How to Trade the US Indices with Binary Options

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Binary Options Guide: The Truth About Binary Options

Trading binary options can seem deceptively simple, but leaning too far into that notion can blind people to some of the risks that often accompany this type of trading.

Before I go any further, I want to make it clear I’m not a binary options trader. I trade penny stocks and teach day trading. I’d love to see you join the Trading Challenge — it’s the result of over two decades of trading and a decade of teaching. It’s awesome.

If you’re interested in taking the binary options path, it’s critically important to understand exactly what you’re getting into and set appropriate expectations. And you should get a mentor who trades binary options. Seriously. Preparation is key.

Again, I don’t trade binaries. For the most part I think they’re scams. Can you trade them successfully? There are successful traders in every niche. But most traders lose. That’s the reality of the industry.

It doesn’t matter if you’re trading forex, penny stocks, options, big caps, or … binary options. Most traders lose and most trading teachers don’t want you to know about it. So I’m going to tell you about binary options in this post. But I don’t trade them and I don’t recommend it.

Will trading binary options enable you to buy a villa in the South of France next year? Probably not. Will they allow you to quit your full-time job and finally start on that novel you’ve always wanted to write? Don’t count on it.

Here, we’ll take a look at what binary options trading is all about and you can decide whether it’s right for you. As you read, keep in mind that binary options are getting outlawed in more and more countries. Companies are getting shut down. Or they’re based overseas in places where you can’t sue them. More on that later.

Table of Contents

What Are Binary Options?

Before we dive into specific binary options trading strategies, let’s review exactly what binary options are. According to Investopedia’s definition:

A binary option, or asset-or-nothing option, is a type of option in which the payoff is structured to be either a fixed amount of compensation if the option expires in the money, or nothing at all if the option expires out of the money. The success of a binary option is thus based on a yes or no proposition, hence “binary”. A binary option automatically exercises, meaning the option holder does not have the choice to buy or sell the underlying asset.

At the core, binary options are based on a yes or no proposition. You must decide whether you believe an underlying asset will be above or below a specific price at a specific time.

Binary trades are ruled by expiry times. These time constraints indicate how long you have to make your predictions regarding whether you believe an underlying asset will be above or below a specific price at a specific time. Once the expiration limit occurs, your predictions determine whether you gained or lost money.

Expiration times vary from binary option to binary option. Some of these minimums are known as short expires, which means the expiration date is actually within mere minutes of the buy-in.

There are medium and long expiries, as well. For medium expiries, the deadline could be anywhere from two to five hours. Long expiries typically last between two and 24 hours. Many experts believe that longer expiration times can help make predictions easier.

What Are the Underlying Assets of Binary Options?

In order to participate in binary options trading, you must first have ownership of an asset that can be optioned for a fixed amount. The types of assets common in binary options include stocks, indices, commodities, and currencies. Many binary traders chooses to trade with stocks, as this option can allow them to get high returns within a short span of time.

Along with indices and commodities, currencies are another popular binary option vehicle. Since currencies are liquid and often subject to dynamic price fluctuation, many traders choose to analyze their binary options across the complex — and often shifting — global currency market.

A quick aside since we’re talking about forex. Be aware that the forex market is among the most difficult to trade. Why?

Because it’s the biggest and most liquid market in the world. You’re up against the smartest, richest, and often most experienced traders in the world. Personally, I don’t want to compete against that. Plus, the forex markets move so fast on news you don’t have access to, that there’s no edge whatsoever.

And now, a new asset has emerged: cryptocurrency. I don’t trade crypto, either. I’ve traded the random crypto-based stock. But this is a whole niche unto itself and I’m happy with penny stocks. Crypto has its own version of binary options — which is why I’ve included it here.

Led by Bitcoin, this new, digital currency class is intriguing investors around the world who see the digitization of finances as the way of the future.

According to Options Advice, there are two prominent ways you can capitalize on Bitcoin binary options. The first strategy is by trading on what you think the imminent fluctuation of Bitcoin might be, and the second is trading regular options with Bitcoins as your currency.

If you’re interested in taking the cryptocurrency binary options route, I strongly suggest familiarizing yourself as much as possible with the trends dictating the ebbs and flows of the altcoin market.

An entire niche financial industry has been built up around educating consumers and future investors of digital coins and tokens. From resources like Cryptoslate to ICO listing sites like Coinschedule, there are many resources available to help you make the most strategic crypto trading moves possible.

There are also a lot of scams. And strange happenings. Like when a crypto exchange CEO died with the ONLY key to $137 million in crypto. Ouch. More than 100,000 cryptocurrency holders learned a very hard lesson. Back to binary options …

What is a Call and What is a Put?

Two of the most common terms you’ll hear throughout the binary options world are call and put. These two labels represent the market positions of binary options.

You typically choose to call if it looks like the value will rise within the confines of the expiry time.

Options also have a strike price, which is the price at which the security would be bought or sold.

If you choose to call, you’re signifying your confidence that a stock will rise within the time limitations. If the stock valuation moves upward at all, you’ll receive both your initial investment as well as the return.

On the opposite end of the spectrum, a put signifies your confidence that the valuation of a stock will drop within a certain time limitation. So if you predict that a stock valuation will decline before the expiration date, and the stock does dwindle, you will have succeeded at that trade and will receive your initial investment — as well as the trade — back.

What Are Other Types of Binary Options?

Beyond call and put options, there are other distinguishing factors that separate binary options from one another.

This guide from Binary Tribune delves more specifically into binary options types based on the number of interactions a trader must initiate with the trade. The levels include one-touch, no-touch, double one-touch, double no-touch, and paired options.

Let’s take a look one-touch and no-touch options …

Essentially, a one-touch binary option indicates that in order for you to receive a payout, a trigger (or predefined barrier) must be reached. Traders often choose one-touch if they feel confident that a stock will move in a certain direction at a minimum amount.

The option only has to meet the predefined trigger level once (hence the “one-touch” term). However, as indicated by Binary Tribune, this strategy is often accompanied by some risk.

Beyond simply calling or putting, you also must feel confident that a certain valuation threshold will be crossed. However, with greater risk often comes greater reward.

In contrast, a no-touch binary option essentially depends on a trigger level not being reached.

Rather than hedging your bets that the valuation of a stock will rise above or dip below a specified amount, you’re betting that the trade will not dip above or below an amount.

Because you’re making the trade with the intention that a threshold will not be crossed in either direction, it’s referred to as “no-touch.” Like their one-touch counterparts, these trades come with greater reward — and risk — potential.

I liken one-touch and no-touch calls and puts to something like an electronic stop-loss. The problem is, you don’t have control. You’d better be damned sure you’re right. Which is impossible.

What Are the Pros and Cons of Binary Options?

Now that you understand binary options basics and the different factors between them, you might be wondering whether this type of trading aligns with your goals. Let’s weigh the pros and cons.

We’ll start with the benefits …

Low Barrier to Entry. You don’t need a masters in economics to engage in this kind of trading. For this reason, many first-timers enter the trading arena through buying and selling binary options. Comparatively, binary trading is relatively simple. When compared directly to other types of trading, including quantitative or arbitrage, trading binary options is straightforward.

Fast Returns. Many traders are eager to see fast results and liquidate within a specific time frame. Those who play the long game (investors) are typically most concerned with growing their money steadily over long periods of time. Many opt to invest in index funds, IRAs, or bonds. Trading binary options is fast paced.

Thing is … you can get all the speed you need trading penny stocks. So, while binary options might be a fast game, the reward might not be worth the risk.

High Rewards. Binary options trading is touted by those who promote it as high reward. It’s possible to receive up to a 70% return on their investments if your binary trades reach your expiration dates in the money. This high average return is what makes this type of trading vehicle attractive to many novice and expert traders.

As explained by Investopedia, the risk on binary options is capped off, so while the rewards could yield high returns, you can’t lose more than the cost of a trade.

Low Cost. If you’re just getting started with trading, there’s a good chance you don’t have excess capital lying around to snatch up shares of the fastest-rising stocks on the market. Binary trades offer an alternative to other types of investments that require high-capital buy-ins.

In theory, you can experiment with a binary trade for any amount you’d like, whether it’s $5 or $50. Starting small and working your way up to bigger trade amounts incrementally is a great way to learn the lay of the land.

As you familiarize yourself with expirations, strike prices and — if you’re interested in one- and no-touch options — triggers, it’s best to gamble with an expendable amount that won’t derail your entire financial status. Notice I used the word gamble — just sayin’.

Accessibility. Binary trading platforms make it easy to trade on any day and at any time. When it comes to binary options, traders aren’t necessarily beholden to standard market times and broker availability.

Now, let’s explore some of the disadvantages of binary trading …

Scams. Conduct any Google search on binary trades and one of the first things you’ll likely notice are the abundance of hits warning against binary scams and shady binary brokers.

Remember when I said I’d get back to the part about shady companies? Here goes …

… and I say this to protect and warn you.

Like I said, these companies are often based overseas. Places like Cyprus. (I have nothing against Cyprus. It’s a beautiful country with amazing people.) Anyway, these companies are based in places where you can’t sue them if they screw you.

Then you sign away pretty much your entire life in the forms they make you fill out. Your odds of winning are so low the brokers who do it are pretty much laughing at you. They’re laughing that so many people fall for this crap. It’s like going to the casino.

So, if you come across a binary broker that sounds too good to be true, it’s because he or she most likely is. And if you come across a binary broker who doesn’t let you liquidate your investment, run in the other direction.

Short term. Binary trades have expiration dates that are often fairly short windows of time. Given this, it’s impossible to use binary options as mechanisms for long-term investments. Which, of course, I don’t mind because I day-trade and teach day-trading. But if you’re looking for buy-and-hold investing, binary options aren’t the right solution.

Can You Really Make Money with Binary Options?

Short answer: It’s possible, but you MUST know what you’re doing. Like I keep saying. Most traders lose. Doesn’t matter the niche. I would never trade binary options. Ever. Your choice, I’m just tryin’ to keep it real.

If you’re serious about binary trading, start small. By making small trades and working your way up, you give yourself breathing room to assess market trends and develop the necessary skills.

As is the case with many types of trading, history is sometimes the best predictor of the future. Many successful binary options traders experience trading wins and financial growth because they’ve spent time studying and familiarizing themselves with market movements.

Wait. Does this sound familiar? Yep. You guessed it: you can’t cheat your way to success. Doesn’t matter the niche. I don’t trade binary options. I don’t recommend you trade them. But if you decide it’s for you then prepare yourself. Study your ass off.

Learning common candlestick patterns can make it easy to spot recurring trading patterns. If you want to understand candlestick patterns — and you do if you are serious about trading — I recommend you get a copy of the classic “Japanese Candlestick Charting Techniques” by Steve Nison. Doesn’t matter which niche you trade, this book should be on your bookshelf.

Of course, trading patterns are never 100 percent accurate, so don’t fool yourself into thinking of them as absolute stock predictions. However, the more you can learn about patterns and begin to recognize them yourself, the more likely you’ll be comfortable making your own options decisions.

Naturally, binary options contain risk. And by now you know my take. I pretty much think they’re scams. But there are differing opinions and some even consider them safe trading routes. I’m not gonna tell you not to trade them. I recommend you don’t. I’ll be interested to hear back from you. When you’re ready to trade the way I teach … apply for the Trading Challenge.

While it’s legal to trade binary options within the United States, they’re only available to trade on Commodity Futures Trading Commission (CFTC) regulated exchanges within the country.

Binary options traded outside the U.S. are structured differently to those traded here. You can learn more in this article on Investopedia: What You Need To Know About Binary Options Outside the U.S.

The Bottom Line

The good: Some traders like binary options because they are traded at fixed costs. You know where you stand.

The bad: Binary investments are too much like flipping a coin, there are too many scams, and your odds of winning are so low you might as well go to the casino.

The bottom line: Educate yourself like crazy. Avoid sketchy brokers. Start small and work your way up. Remain vigilant. Stick with these rules, and someday you might reach your trading goals. Will you do it with binary options? I doubt it. But you might prove me wrong.

Want to Try Binary Options Trading?

At this point, I hope I’ve shed enough light on binary options trading that you don’t do it. But … you might be thinking about giving binary options trading a shot. If you do, study your butt off. Get a mentor. Don’t screw around. The best of the best in every niche work with a mentor.

Trading — any type of trading — can quickly become complicated. Like any other sector of trading, it’s important to seek out an education before you attempt to invest in this way. I can’t help you trade binary options. But I can help you learn to trade penny stocks …

Is the Trading Challenge for You?

As a teacher I want to help my students forge long-term, sustainable careers as traders. The Trading Challenge can help you reach your goals through risk-averse, conservative trading.

Plus, my best students — those who have become millionaires themselves — join me in coaching you.

What do you get?

  • Wednesday morning live trading webinar. I show you live trades so you can see how it’s done. And it’s not only wins. These are true live trades. Sometimes I lose. But you’ll see how fast I cut losses and why I get out so fast when things turn against me.
  • Wednesday evening live lesson and Q&A. No matter where I am in the world. This is killer stuff.
  • Thursday live trading & review with Mark Croock. @thehonestcroock is at it every Thursday. You don’t want to miss this. Mark is one of my best students/teachers. He’s constantly in the challenge chat room alerting students.
  • Annual Penny Stocking Silver Membership. You need this. Thousands of hours of video lessons and archived webinars. Immerse yourself. This is how to get good fast.
  • PLUS: Two monthly bonus webinars by my top student Tim Grittani. It won’t take long to understand how Tim went from $1,500 to where he is now when you see how meticulous he is about his trades. Learn from a master.

WAIT! There’s more …

I always wanted to write that. Anyway, there is more, but you have to apply for the Trading Challenge to get it. Simple.

Will you be my next success story?

Conclusion

As you’ve now learned, if you study hard, start small, keep your scam radar on high alert, and stay educated, then becoming a successful trader is possible. But it’s not easy. So don’t even think about doing it if you’re not willing to work hard.

As for binary options …

Look, whatever you decide, it’s about how much time and effort you put into learning. I don’t think binary options are a good way to go. Plain and simple. But there are success stories.

If you’d rather learn what I teach, then apply for the Trading Challenge. But no lazy losers allowed. Seriously. Only join the Trading Challenge if you’re willing to work hard.

Are you a trader? Do you trade binary options? Comment below and let your fellow traders know how it works for you. Even if you are brand new, I love to hear from readers. Comment below!

Learn How To Trade Binary Options Successfully And Profitably

How to trade binary options, is a question frequently asked by beginners including our readers. So, we aim to give you a proper solution through this article.

Binary options are popular because of its simple trading nature, with a fixed return percentage. Despite its simplistic nature, many traders use on their binary trades far more often than you think.

It boils down to reasons such as lack of trading knowledge, experience, or choosing the wrong broker. Whatever the reason may be there must be a clear plan ahead of trading, so you don’t face ill-consequences in your trading result.

Before enlightening you with the step by step guideline on how to trade binary options profitably, we will give a short brief on what binary options are.

What Are Binary Options?

We are going to explain a basic concept on binary options here, but for detailed information, read what is binary options trading article.

Binary Option is an investment type where you have two outcomes, all or nothing. It has also a fixed expiration.

You have to accurately predict the outcome with an expiry time to make a profit. Either you will win a trade or lose all the money that you have invested for a particular trade. Moreover, you can perform binary trade in two ways.

  • Manual Trading
  • Automated Trading

In manual trading, you do all the hard-work and place the trades yourself using trading strategies . But in auto-trading, automated trading software does the trading for you, using a build-in trading strategy.

Which method you use for trading depends entirely on your preference. If you are a new trader, you might take help from a trading robot in exchange for a price. Or you can learn the basics of trading, and do it yourself.

Binary Trading Example

You already know through our citation that binary options give you a fixed payout and loss amount. To power-up your trading journey, you must have to follow some rules.

Before jumping to those specific points, we will try to connect your existing knowledge with a small example.

James Chen from Investopedia explains binary options trade with the help of an example.

Assume stock XYZ is currently trading at $64.75. A binary option has a strike price of $65 and expires tomorrow at noon. The trader can buy the option for $40. If the price of XYZ finishes above $65, the option expires in the money and is worth $100. The trader makes $60 ($100 – $40).

If the option expires and the price of the stock is below $65, the trader loses the $40 they put into the option. The potential profit and loss, combined, always equals $100.

5 NoteWorthy Steps To Trade Binary Options

What you are expecting from this phase?

Hang on! Let me guess. Maybe, you might think that we will share with you a spell so that you can earn a lot of money. But, the section will focus on the 5 noteworthy steps on how to trade binary options.

  • Choose a regulated broker
  • Analyze the market and asset
  • Practice on a demo account
  • Make an initial deposit
  • Start Live trading

As each step is very powerful, so our recommendation is to read each step without skipping.

# Choose A Broker

Choosing a broker without evaluating some factors can bring disaster. On the other hand, the retail investment market is large and have a lot of scopes. According to a report of SEC,

approximately 7,600 investment advisers registered with the SEC that serve retail investors, with over $12 trillion in retail client assets under management, and approximately 34 million clients.

Isn’t it crazy!

The actual craziest thing is that one has to choose one or more than one broker from thousands. Here, we will mention some factors that you should keep on mind before selecting any broker.

  • Regulation
  • Demo account
  • Minimum initial deposit
  • Ease of use
  • Variety of assets
  • High Payout percentage
  • Fast withdrawals
  • Multiple modes of payment

In addition to that, you refer to our list of binary options broker . It’s not necessary that you have to stick to one broker. No broker is perfect, and one broker may not suit all your needs. Don’t hesitate to trade with multiple brokers.

Taking all the above factors into consideration, we have prepared our list of recommended brokers that you can trade with.

These brokers meet all the requirements such as regulation, offering a demo account, huge asset index, high payouts, fast withdrawals, easy-to-use trading platform, and much more. Here is the list of brokers Binary.com , IQ Option, and BinaryCent that we think will offer you the best binary options trading experience.

Binary.com

IQ Option

BinaryCent

# Analyze The Market & Asset

The trading market is unpredictable and changes every sec. Three main types of analysis bring an optimal trading result.

  • Fundamental Analysis
  • Technical Analysis
  • Sentimental Analysis

Here, an economic calendar works as a ground from where traders use data to forecast the market movement. As there is “no” best method of analysis, so you have to pick the most viable option depending on time-frame and asset information.

# Practice On A Demo Account

Registering an account is free of charge with most brokers. All it takes is your vital information such as an email address, your first, and last name. Once you have created an account, you need to practice trading through a demo account.

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Train yourself with the help of a demo account until you create an unbeaten situation. Educate yourself on the basic concepts of binary trading. Understand what strike price, expiry time, call, and put option, etc. Familiarize yourself with the different ways you can trade binary options.

Just because the funds and the outcome in demo accounts don’t hold any real meaning, it doesn’t mean you should trade recklessly.

Trade on the demo account exactly how you would live trade. This practice will develop your trading skills and build valuable experience.

There is no fixed duration on how long you have to practice on a demo account. Take as long as you need. Finally, when you feel confident enough, you can step up to real trading.

# Make An Initial Deposit

The initial deposit amount varies from broker to broker. You need to deposit on the trading account to carry out live trading. On the other hand, there is a big difference between an investment and deposit.

An investment is a price what you pay to get the future value. Meanwhile, the deposit is a certain amount of money that one needs to open an account.

It is wise to start with a small deposit amount like $10 to $20.

# Start Live Trading

You can start trading on a real account once you are familiar with the ins and out of binary trading. Select your preferred asset and choose your investment amount. Depending on your prediction, buy a call or put option.

Place your trade, and wait until your trade expires. In the next section, we have listed some tips and techniques on binary trading to make your trading successful and profitable.

How To Trade Binary Options Successfully And Profitably – Best Way To Trade

We already discussed a few steps above. Those steps are the principle that one trader should follow whether he is professional or not. After that, you need to turn your binary options trading into a successful profit machine.

Don’t miss out the chance by skipping points that we covered below. Follow these tips to ensure you don’t lose money while trading binary options.

  • Choice of assets
  • Start trading with small
  • Eliminate emotions from trading
  • Choose the right expiry time
  • Follow the market news
  • Risk management
  • Knowledge is power

Choice Of Assets

As you can trade with a large number of assets, so trade those assets that you are most familiar with. Do not take unnecessary risks by trading in markets that you cannot predict.

Successful binary trading depends on how well you can predict the market. Follow the market news before executing trades. Diversification of your portfolio is one way of reducing your overall trading risk. But it doesn’t mean you should diversify to assets that may not be profitable to you.

Stat Trading With Small

You may have heard about the risk management where you have stick on either 1% or 2% rule. It is a general rule of thumb for traders.

90% of traders failed in trading because they have lack of knowledge on money management. Investing a huge amount of money will not help you to increase profits.

So, at first, start with a small amount like $10. After gaining valuable experience, you can start increasing your trade size. No matter how much you practice on a demo account, trading on a live account is a different scenario. As there is real emotion involved, which brings us to our next point.

Eliminate Emotions From Trading

Professional traders are not super-human. They also fight to control their trading emotions. Eventually, all traders must go through a cycle of market emotions.

Controlling emotions is not sky-rocket. However, you will find a difference in gratitude of a winning trader and a losing trader. No wonder, a low expectation level can save you from a massive failure.

Stop dreaming about to get rich quick and follow the 7 secrets that will help you to improve your trading emotions or psychology.

Choose The Right Expiry Time

It is may seem like a matter of preference or a trivial issue, but even expiry time is a crucial factor when it comes to binary options trading.

For example, a trend was supposed to reverse within an hour. But if you placed a trade with 2-hours expiry, the trend would have reversed by then. And, you had lost the trade.

Follow The Market News

Whatever underlying asset you may trade, you need to be informed on the latest global events, and news associated with that asset. Many traders build strategy depending on the market news. So don’t skip on that, and act accordingly.

For example, if there is negative news regarding the gold and a price drop is imminent, log in to your binary options trading platform, and open a put position on gold.

Reacting appropriately to market news can bring in more trading success than you think.

Risk Management (Hedging)

Unless you are a pure gambler looking for absolute results, you should make use of hedging. Hedging is a money management strategy used to protect your profits. In this way, if you are wrong on your prediction, you lose money from your call option, but you regain that back from the put option.

Protecting your investment by buying a binary option contract opposite to your initial contract is hedging. Hedging may reduce your overall profit potential, but it also protects your capital.

If you quite confident about your prediction but still want to hedge, invest the lesser amount in the hedge position compared to your main position.

Knowledge Is Power

Trading education is one of the big factors that play a vital role in success. You need to constantly educate yourself with trading knowledge. Even though binary options look easy and simple, there is a lot that goes into constantly turning your trades into a profitable one.

Moreover, you are less likely to commit mistakes and perform better trading analysis when you are equipped with trading knowledge.

Learn To Trade Binary Option (Manual Vs. Automated Trading)

You can either manually trade binary options or can use binary options software which will do the trading for you.

When you trade manually, you choose the asset, the expiry time, and most importantly, the decision to call or put. Everything depends on you alone. Moreover, you have to set a strategy using indicators and trend lines to make a decision.

In the case of automated binary options trading, a binary robot does all the work for you. It is a programmed software that makes decisions based on certain algorithms.

On the other hand, most binary options robots allow you to customize settings such as investment per trade, risk level, indicators, and choice of assets.

However, if you want to completely leave your fate at the hands of the trading robot, you may do so. Or you can put manual effort also by building strategy.

We would recommend a mix of both auto and manual trading for the best results. We have compiled and reviewed the best binary option trading robots for you.

What is Binary Options? How to Trade Binary Options in 2020

What if you could trade a stock and know exactly what you will win or lose? Binary options are a lure for new traders because they are simple to use and your potential gain or loss is known in advance.

Do you think the price of gold will be above or below X amount in 10 minutes – Yes or No?

If your bet is correct, you get a fixed pay out. If you are wrong, you lose the cost of the options contract. The outcomes and your risk are clearly defined.

If you bet on the horses or football games, then you are very familiar with this win or lose proposition called gambling. Binary options have been compared to bets on a roulette wheel – Do you expect the ball to land on an even or odd number? – and even Russian roulette.

If you are looking to make easy money, you are not likely to find it in binary options trading. Whether or not binary options are a form of gambling or investing depends on the learning, skill and experience you dedicate to trading them. If you toss a coin – heads the price will rise, tails the price will fall – your chances of winning are 50/50. After trading fees, you will inevitably lose money. This is gambling. Alternatively, like any good trader, you can use fundamental and technical market analysis to decide whether to buy or sell a binary option.

What Are Binary Options?

Binary options are an all-or-nothing bet on the future price of an underlying asset. The trader receives a fixed payout if the price of an underlying asset (e.g., currency pair, stock) hits a preset level at a preset expiry date. The expiry date may range from a minute to a month, but is generally intraday (minutes to a few hours). Here are two examples of fixed-return high-low binary options:

Market price – In a simple high-low binary option trade, the trader chooses whether the expiry price will be higher or lower than the market price (the strike price). The trader buys a binary option betting the gold price will rise above the current market price of $1,300 in the next five minutes.

Set price level –The trader buys a binary option betting the price of gold will reach 1,310 in two hours. If in two hours the price of gold is above the strike price, the trader receives a payout. If it is below the strike price, the trader loses the cost of the option.

If the expectation is the stock price will rise above the strike price, the trader takes a long position and buys a call option.

If the expectation is the stock price will fall below the strike price, the trader takes a short position and buys a put option.

Why Should I Trade Binary Options?

Binary options allow you to easily place money behind your opinion on a market? Do you expect the price of gold to rise above $1,300? Will Netflix stock rise or fall after today’s earnings announcement? Will the unemployment rate report show an increase or decrease?

Let’s take the unemployment report as an example. A falling unemployment number is a bullish signal for the US market that can strengthen the USD against the EUR. If US unemployment falls, traders short the EUR/USD. If unemployment rises, traders typically go long the EUR/USD.

There are many barriers to buying an option on the bet that the EUR/USD will rise based on a higher US unemployment rate.

  • Your broker may require a higher account minimum to trade options
  • The size of potential losses if the EUR/USD price falls is unknown
  • The price could rise but not enough to cover the bid-ask spread after fees
  • The orders of large traders with faster executions speeds will be filled first, which could result in price slippage
  • The use of leverage will magnify any losses
  • In the event of losses, you could receive margin calls

Th binary option, in comparison, has two possible outcomes:
��The price rises above the strike price – The unemployment report is negative, the USD price falls and the EUR/USD price rises. You get a payout.
��The price falls below the strike price – If the currency pair falls below the strike price before the expiry time, you lose the cost of the option.

How the payout is calculated can differ among binary options providers. See the binary options broker and exchange examples below for two popular payout models.

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