Binary Options

Binary options are a financial instrument that has only two possible outcomes, as the term “binary” implies. It is a very simple form of trading done by predicting the direction of the market on stock, currencies or commodities.

Basically, a trader purchases an options contract on an underlying asset and then predicts if they feel the market will move upward (bullish) or downward (bearish) during a preset time period. They can either be right or wrong, there is no in-between. If they are correct in their prediction, regardless of which direction the market moves, they will make a profit. This is called in-the-money. However if they are incorrect in their prediction they lose their initial investment and they are considered out-of-the-money.

This financial market’s simplicity is one of the main reasons it has become very popular over the last few years, especially for the inexperienced trader. It requires no experience and no understanding of the complexities of the market. It is a very level playing field and all that is necessary for success is to be able to think clearly, analyze the options and choose the direction you think the market will go in a certain time period.

Example of a Binary Options Contract

Let us suppose that a person chooses to open a binary options contract on the EUR/USD for a call (They think the price will go UP) over a 15min period (other timeframes are also available). They invest $100 into the trade and the payout percentage is 75%. After 15min the price of the EUR/USD does indeed go up by a few pips and the trade ends “In The Money” paying out the trader a total of $175 ($75 profit). It didn’t matter how many pips the price went up, as long as it ended higher than it was when the contract was purchased. Now if the price didn’t go up and it ended lower than the original price. The trader would then have lost the trade which would have resulted in a total loss of their investment $100, however some binary options brokers do offer a small percentage on losing trades which is typically in the range of 15% of the initial investment. The main attraction to binary options trading is that there are no surprises, you know exactly how much you stand to win and how much you could lose before you place your trade.

Binary Options profits can earn successful traders extra income

Binary options traders are advised to track profits regardless, as these numbers can indicate a need to change trade strategies or tell the trader that he or she is on the right path. Everyone needs to know where their money is coming from, or going to, regardless of the source. Tracking can easily be done via computer, or even by simply writing the numbers down in a notebook. The tracking method is not nearly as important as the fact that it is being done.

The setting of goals is also wise. Those who wish to earn extra income from binary options trading should have a minimum monthly profit amount in mind. The number of trades required to meet the goal will vary. This can be dependent on the amount invested in each trade, as well as the volume of trades that are completed each month. Realistic goals should be established at first. However, the goal amount can certainly be raised as the binary options trader gains more experience.

Whether seeking a means of earning extra income, or seeking a total replacement of a job or career, the selection of the binary options broker is important. Those new to trading will have many brokers to choose from. Of these choices, some will offer higher payout percentages than others. It is important for experienced traders to realize they they are not locked into using the same broker. There is certainly no rule that states that the trader is not free to look elsewhere should another binary options broker be offering more.

Binary options trading has quickly become one of the most popular methods of padding an income. Tough economic times have forced many to take a hard look at their finances and figure out ways to increase earnings. With traditional trading being complicated and often requiring a large upfront deposit, many avoid this income possibility entirely. Binary options offer the simplicity, affordability, and flexibility required to make this method of trading a solid option for anyone wishing to earn extra money from home.

Fundamental Binary Options Trading Instruments

Being familiar with the various types of binary options trading instruments is very important. Beginner traders are encouraged to test out more than one instrument type, as many traders discover that they tend to be more successful with some types above others. The instruments listed below are among the most basic and will be offered by the vast majority of brokers. Due to the fact these are so popular, every single binary options trader should comprehend how they function.

Above/Below (Put or Call) Trades

Above or Below traders are also known as High/Low, Up/Down, or simply Put/Call. Regardless of title, this is the most fundamental of all binary options trading instruments. Most brokers use this trade form as an illustration for novice traders, as it is extremely simple and straightforward. This type of trade only calls for the trader to forecast whether the price of an asset is going to be above or below the strike price at the ending of the contract expiry period. The forecast of a higher price is known as Call. The forecast of a lower price is known as Put.

Boundary or Range Trades

Boundary trades and Range trades are the same, yet are referred to differently by brokers. This type of binary options trading instrument requires the trader to predict whether the asset price will remain within a specific price range, or will escape out of that range. When the upper and lower boundary are spread well apart, profit rates may be lower. Closer boundary price points are associated with a higher level of risk and therefore tend to offer higher potential profits.

One Touch or No Touch Trades

One Touch and No Touch trades also function with a fixed price, but in a distinct manner. This type of binary options trading calls for the trader to forecast whether or not the value of an asset will touch (or not touch) a target price prior to the expiry of the contract. To gain from One Touch trades, the price only needs to arrive at or surpass the target price at any time before the end of the expiry time period. To gain from No Touch trades, the asset price cannot touch or surpass the target price at any time throughout the expiry time period.

A number of binary options brokers present a variance of the One Touch/No Touch trading instruments. These are known as Double Touch or Double No Touch. When using these trades, there are two distinct target price points, with the asset price having to touch (or not touch) one of the two while the contract is open. This form of trading is most often done when the marketplace is unstable and asset prices are shifting about in a number of different price degrees.

Each of these basic binary options trading instruments will have an expiry time. Some brokers offer you expiry times as brief as 60 seconds or as lengthy as a month. Those who want to test out their abilities while learning the end result of their trades rapidly may wish to opt for the faster contract expiry times. Irrespective of expiry time, traders should test out the various types of trading instruments to see which they are most successful with.

Binary Options Broker Payout Percentages: Is Higher Always Better?

It is not uncommon for binary options traders to select a broker based on nothing more than the maximum payout percentage that is being offered. This comes as no surprise, as everyone wishes to receive the highest return on their investment for each and every trade that ends in the money. However, all traders need to consider whether higher percentages are always better. It is quite possible that they may not be. There are many different factors that work together to provide an excellent binary options trading experience. High payout are just one of these.

The maximum payout percentages offered by brokers today range from around 70% to 90% on standard trades. The payout percentages on high yield trades will be much higher, possible exceeding 500%. At first glance, the higher percentage certainly seems better, but there are other considerations that need to be made. It is possible that a broker offering an extremely high payout percentage could be part of a binary options scam. Though these are rare now, they can still occur for a short period of time before being exposed.

Other factors such as the platform, instrument variety, and underlying assets provided should also be considered. Should binary options trading opportunities be limited, a high payout percentage will be rendered less attractive. Customer service and timely payouts will also need to be considered. Earning a great deal of profit is wonderful. However, if it is a struggle to receive the profits earned, that higher payout percentage suddenly becomes less attractive.

Another important consideration will be refund percentages. These are offered by some binary options brokers on trades that end out of the money. It is not uncommon for a broker that offers high return percentages to not offer refund percentages. Why? They likely cannot afford to offer both. Refunds can be extremely important to to traders, as they guarantee that some of the investment amount will be returned even if their prediction is wrong. There is absolutely nothing wrong with selecting a binary options broker that offers maximum percentages in the 70’s so long as they are offering refund percentages in the 10-15% range.

Maximum payout percentages are just that – the maximum amount of return on the investment should it be successful. Not all trade types will offer this maximum return. In fact, many will not. For this reason, it will be important to read broker reviews to find out what the average payout offered by each binary options broker actually is. With this being the amount that will be offered more frequently, it is this number of range that should take precedence when judging this broker element.

Brokers routinely advertise their maximum payout percentage in an effort to draw in new traders. Reliable brokers are indeed offering the higher percentages that they advertise. However, traders are advised to consider what other features the broker is offering and not base broker selection solely on the highest payout percentage. There is much more to consider. Take the time to read broker reviews in full before making the final decision, and if possible, make use of demo accounts to fully test the broker platform.

How Expiry Times Impact Your Profits

The connection between expiry time periods and overall profits in binary options trading often goes unmentioned. Many are simply more focused on assets, trading instruments, and now supplemental trade features to devote time to linking expiry times and earnings. There is a strong link and therefore traders are advised to be mindful of how contract times play a huge role in successes and failures.

The primary reasoning behind the use of reduced expiry times is to merely have the ability to generate profits faster. Short expiry times have grown to be favored by binary options traders who’d rather not wait a long period to time to know the outcomes of their investments. With regards to money management, reduced expiry times may be utilized to replace losses and bring back accounts to a decent level. This, needless to say, is only going to work if you’re trading well. Short expiry times may also make it possible for losses to accumulate rapidly, so keep this in mind.

Extended expiry times demand a higher level of patience, but are good in that they can enable steady profit growth. Certain trading instruments work better with extended expiry times. There isn’t any hard evidence that extended expiry times are going to be more profitable than brief expiry times. There are simply too many variables to consider. Even so, there are going to be times when more time is needed in order to allow an asset price to perform the needed movement. Extended expiry times are going to lock up your chosen investment amount, so remain mindful of this.

Among these two you’re going to find 24 hour/one day expiry periods. This time period can be ideal for traders who are fearful of building up rapid losses, but have no desire to tie up their funds for a prolonged length of time. Analysis is commonly viewed as being simpler to accomplish with regards to smaller expiry times. Even so, 24 hour binary options investments aren’t so extensive that it’s going to be difficult to use analysis to arrive at an appropriate prediction. Provided that technical and fundamental analysis are completed, single day trades can be extremely profitable.

The primary money management technique of committing a set amount of total account funds to each investment can easily be used irrespective of expiry time. The primary concern needs to be the time frame throughout which your funds are going to be bound while holding out to learn the outcome of your investments. Shorter expiry times are obviously not going to tie up your money for very long and many view this as another advantage of fast trading.

A plan that helps one trader may not necessarily be helpful to another. Believe it or not, this is in fact among the many positive aspects of binary options trading. There are going to be a good amount of chances to personalize your investment experience so as to make it as sound and rewarding as you possibly can.

The History of Binary Options Trading

Option trading is not a new concept and has in fact been around for a long time. Until recently, it was only an OTC or over the counter type of transaction which was not regulated. The Chicago Board of Trade formed the Chicago Board Options Exchange (CBOE) in 1973 and this gave a regulated platform from which options could be traded. After it was established, several other markets began to add options to their rosters.

The increase of regulations has meant more reliable transactions. It did not take long before the OCC (Options Clearing Corporation) was formed to enforce transparency in the market. This was to ensure that traders were buying and selling what they said they were. If traders do not comply with the rules they are banned, either temporarily or permanently.

Binary options are just another form of options trading. It is still an exotic trade but it leaves less to speculation and is much simpler. Since they were treated only as an OTC instrument for years they were not regulated and there was no liquidity. Binary options were simply a very small part of larger contracts for many years; it has taken years for it to evolve into a single purchase made by a trader.

This changed drastically in 2007 when the Options Clearing Corporation proposed to change rules which would allow for trading of binary options on the major markets. The SEC approved this change in early 2008 which allowed markets to begin to list binary options as a tradable contract. The American Stock Exchange was the first to offer binary options publically in May, 2008. The CBOE began doing the same in June of this same year.

As technology has advanced trading in binary options has experienced widespread growth. Trades can be made online and because of these online platforms there is a greater variety of underlying assets and trading instruments available. These increased options and ease of trading have led to exponential growth over the last few years.

Most of the online brokers have physical locations in Israel and more than half are located in Cyprus due to tax reasons. As it continues to be a digitally based financial market, it continues to grow and literally thousands of new traders are being added at a current growth rate of 35 to 55% each month. At this rate it will not take long for binary options to reach the same levels as the Forex Market which is a $5 trillion USD market.

How is Binary Options Different from Vanilla Options?

Many people confuse Binary Options with Vanilla Options. But the two are very different in some very basic areas. The first area that they differ is in the pattern of trading. Binary Options are traded around the world and prices for options are easily accessed and available. Their value comes from either the consumer price or producer price index. The price of Vanilla options is very difficult to locate so it makes them much more difficult to trade. Binary Options expire at a certain time that is preset. This can be at the end of the day, a week or a month. But Vanilla options will expire monthly or quarterly only.

Another difference in these two trading options is that those who purchase Vanilla options have a very limited opportunity to alter their position. Binary Options allow buyers some altering of position based on changes to the asset. And one more difference pertains to the rate of return. For Binary Options the payout is set at the time the contract is purchased. When purchasing Vanilla Options the payout is not a set rate; or it is not determined before the purchase of the contract. The payout on these terms is the found by taking the difference between the ending price and the purchase price of the asset.

Is Binary Options Trading Gambling?

It is not unusual to notice binary options trading and gambling being talked about in the exact same manner. There are numerous factors driving this. For starters, there is no international regulation set up at this time. Secondly, traders are generating a forecast of asset price movement and not in fact investing in asset stock. Lastly, there is indeed risk required. Of these factors, none are completely unique to options trading. With this being the case, almost any form of trading could be viewed as a form of gambling in some manner.

Risk and gambling, though often inter-weaved, should never be mixed up. Risk is a thing that is present in numerous situations, including both conventional trading and binary options trading. Genuine gambling is frequently based solely on chance, with the house having the edge. Trading is distinct in that the trader is equipped with the resources and power on some level to manage the end result. Analysis and strategies can also be used to decrease risk and boost the chances of more trades resulting in profit.

The prospective to generate a significant amount of money in a brief period of time is yet one more reason why trading is frequently known to as a type of gambling. Just as a casino player could win big when actively playing a slot machine just once, a options trader may find themselves with significant earnings in only one minute when utilizing 60 Second trades. This scenario enables you to see why a connection between the two has been established. Even so, trading consists of considerably more than tugging a handle and wishing for the best.

To increase the overall bafflement, in certain locations options trading is categorized within local gambling laws and regulations. This is because of the fact that binary options continue to be branded as a financial instrument at this point. The laws that regulate this financial instrument are frequently left in the hands of regional government. In well-known broker headquarter hot spot, Cyprus, modifications have been integrated to deal with regulation problems. Here, regulation requirements and laws have grown to be much more demanding on brokers.

Although trading should never be viewed exactly the same as gambling. Individuals who do not invest the time required to find out how to trade correctly, deciding instead to execute unfounded trades, may very well believe that they are indeed gambling. In such a scenario, an option that is invested in without undertaking research could very easily end in a loss of the investment funds. Of course a well planned trade could end in a loss as well. Even so, in this situation the risk would to some degree have at least been managed.

Irrespective of what other titles it is given, binary options trading has been a solid income generation method for a number of years now. It was authorized by the SEC back in 2008, and regulation proceeds to expand. Individuals who decide to begin trading right now will discover that trading is more secure than it ever has been. Expect to see security levels to continue to increase in the upcoming months.

What are the Main Advantages of Binary Options?

The profits on Binary Options can be considerable when the assets end up “in the money.” One of the advantages to this type of trading is that it is a relatively simple process; it is as simple as an up or down estimation. Buyers also know exactly what their returns will be before the purchase. Since they are such a simple way to trade, they are a great place for novice traders to begin. Traders also have the opportunity to set the expiration option. It is a short term method of trading and this allows for several transactions to take place each day which means that there can be profits generated on a regular basis. And finally, Binary Options has a much larger return when compared to other types of trading. On average, payout is somewhere around 71 percent.

What Not To Do When Trading Binary Options

There is plenty of information available to binary options traders. A great deal of this information will provide guidance and tell the trader what steps should be taken in order to be successful. While this information is wonderful, it is equally important to know what not to do when trading. It is this type of information that could prevent the trader from making costly mistakes.

First we should consider the trader that wants to trade based solely on gut instinct. This would equate to making an investment based on nothing more than a feeling or guess. While instinct can be factored in, it should never be the only consideration. Research and analysis should account for the major portion of the decision making process. Experienced binary options traders could easily make this mistake, as a higher level of experience could bring with it a feeling of comfort in making predictions.

Regardless of skill level, traders should not invest all of their funds on one trade unless they can afford to do so. Even when the binary options investment appears to be a sure thing, there is always risk involved. New traders may make this mistake, as it can take some time to learn good money management skills. This common mistake can easily be avoided by spreading funds out amongst several trades. By spreading investments out, the trader at least has a chance of offsetting losses, breaking even, or ending up with profits.

Another common mistake that is often made by new binary options traders takes place in the broker selection process. No broker should ever been chosen based on only one factor. For example, a hefty bonus could easily sway a new trader. This bonus will do little good if the broker does not offer a solid platform, excellent customer service, and reliable payouts. Even worse, the bonus amount would equate to nothing should the broker be part of a scam. By researching all elements, the binary options trader can ensure that they have selected the best possible broker.

Ignoring market news and current events is also a mistake. Even if hours are spent researching underlying asset numbers, one local event could easily change the outcome. This event could be weather related, governmental changes, or anything that changes market sentiment. It is important to note that the event need not be major in order to have an effect on the value of an asset. Ignoring binary options asset news could wind up costing the trader a significant amount of money. With a plethora of news sources available online, there is no reason to ever make this mistake.

The simplicity of binary options trading works to not leave much room for error. However, mistakes can still be made. These mistakes can be made by not only novice traders, but also those at the intermediate and advanced levels as well. By knowing what not to do when trading binary options, the right actions will immediately become much clearer. Education is, and will always be the key to profiting through binary options trading.

Re-Investment of Binary Options Trading Profits

Few things are as exciting as seeing the amount of binary options trading profits accumulate in the broker account. Any portion of this amount can be re-invested in future trades. Though it can be tempting to withdraw all of the profit earned each month, it is wise to reserve some amount for future trading.

This is especially true should the binary options broker require higher minimum deposit levels.

Re-investment and money management are closely linked. A common mistake made mainly by novice binary options traders is becoming over-confident once profits begin to accumulate. This confidence may prompt the trader to make larger investments or accept higher risk levels. This common mistake can cause profits to dwindle quickly, which will of course be discouraging. Many traders have learned this lesson the hard way, which is a shame as this mistake is easily avoided.

By paying close attention to the strategies that were successful in bringing in profits, re-investment can quickly be used to earn even more money. This is what makes tracking so important. Without tracking, one may never know what is, or is not working. Success trends should be quite apparent when tracking, making it easy to know how profits should be re-invested.

Limiting risk and increase profit percentages will become attainable goals when tracking progress.

Another problem that binary options traders need to avoid is not treating profits as real money. Though the amount may seem to be just a number on the screen, it is much more than that. Both profit and loss amounts should always be viewed as cash money. In doing so, traders can better decide how much risk to absorb and determine what the most reasonable investment amount will be on each trade. Though it can be a lot of fun, binary options trading is in no way a game and should never be treated as such.

The money circle of increasing profits

Profit amounts could be re-invested as a means to test new strategies, assets, or trade types. Very few serious binary options traders limit themselves to one asset or trade type. With so many earning possibilities, this comes as no surprise. Investment amounts should be limited during testing phases. While it is often true that no serious reward comes without taking a risk, there is no reason to risk quickly depleting profits when experimenting with different strategies or types of trades.

The absolute best case scenario when re-investing binary options trading profits is that the trader never needs to make another deposit with the broker. While this is not common, it is possible. Traders should realistically set a goal of reducing the need to make multiple deposits over the course of the year.

Re-investment and money management can make this goal a reality.

Should the trader ever find the need to withdraw all profits in order to meet expenses, he or she can do so. Some may also initiate a total withdrawal when changing brokers. No binary options broker can require that any portion of trader profits be re-invested in future trades. Most choose to do this simply because it is the smartest move when trading over the long term.

Binary Options Demo Account

Demo accounts can be a powerful tool for new and experienced traders alike. These practice accounts provide access to binary options broker platforms, with many allowing traders to carry out no-risk fictional trades. The benefit of this would be two-fold, with the trader learning how to trade and the outcome of fictional trades showing the broker just how successful he or she would be had actual money been invested.

Demo accounts come in two forms. The most common would be the basic free account which allows binary options traders to examine the platform, take advantage of educational materials, and understand more about what the broker actually has to offer. These basic accounts do not allow for fictional, or simulated trading. The second type of demo account will provide the same benefits of access to tools and materials, but will also provide the option to participate in simulated trading.

Most consider binary options demo accounts that provide simulated trading the better option. However, anytime a broker provides plenty of tools there will be value in taking the time to create a free account in order to access these materials. Binary options trading is similar to many other activities in that the more you know, the more success you will experience. Avoiding a broker simply because they do not provide simulated trading could prove to be a mistake, so be careful when forming opinions based on the availability of a demo account alone.

The following are just a few of the binary options brokers which are considered to be reliable choices and offer some form of free or demo account to traders who wish to explore the trading platform they provide, as well as to learn how to trade binary options. Each of these binary options brokers provide tools and educational materials in some form. There are no limits as to how many brokers a trader can create an account with. Feel free to select one or more of the following brokers.

Binary Options Demo Account Tips

What is most important to remember when creating a free account or demo account is that full advantage is taken of the tools which are being provided. In many cases, demo accounts that provide simulated trading are only made available for a period of a few days. After this time period has passed, a decision will need to be made in regard to whether or not to deposit funds and begin live trading. If the demo account has not been used, this decision can be a difficult one.

There are no limits to the number of brokers that a free or demo account can be created with. However, for the new binary options trader, focusing on no more than two at a time will be beneficial. Creating more accounts simultaneously can cause unnecessary confusion. Once the tools of one or two brokers have been fully examined, it will then be safe to move on to examining other brokers.

Note that binary options scams can be brought to light through the use of demo accounts. Though scams have become quite rare within the binary options industry thanks to online information spreading so quickly, there does remain the potential of cheating. Simulate trading provides insight into the live financial data feed, as well as how quickly a profit or loss is registered at the end of the expiry time. Binary options scams are not always easy to detect. However, demo accounts can be used to spot red flags.

Demo accounts and free accounts will remain an integral part of the binary options trading world well into the future. These accounts provide benefits to both the trader and the broker who desires your business. Since these accounts come with no financial risk, there is simply no reason not to take advantage of all the benefits they provide.

The Seven Steps To Trading Binary Options

Are you preparing to trade binary options for the very first time? If so, get ready to be pleasantly surprised by just how simple and lucrative this form of trading can truly be. The following is a six-step guide that will allow you start trading in an hour or less. Even better, it will allow you to get of to a great start.

1. Open An Account With A Binary Options Broker


2. Select Your Instrument

When trading, you’ll likely have access to many different instruments including: Put/Call, 60 Seconds, Long Term, One Touch, and Pairs. The least complicated options for newcomers will be the basic binary options (Put/Call). These are the trades that only call for a forecast of up or down price motion.

3. Select Your Underlying Asset

Most brokers offer over 100 underlying assets to choose from. These can be stocks, commodities, currency pairs, or indices. A larger variety will be very helpful when tracking down easy earnings opportunities. Ideally, you’ll want to have access to 50 or more assets.

4. Complete the Task Of Analysis

Elaborate technical analysis is not necessary during the early stages of trading. However, do analyze past and present price motion. This can be accomplished by looking at the live asset charts provided by your binary options broker. Fundamental analysis involves taking a look at the most recent market news associated with your chosen asset.

5. Select An Expiration Time

When trading with most modern brokers, you can enter into positions with expiration times of as short as one minute or as long as one year. Your chosen expiration time should match with the analysis that you’ve carried out. For instance, if a short-term trend is occurring, you’d need to choose a shorter expiration time.

6. Enter Your Prediction

For a forecast of a price increase, CALL will be the proper selection. For a forecast of a price decrease, PUT will be the proper selection. Other types of decisions will need to be made for the other available instruments. Be sure to read about each before using them.

7. Choose Your Investment Amount

This is an vital decision for young traders. The best recommendation is to only give consideration to sensible investment amounts in order to refrain from quickly depleting your account with a few mistakes. Many binary options brokers allow traders to use $5 and $10 investment sums, a fact which can limit losses.

Follow these seven basic steps and you will get your trading career off to the best possible start!