order, called a ticket.
Nadex Trade Ticket with Max Profit and Max Loss (Figure 1)
Can you make money in binary trading?
“Quick Ways to Get Rich Online,” this is a heading that usually Ponzi schemes use, but recently it is being used to advertise a new form of investment, which is called binary options trading. Any advertisement that has the words “GET RICH QUICK” can sound melodious and at the same time, phony.
We all hear from time to time how authorities bust Ponzi schemes in which crooks try to rob innocent people. Binary options trading is also advertised as if you can get rich in a matter of few days and that even a child can execute binary trades. Yes sure, using the trading interface is very easy and a child can in fact use it but that does not mean this child can actually WIN one trade after another. Trading in binary options platform is a child’s play because the interface is user friendly but Winning trades consistently is a completely different story.
Get rich quick
Binary options is advertised as the only genuine system that lets users earn preposterous amounts of money in ridiculously short period of time. Advertisers try to implicate as if you can make $350 every 60 seconds, nonstop; if it were true then this would truly be an astonishing business.
However, does it make any sense? Can every trader make tons of money? Who is actually paying all the money or the profit?
The answer to these questions is simple and it will make everything become crystal-clear. Whenever a trader wins a trade, the broker has to pay the profit from its own pocket. This is the truth and do not believe in any other theory that anyone tries to feed you.
Nevertheless, there is hope. There are reliable and honest companies who do not mind paying profits. Compared to the honest, the number of dishonest brokers is high but with a bit of online research, you can find the good-guys.
Binary options let users trade in currency pairs and stocks for various predetermined time-periods, minimal of which is 15 seconds. Executing trades is straightforward. The system uses user-friendly interfaces, which even an 8 years old kid can operate without having to read any instructions. However, winning trades is Not easy.
You need a good strategy
The first challenge is finding a trustworthy broker; secondly, you need to find a binary trading strategy, which you can use to make profits consistently. Without an effective strategy, there is no way you can make money in binary trading.
The odds are against traders and if your strategy is to trade with guesses then eventually, you will lose all your money. Binary options platform is merciless, which will suck in all your money and will compel you to invest more and more, while you are continuously losing money.
If you win a trade, you get 60% to 89% profit. This is a cunning system, which clever gamblers have designed in an extremely devious way. If you want to outsmart it, you must procure a real and working strategy that you can use to win at least 80% trades. Options trading can provide the fastest way to generate income, there is no doubt about it, but to keep the profits flowing, you must win trades consistently.
I trade 60 second expires
I trade 1% of my account balance per trade
If I lose I martingale
If I lose 15% of my account balance (by martingale) I write this money off and return to 1% trades and re-grow my balance.
This has proven profitable for me, and I am only a novice. In my opinion binary options can be profitable.
Binary Options Trading: Does It Make Money?
Binary Options trading is a unique kind of trade in financial options.
In fact, you can even refer to it as an exotic option trading alternative.
Increasingly we see that this form of option trading is gaining popularity.
However, it still remains a comparative niche area in a global perspective.
Therefore, it excites both curiosity as well as mis-selling opportunity.
So even before you begin to understand what binary options trading is, remember it is important to make an informed choice.
Knowledge is the only armory that can guarantee profits in binary options trading.
This is because this is an option where you can either, get fixed returns or nothing at all.
The chances of tackling complete loss are pretty high if you are not completely confident about how you play.
Only in-depth understanding of binary options will help yield a better profit perspective.
However, binary options also quote controversy in many places.
This form of trading is either banned or is questioned upon by many countries.
Moreover, there are several instances of brokers mis-selling it to beginners.
That only increases the chance of potential problems and future losses.
So it further emphasizes the need to understand this investment instrument properly.
Definition of Binary Option
The term binary option refers to a uniquely structured Options trade.
In this, you can either get complete profit or nothing at all.
The payback amount is always fixed in this case.
It never varies as per market forces.
The customer gets a fair idea of it the moment they buy the option.
So if the relevant option expires in the money, you get the pre-decided price.
However, in case the option expires out of money, you cannot expect any payback at all.
Perhaps the name Binary is also derived from here.
There are no shades of grey in between.
It is a very clear yes or no strategy without a scope for ambiguity.
This is where we get the concept of the binary from.
You must also remember that, in this case, an option holder cannot buy or sell the underlying asset.
Only the option can be exercised in totality.
Often the biggest charm of the binary options is the simplicity of the entire proposition.
After all, the investor has to simply guess a price and make a move.
However, often the simplicity of the concept is what highlights the inherent challenge.
You need an in-depth understanding of the market for making a proper guess.
Anticipating future market movement is not simple.
You have to be very thorough with the overall market movements to guess that.
There is no scope for making a generic prediction.
You have to only look for making specific guesses.
That alone can yield a meaningful profit going forward.
In many ways, this also defines the core challenge in Binary options trading.
It helps you make simple guesses about the future market movement.
That, however, is possible when you are through with the complex market developments.
How Are Binary Options Different from Plain Vanilla Options?
Those of you are well versed with the market may question how it is different from a plain vanilla option?
Well, there are many differences between the binary trading option and plain vanilla options.
As the name indicates, you do not have any special element in this kind of option.
Moreover, a vanilla option gives the trader the right to trade in the underlying asset too.
The Option holder, therefore, has the right to buy or sell the underlying asset as well.
However, that is never an option in case of the binary trading option.
In this case, only the option can be exercised.
There is no way you can take a position or sell the underlying asset.
This is one of the biggest difference between the two types of options.
The platform for Binary Options trading is also unique.
Binary Option occasionally trades on the SEC regulated platforms.
But almost always you find these on internet-based platforms.
They are most commonly traded on platforms that are outside the ambit of regulation.
Conversely, the Vanilla options almost always trade on major exchanges and well-regulated platforms.
As a result, these options are considered relatively safe.
In comparison, this is also a reason why Binary Options court controversy.
They are more prone to fraud and other types of mis-selling.
Even in terms of recovering profit, the Binary Options are not as dependable.
But Vanilla Options by far are more reliable.
As they trade on established exchanges, so there is a reasonable amount of surety about them.
There is always a better chance of recovering your investment.
Moreover, it also reduces the chance of risk involved with the investment.
The prospects of mis-selling also come down to a significant extent in vanilla options.
Examples of Binary Options Trading
But I am sure that the concept of binary options will be clearer with an example.
Let us assume that you bought an S&P Binary Option.
When you bought the Binary Option, assume S&P Index was trading at X level.
You expect the Index to touch 2x after a certain duration.
This is primarily after the announcement of some key news trigger.
Let’s say the economic data that is going to be announced is expected to impact the prices positively.
You expect the S&P 500 index go up on the basis of this news.
So the Binary Option that I buy indicates that I will get $100 when the S&P 500 touched 2x levels.
Now let us assume that the Index did go up that high.
That too within the stipulated time that I agreed to.
As a result, I can then claim the said amount of profit.
However, if the Index does not go up that high or slips for a different trigger, I lose my money.
I will not even get the $50 that I used to buy the Binary Option.
I lose the entire investment that I may have made into the Option.
Importance of Binary Trading Strategies
But for sustained benefits, you have to be careful about binary options trading strategy.
The right strategy is very important to maximize your returns.
At the same time, it also helps to moderate your risk profile.
Both the elements are extremely important for the quality trading experience.
Also only through this route, you can look at sustaining considerable profit.
The strategy, therefore, plays a crucial role in creating successful trading modules.
That is often the deciding line for the quality binary trading experience.
But then the question is what strategy you should choose,
Different kinds of market experts will suggest different strategies.
But the problem is different kind of strategies works for different traders.
Depending on whether you are a beginner or a veteran, you will select your trade.
Moreover, in many ways, this also moderates the level of risk that you can take up.
Some traders are okay with a large risk exposure.
But many may want to leverage a lot less in the market.
Based on that, you have to take a constructive call on the market.
Therefore when you are choosing a strategy, you have to be very careful about these facts.
Binary Options Trading Strategies
Here is the list of the binary options trading strategies that make money:
- Long-Term Strategy
- Semi-Conservative Strategy
- Aggressive Strategy
1. Long-Term Strategy
This is perhaps the most common strategy for beginners in binary options trading.
This allows newcomers to gradually build up an asset in the market.
At the same time, veterans can use it to consolidate gains in the market.
The main feature is minimizing risk and maintaining a steady pace of capital growth.
In this conservative binary strategy, traders need to identify the Key pint 1 & 2.
Normally these are the two ends of a zigzag on the trading graph.
These identify a downtrend or an uptrend in the market.
The point 1 and 2 are the two ends of this trend.
Keeping a tab on retracement level is very important in this case.
The higher the retracement level, better the profit prospects.
This is also because a high retracement level sends a stronger signal.
You have to enter the strategy when the price hits a Fibonacci level or is within a set range.
The duration of your Option can vary from few hours to a couple of days.
You can take a bigger position depending on the type of success you experience.
On an average, this strategy can yield close to 5K profit is less than 21 days.
Once the contract expires, you can start the fresh one from where you left.
2. Semi-Conservative Strategy
As the name indicates, this strategy is less conservative than the previous one.
Needless to mention, it also entails a higher risk level around it.
So if you are a complete beginner, this may not be the ideal strategy to start with.
You can undertake as many as 4-6 trades a day in this case.
Again, in this case, look out for the Value chart levels of 8 and the Fibonacci levels.
That often holds the key to sustained gains.
Though the money management levels are similar to long-term strategy, there is one difference.
Your money increases at a much faster pace in this case.
Therefore, it opens up a much higher earnings prospect.
The Fibonacci level, therefore, plays a crucial role in the overall success of the strategy.
Moreover, you have to also pay close attention to the charts.
That is what will help you extract maximum possible gains from these strategies.
The timing of the trade also plays an important role in the overall gameplan.
It is what decides the amount of built-in risk that is involved.
It is, therefore, needless to mention that analyzing the charts is also crucial.
If you want to master binary options trading, you need to master trading charts too.
3. Aggressive Strategy
This is perhaps one strategy that completely explores the potential of trading charts.
Apart from the Fibonacci levels, it seeks to profit from every possible breakout.
This is why in this case, you have Fibonacci levels drawn for every potential trading cycle.
In many ways, it opens up the prospect of steady gains at regular intervals.
It introduces the concept of steady and continuous returns in trade.
So you are pretty much identifying every possible short-term cycle.
The idea is to optimize the potential of every cycle that can yield the profit.
The retracement levels, as a result, gain considerable prominence in this case.
We have already mentioned a higher retracement level leads to improved profitability.
You can easily employ this strategy on a wide variety of asset classes.
From stocks to commodities and currency, this is a definitive winner.
But the point is you have to employ the right measure and regulate the risk exposure.
Most importantly, it is never a good idea to lose track of your trading objectives.
Key Elements to Include in Binary Options Trading Strategies
The binary options trading strategies can differ significantly.
The idea is never about which strategy to adopt.
This is because every broker will try and further their own strategies.
Given the nature of markets, every new broker may formulate their unique approach.
But whatever the strategy might be, it has to keep certain basic requisites.
Often that is what determines the final profitability of the product.
That can define whether binary options trading strategy is your cup of tea or not.
This is essentially about creating trading signals in the market.
The most common approach is looking for the right type of trigger.
It can be based on any specific economic news, data or political development.
The idea is to gauge how it may impact the market on the whole.
It basically gives a fair idea of the direction prices may move in a given period.
Being alert about market development is crucial in this case.
So the starting point is knowing what may happen and how best you can optimize the result.
That will also determine the extent of profitability.
2. Your Trading Position
It is very important to analyze how much you want to trade.
This depends on a wide range of factors.
The most important one is the overall risk exposure that you are comfortable with.
You have to calibrate the amount of money you are putting in each trade.
You have to also take into account consecutive loss possibilities.
3. Review Your Performance
This is very important to enhance your profitability.
You have to carefully analyze the patterns and the strategies and analyze what is working.
Accordingly, you must also incorporate course correction in your strategies.
That ensures long-term success in your trade.
Can You Make Money Through Binary Options Trading?
This is perhaps one of the biggest concerns around binary options trading.
How much money can you make using these strategies?
Well, different articles on the internet will offer different viewpoints.
But the point is your approach towards investing can be the biggest game changer.
Often beginners in the market are buoyed by emotion and take up trade on a hunch.
Well, this approach can never help you lock profit in binary options trading.
You have to remember that investing in these is not the same as gambling in a casino.
Moreover, if you are starting off, it is better to first master the concept.
In this context, you may often seek the help of simulated trading.
That will help you get a better grip on the overall strategy a lot more effectively.
You have to learn and understand the concepts of binary options trading properly.
It is always better to start off only after that.
Online binary options trading is perhaps the simplest format.
This is what will help clock longer-term gains for an extended period.
But again, you need time and attention to master these online trading platforms.
That will help you lock in your profitability a lot more effectively.
Choosing the right broker is also crucial.
After all, you do not want to lose your money being associated with a fraudulent partner.
Therefore, undertake thorough research and carefully study the track record of the broker you choose.
That will surely improve your chance to make money from these trading options.
Therefore, binary options trading per se are quite attractive investment alternatives.
But you have to be careful about the brokers and strategies you choose.
That will determine the final amount of profitability using these instrument.
Some countries have banned or are in the process of banning binary options trading.
As an astute trader, you must keep a tab on all these factors.
Only then, you can look at sustainable long-term gains from binary options trading.
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Parvinder Singh is a full time business and money writer with a Master’s degree in finance from the University of Delhi. With over 7 years of experience, Parvinder has helped many startups, financial institutions and marketing agencies in improving their business, marketing, finance, investment, trading etc. View all posts by Parvinder Singh
The Best Binary Options Broker 2020!
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