Over the last few years, binary trading has become incredibly popular with traders. It is much easier to make a profit when binary trading, than in traditional trading markets. It is called binary trading because you only have one of two payoff options. Binary trading is attractive to beginners and experienced traders because of its simplicity and because you do not need to make a large initial investment. Binary traders can trade stocks, currencies, commodities, and indices.
When binary trading, traders place trades based upon yes or no propositions. However, as simple as it seems, like all methods of trading, binary trading requires a great deal of research. You should also know which companies are legally allowed to provide binary options.
This article will tell you how you can get started binary trading, and everything else that you need to know about it:
Binary Options in the United States
Binary options allow you to trade with capped profit and capped risk potential, based solely upon yes and no propositions (as already mentioned). An example of one of these propositions would be: Will crude oil rise above $66.82 by 3:30 p.m. today?
If you hold the belief that crude oil will rise in value, then you buy the option (yes). If you think it will not, then you sell it (no). Binary options, like other financial options, have a bid and offer price. The bid and offer will fluctuate until the option expires. You are able to close your position at any time to take your profit or reduce your loss.
Every single option will settle at either $0 or $100. If the binary’s proposition is true, then it will finish at $100, while if it is false, it will settle at $0. This means that every single binary option has the potential to reach $100.
Bid and Offer
In binary trading, the bid and offer are decided by the traders as they determine whether the proposition will be true or not. If the bid and offer on binary options are high, then this is indicative of traders assuming that the binary option’s outcome will be yes. If the options are below (or around) $50, then this is indicative of traders being uncertain of the option’s expiry figure. If the bid and offer are very low, then this is indicative of traders believing that the option’s outcome will be a no and that it will expire at $0.
Trading Binary Options
Binary options are traded on the Nadex exchange. The Nadex exchange is the first legal U.S. exchange focused specifically on binary options. Nadex stands for the North American Derivatives Exchange. It has its own trading platform, which traders can use much in the same way that they would any other platform. You can also trade binary options through the Chicago Board Options Exchange.
There are live and demo accounts on binary platforms. Demo accounts are better if you are new to binary trading and wish to learn. A live account will, as the name suggests, be live and ready to trade immediately, and is more suited to the more experienced and more confident.
The Nadex trading platform has its own real-time charts. There is also Quotex, which is a rival platform more popular among traders. Unlike Nadex, Quotex accepts traders from the United Kingdom, and abroad. According to the trading specialists from https://www.trusted-broker-reviews.com/quotex/, Quotex holds a five-star rating from consumers, while Nadex holds a four-star rating (according to TrustPilot). You should seriously think about which platform (and exchange) you want to use and you should explore your options carefully.
The Advantages and Disadvantages of Binary Trading
Binary options, unlike forex markets, are capped. In forex markets, slips can occur (and regularly do). You can make fantastic returns in a quiet binary market, while in a forex market it can be hard to profit if the stock index or forex pair are barely moving. If you buy a binary option for $10, you will either leave with $0 or $100. This gives you a greater reward to risk ratio than you would find in actual trading markets.
The downside to binary trading is that your profit is always capped. You can never exceed $100, no matter how much the stock or pair moves. Equally, you can never lose more than $0. The only way to make heavy profits from a binary option is to buy multiple options contracts at one time.
The advantage to the stocks being capped, however, is that it makes them accessible to traders who have limited incomes. You can start trading with $50 if you can find an option available for that price.
However, because binary options are based on a proposition, you are not entitled to dividends or voting rights that you would otherwise be able to receive if you owned the stock itself.
Binary Trading Fees
Most binary trades cost less than a dollar to enter, and about the same to exit. If you hold your trade and leave in profit, the fee to leave is usually adjusted at expiry. If you hold and leave without profit, no fee (or a fixed one) is usually added. With that said, some platforms trade through different options brokers, who can change their own commissions, and thus fees fluctuate and vary from platform to platform.
When you are trading binaries, you need to know your markets. You can trade major indices such as the S&P 500 (US 500), Nasdaq 100 (US TECH 100), Russell 2000 (US Smallcap 2000), and the Dow 30 (Wall Street 30), as well as global indices for Germany (Germany 30), the United Kingdom (FTSE 100), and Japan (Japan 225).
Like forex, you can place trades in pairs, such as EUR/GBP, USD/CHF, GBP/JPY, USD/CAD, AUD/USD, AUD/JPY, EUR/JPY, GBP/USD, EUR/USD, USD/JPY.
Most platforms allow you to trade commodity options like crude oil, copper, corn, gold, silver, and natural gas.
Time of Options
When trading binary options, you can choose contracts that have an expiration of over (or up to) an hour, a day, or a week. Binary trading is growing in popularity among day traders, who choose hourly options in all types of market conditions. Daily options will expire at the closure of the markets. You can also select weekly options which will expire at the end of the trading week. Like day traders, swing traders are now cashing in on the binary market. You can also select contracts that are event-based and that expire after a news release, press release, or quarterly report.
Volatility and Binary Trading
Any volatility or risks in the underlying market will also be present in binary trades and the way that they are priced. Volatility refers to price fluctuations relative to the average price of an option over a course of time. Volatility is very important in binary trading. If you are clever, you can make a lot of money by paying attention to it.
A binary option is based on a yes or no proposition. The amount of money that you make, or lose, is determined by the option’s buy or sale price, and whether the option will expire at $0 or $100. You cannot make anything over $100, but equally, cannot make anything below $0. You can exit your option any time before its expiry and lock in your gains, or conversely, limit your losses.
You can trade binary options on a number of platforms, but they are ultimately all traded through the Chicago Board Options Exchange and the Nadex exchange. You should remember that despite binary trading’s simplicity and the ease of entering a trade, it is not something that you can automatically make money with. When trading binary options, there is always somebody else who thinks that you are wrong. You always have competition.
When binary trading, you can open a trade for an hour, a day, or a week. When the market closes, your trade is finished. This gives you the opportunity to day trade and swing trade. A day trader is a trader who opens and closes positions in a single day. It is a very risky, but potentially lucrative, method of trading. A swing trader does the same as a day trader but closes their position usually within a week.
When binary trading, you will be given the option to use a demo account. If you are not particularly experienced in binary trading, or trading in general, then you should definitely use this account until you are comfortable investing real money.
Caution Is Advised
Binary trading is generally a very safe way to make money, but as with all types of trading, there is the chance that you can lose your money. Even with the risk of loss, your losses will usually be small unless you are trading multiple positions at once. Binary trading is a great way for beginners to learn about trading.
Binary trading is easily accessible all over the world, thanks to platforms like Quotex. When you are binary trading, you must ensure that you only trade on legal platforms and markets. Illegal binary trading, up until recently, was very common. With this guide, you too can now conquer the world of binary trading. Thank you for reading.