Binary Options Trading Basics

This page covers the fundamentals of binary options trading. You will learn a couple of different things. “What the heck are binary options? How do I trade them and why would I want to?” In this article you will learn about the binary options trade. How they work, how to buy one, the benefits, and how easy it is for you to get started. Have no fear, even if you have no prior experience trading and aren’t some kind of Wall Street expert you can trade and profit from binary options. Let’s get started.

What Is A Binary Option?

You have two choices. Choose correctly and profit. Choose incorrect and lose money as your option closes out of the money. Put simply, binary options are about the simplest and hottest investment style online in terms of new growth when it comes to investing. Wikipedia defines binary options in the following way: “In finance, a binary option is a type of option where the payoff is either some fixed amount of some asset or nothing at all.”

up or down

Choose Between Two Options – Choose Correctly And Make Money

Binary options are a simple fixed contract that allows you to make a one or the other choice and receive a one or the other payout. If you choose correctly you get a fixed return, regardless of magnitude of movement. If you choose incorrectly, you lose a set amount of money, regardless of the magnitude of movement.

To put in laymen’s terms, there are one of two possible outcomes: you win or you lose. If you win, your trade profits a set amount of money (often up to 85%+). If you lose, you lose a set amount of money (often 85%-100%).

Most binary options offer an UP/DOWN trade. Meaning do you think the value of “gold” will be higher or lower in value in “one hour” from now. You can change that “one hour” to longer or shorter time frames. As short as 60 seconds if you are feeling lucky.

There are a few other types of binary options trades in addition to the UP / DOWN binary option. Common variations include a “touch or no touch” or an “in range / out of range” trade. The familiar factor is that there are two choices (hence ‘binary’). You will see other types of binary options trades referred to as Range or Boundary trades, One Touch, and No Touch. Binary options trades are generally offered on stocks, commodities (futures), currencies, and indices. Depending on where you are located, you may be able to trade any of these different options. In some locations though your choices may be restricted. US traders usually can only trade indices and stocks, not commodities or currencies (this is due to some awkward regulatory phrasing by the CFTC).

This is actually an oversimplification of binary options trading, which you probably already know about since you are looking for a good broker to trade with. Some online binary options brokers actually offer you a small refund instead of nothing if you lose, usually around 5% of your initial investment. And if you win, you do not usually get it “all” either. Generally you are paid out a percentage that ranges between 65-85%. On some types of investments under certain circumstances though, you can earn as much as 300% on your investment.

Binary Options Trading Example

What is a simpler way to describe binary options? I will make it crystal clear by giving you an example. You should have no problem at all following this, even if you have never studied finance or economics. Check it out:

Let us say you want to do an UP/DOWN trade, which is the most basic type of binary options trade. You have been watching the EUR/USD currency pair for a while, and you have reason to believe that within the next 30 minutes, EUR/USD will rise above its current position. You navigate to your binary options broker website and look for this currency pair on the trading platform.


Best Binary Options Broker

Do you think the EUR/USD currency pair will go up or down in the next 30 minutes?


The screenshot above is taken from High/low binary options trading platform. They’re an excellent broker, well worth checking into. High/low refers to this as a High/Low, but on other binary options websites, you might see this referred to as Call/Put or Up/Down, as we mentioned above. They all mean the exact same thing. “Call” can be compared to buy, and “Put” can be compared to sell.

You will notice that the trading platform asks you one simple question. “Will EUR/USD close higher or lower than the current market price?” 

Or you can rephrase this even more accurately as:

Will EUR/USD be trading above or below its current position in 30 minutes?

Price can, after all, jump around quite a bit. What you are really saying when you select “Up” or “Down” in this trade is that price will be above or below the current level when you reach the expiry time.

You will also see the payout listed, of 85%. If you win your trade, you will be paid that percentage of your initial investment in profit. In this example if you risk $100 on the trade and win, you will end up with $185 total after the trade is complete, profiting $85. Since you believe the price of EUR/USD will rise and will be trading above its current level at the end of the expiry period, you simply select “Up” on your trading platform. You will then be asked how much money you want to risk on your trade. At that point, you sit back and wait. If at the end of 30 minutes, the price of EUR/USD is trading above 1.05999, you will win 85% of your initial investment. This means you get your original investment back plus 85% more return. If at the end of that time EUR/USD is trading below that price, you will lose your investment.

Always decide how much money you will be risking based on how much you can afford to lose, not how much you hope to win. You would only want to wager $100 on a trade if you had a lot of money in your account and that represented a relatively small percentage. It is generally considered responsible to invest about 2.5-5% of your account on any one trade. If you only had $100 in your account, you would only want to wager a few dollars on a trade (which is why you generally want to start out with a bit more than that, maybe $500). These are basic principles of money management.

Can Small / Medium Traders Actually Trade Binary Options?


best binary option brokers

“Wait a second – I can start out trading with as little as $100? I thought I had to be rich to trade.”

That is one of the beautiful things about the online binary options brokers. They have leveled the playing field for the retail, average trader who wants to risk a few hundred bucks and start out small. You can literally start out for as little as $100. However, it is advised to start out with around a $500 initial investment if you are new and just starting out. This gives you enough capital to trade small and learn to manage your trading bankroll. Being surprised that you can start with so little money is a common reaction to binary options trading among new traders who have never participated in any market before. “Retail trading” refers to individuals who trade for themselves to make money, rather than trading for a business or investment firm. Retail trading used to be very inaccessible, but since the advent of online technology, it has become a very common phenomena, and it is only continuing to grow. A few years ago, Forex was the most popular investment vehicle for retail traders. Nowadays it’s binary options.

So yes, you can get started with as little as $100 and no prior experience. If you understood the example above, you are theoretically ready to trade binary options. Can you trade them successfully, though? That is another question altogether. Binary options traders usually fall under two categories: gamblers and serious traders. Which do you want to be? There is no “right” answer here. You may be interested in binary options trading for fun, or you may be hoping to trade for a living. What is most important is you know what you hope to get out of the market, and that you take a responsible approach to getting what you want.

Wait, is Binary Options Trading Just A Scam?

Binary options are not a scam. That is not to say that some traders have not been scammed, because they have. If you deal with shady binary options brokers it is likely you will be scammed at some point in time. You are bound to find some articles on prominent website, like Forbes, claiming that binary options trading is a scam. Is this true or not?

There are legitimate concerns about binary options trading. However these are things you can navigate around if you are not in a hurry and you are willing to take a little time to make sure you’re on the right track. The dangers of binary options trading include:

  • Inherent risk in trading
  • Unregulated (for the most part) market that is still “young”
  • Untrustworthy brokers have tarnished the image of the legit binary options brokers.
  • Bad trading decisions and just bad luck.

You can legitimately trade binary options by depositing money at one of our top binary brokers where you know that you will be given a fair trade and paid any money you earn. Avoiding the bad and unreputable brokers first is a question of reading reviews and making intelligent decisions about where you invest your money. If you are reading up on binary options brokers on our website, you’re already well on your way to choosing a trustworthy broker. I have reviewed literally hundreds of different binary options brokers and have found that most of them indeed are not very good, and some are downright scary. But there are a number of trustworthy brokers, and some of them are excellent. Those top-shelf brokers are the ones I recommend here on this website.

As far as the bigger threat to profitable trading goes, and that goes with your trading decisions, that is totally within your control. The only person who can make good or bad trading decisions is you, so if you want to maximize your gains and minimize your losses, it is important to do a lot more research and testing before you trade live. This is not as important if you are trading for fun and want to treat binary options trading like a slot machine. Even if you are trading for entertainment, though, you can choose to treat binary options trading like a game of poker and actually let your skill impact your gains.

In the our other articles, you read other information about binary options to help you get started. You will learn about the different types of binary options and how to choose a great broker. We are dedicated to helping you find the best websites for trading, the finest trading apps, and the best possible customer service so that you can embark as soon as possible on a profitable new career as a binary options trader!

Bankroll management

One of the most important things to learn in financial trading is to manage your bankroll. In this type of online trading you aren’t gambling and as such, you should always have a clearly defined strategy of how you’ll handle your money when you trade.

The first thing to remember is to decide in advance on a sum of money that you would like to invest. Under no circumstance should you go above this sum, even if you’ve lost everything (unlikely if you trade smart) or even if you have won all the contracts purchased.

Financial trading has to be emotionless. You’re there to make money. You’re doing business. Don’t get overexcited if you win because it can blind you and lead you to place not well thought out trades. Also, don’t get disappointed when you lose and run after your money. You may lose even more if you’re sad about losing.

Analyzing markets and news

Again we have to point out that binary options trading is not roulette. In roulette there are no ways whatsoever to increase your winning odds. However, in this type of financial betting you make your own success. – If you watch news, if you like business and if you’re smart, then you’re definitely able to generate consistent winnings in financial trading.

The best binary options winning strategies are build on knowledge. Watch the news, know what’s going on and you’ll be able to generate consistent profits. Almost every single major event that’s happening globally has an influence on markets.

You don’t even have to be an economist with a degree to see a connection between things. Everyone with some basic common sense can predict the movement of an asset. The secret is to pay attention to the signs.

Paying attention to major events

Microsoft is releasing a new product today at 10:00 AM? – Then make sure to place a very large bet on the fact that Microsoft’s stock prices will increase at 10:00. You can be 99,9999% sure that your prediction will turn out to be accurate and you’ll cash in a huge profit.

Sure, Microsoft may only release new products once or twice per year but most financial trading brokers offer the possibility to trade on the stocks of several dozen of companies. You just have to check when these companies release some new product… and bang, you can be sure you’ll win all your bets at least 95% of the time.

These things are also valid on other assets as well. Say, the US Federal Reserve announces that it has printed a large sum of money. Next thing to do is to place a bet that the USD will depreciate compared to other currencies such as EUR or GBP, and this is again a situation in which you’ll win 99% of the time.

Winning at binary options trading is really this easy. Seriously. – Most traders are just too lazy and believe that they don’t need to use binary options winning strategies to make money. These are the losing traders who make sure that the broker makes profits as well.

Do you want to be like them, or do you want to become a winner?

Master just a few of our binary options strategies by practicing them on a binary options demo account from one of the best binary options brokers and you will be successful. Your binary options account will grow and you will earn a substantial income as long as you follow the winning binary options strategies correctly. These are some of the best binary options winning strategies on the internet. 

Resources

Investing.com

Marketwatch.com

Forex Factory

www.learntotradethemarket.com