What is a Binary Option and How Do You Make Money?

A binary option is a fast and simple financial instrument which allows investors to speculate on the price of an asset and if it will go up or down in the future, for example the price of a stock, the price of a crypto currency, the Forex exchange rate, the price of oil etc.

The time span can be as little as 60 seconds, making it possible to trade hundreds of times per day across any global market.

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Before you place a trade you know exactly how much you stand to gain if your prediction is correct, usually 70-95% – if you invest $100 you will receive a credit of $170 – $195 on a successful trade. This makes risk management and trading decisions much more simple.

The outcome is always a Yes or No answer – you either win it all or you lose it all – hence it being a “binary” option. The risk and reward is known in advance and this structured payoff is one of the attractions.

Exchange traded binaries are also now available, meaning traders are not trading against the broker.

To get started trading you first need a regulated broker account (or licensed). Pick one from the recommended brokers list, where only brokers that have shown themselves to be trustworthy are included. The top broker has been selected as the best choice for most traders.

If you are completely new to binary options you can open a demo account with most brokers, to try out their platform and see what it’s like to trade before you deposit real money.

We Suggest the following  Brokers for trading Binary Options:

Brokers 
Regulated Min Deposit
Demo Account
$10
$100
$10

Option Types

The most common type of binary option is the simple “Up/Down” trade.

There are however, different types of option. The one common factor, is that the outcome will have a “binary” result (Yes or No). Here are some of the types available:

  • Up/Down or High/Low – The basic and most common binary option. Will a price finish higher or lower than the current price a the time of expiry.
  • In/Out, Range or Boundary – This option sets a “high” figure and “low” figure. Traders predict whether the price will finish within, or outside, of these levels (or ‘boundaries’).
  • Touch/No Touch – These have set levels, higher or lower than the current price. The trader has to predict whether the actual price will ‘touch’ those levels at any point between the time of the trade an expiry.
    Note with a touch option, that the trade can close before the expiry time – if the price level is touched before the option expires, then the “Touch” option will payout immediately, regardless of whether the price moves away from the touch level afterwards.
  • Ladder – These options behave like a normal Up/Down trade, but rather than using the current strike price, the ladder will have preset price levels (‘laddered’ progressively up or down).These can often be some way from the current strike price.As these options generally need a significant price move, payouts will often go beyond 100% – but both sides of the trade may not be available.

How to Trade – Step by Step

Below is a step by step guide to placing a binary trade:

  1. Choose a broker
  2. Select the asset or market to trade – Assets lists are huge, and cover Commodities, Stocks, Cryptocurrency, Forex or Indices. The price of oil, or a stock price.
  3. Select the expiry time – Options can expire anywhere between 30 seconds up to a year.
  4. Set the size of the trade – Remember 100% of the investment is at risk so consider the trade amount carefully.
  5. Click Call / Put or Buy / Sell – Will the asset value rise or fall? Some broker label buttons differently.
  6. Check and confirm the trade – Many brokers give traders a chance to ensure the details are correct before confirming the trade.

 

Demo Video

Below is a demo video of IQ Option (one of the brokers we reccomand).
The demo includes how users can amend the trading area to suit their own needs. It shows how to check the same price chart over more than one timeframe, how to add technical analysis overlays and how all this can improve trading results.

While the video is not an out and out tutorial, it does deliver a full demo of the user experience, the new trading platform, and how it differs from other binary options broker platforms.

 

 

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