Binary options trading for beginners and professionals
Welcome to one of the most comprehensive binary options trading guides on the internet. We provide news and in-depth articles on binary options trading. We also offer advice on trading strategies and a comprehensive guide to help you choose among the best brokers and trading platforms on the market. Bank-Invest consists of an international website and localised sites that allows our readers to read our articles and reviews in local languages. We aim at providing both beginners and professionals with the very latest insights and best advice to ensure a safe journey into the world of binary options trading.
Top 5 binary options brokers
How Binary Options Trading Work
Binary options trading is the simplest form of online trading and is based on short-term investments. The structure and trading policy is simple. In contrast to traditional financial options, that typically have a continuous spectrum of payoff, the payoff of binary options can only have two possible outcomes – true or false. Basically, when trading binary options, you need to determine whether you believe that the price of an underlying asset is trading above or below a specified level or strike price at expiration, define the amount to invest and the deadline for the contract. Assets can be in the following financial categories:
- Currency – Forex
All trades go through an online trading platform. The platform does not buy the asset but delivers a live feed with real-time rates, to accommodate your trades.
Advantages of binary options trading
Binary options do not require a lot of initial capital. With a minimum deposit to start a trading account from just $100 it gives most people the opportunity to get started quickly. All trading with financial assets are associated with the risk of losing money and binary options are no different. However, you cannot lose more than your initial balance on the account and all circumstances surrounding the deal is known upfront. Also there is no percentage win or loss against the underlying asset, only true or false. Whether you are 1% or 10% right makes no difference to the return on your position. The return is determined beforehand so there are no unpleasant surprises.
Risk profiles and where to start your binary options trading
This type of trading has a different risk profile than most types of investments. With binary options you often lose the entire amount invested if you are not right in your predictions of the market. Moreover, the typical payback percentages are between 73-84%, meaning that you need to win more trades than you lose just to hit a break even on your trades.
Trading with binary options is you against the market. Use our reviews to find the broker and trading platform to suit your strategy.
Trading with Binary Options – Simplified and explained by Bank-invest.eu
If the above got your interest, you are welcome to continue reading below.
1. What are Binary Options?
To put it simply, trading with Binary Options is an estimation of the development of a stock for a certain time period. The activity, the time and the development is what determines the offers and possible return that you are offered from the various Binary Option-brokers. To understand online trading and trading with Binary Options, we should have a look at how investments in other financial markets work in practice To once again put it simply, the regular trading world, which is more difficult, harder to learn and involve larger risks.
When making a normal investment, an investor is purchasing the value of a physical stock and the value is determined from the stock’s worth at the time of purchase. Any possible wins or losses are measured from the time of purchase. If the stock has increased in its value, you get the percentage gain. If the value has decreased, you lose the percentage loss.
This type of investment demands a constant focus on when to sell. It also comes with a constant stress and need to keep an eye on all the markets in which you are investing, as long as your stocks are active.
Binary Options are much more simple and easy compared to trading on the regular market. Here, you are trading with options with the market, but NOT physically on the actual markets! It is about speculation on how the market should and will develop, and a trade is simulated on the financial markets. Hence, no physical stocks are traded.
2. Definitions of Binary Options
“Binary” describes the two choices you have before a trade is made – “Call” to trade with the market and “Put” to trade against the market. This is the essence of trading with Binary Options, is to determine if the market is going up or down. The smart thing is that Binary Options create the opportunity to earn money regardless if the market is going up or down. If all markets decrease in value, it is just a NEW WAY TO EARN MONEY.
A trade or disposition could look like this:
Step 1 – Choose your stock – Gold
Step 2 – Choose amount – 100 US Dollar
Step 3 – Choose time horizon for the trade – 11.00am
Step 4 – Choose “Call” or “Put”
If you are “in the money” you typically earn a return between 70-90% on your invested 100 Dollars (170-190 Dollars). If you are “out of the money” you most times lose the whole amount since all or nothing options means all or nothing. There are no exceptions and there are no “insurances” to not lose everything. The amount is deducted from your investment account, but if you win, you will have the money right away on your account.
3. Which stocks you are able to choose
If you look at every trader, you will almost always get the same stocks to trade with. This is due to the fact that much trade is happening at one trading platform, SPOToption, which is the most widely spread trading platform for Binary Options. When in strong success there is a trading platform called TechFinancials, but the same stocks are to a great extent also available here. That is, the selection of stocks is much the same at various broker websites.
Typical stocks are:
Stocks – Google, Deutsche Bank, Coca Cola, Apple
Index – Nasdaq, Dow Jones, FTSE, Nikkei
Forex – EUR/USD, GBG/JPY, AUD/CAD
Commodities – Gold, Oil, Coffee, Wheat
The above categories are just a few examples – there are many more to choose from. Despite this, the selection is similar among different brokers.
4. Where Can I Learn How to Trade With Options?
Here at Bank-Invest we wanted to provide a larger selection of brokers with a demo account. With a demo account it is possible to try out trading before using your own hard earned cash. It is unfortunately difficult to find these accounts in the market with the exception of a few brokers. You could also look for brokers with a low initial investment amount; it could be from 100 US dollar or up to 250 US dollar. Online Trading is a concept that is along with other financial trading and speculation a place where you lose your money. Binary Options are no exceptions! Therefore, we recommend that you gather some experience beforehand, and here a DEMO account is a great idea. The ability to try out with a DEMO account is an option you will often find within the CFD trading.
5. What should I Use Bank-invest For?
Here you will find the best selection of Binary Option brokers. We only refer to brokers with which we have a direct contact and whom we can recommend with our whole heart. We are in close dialogue with all our partners within the broker section. We would like to direct you already at the start – to the platform that best suits your needs and wishes. Bank-Invest have its sole focus on Binary Options in order to be the best that is possible within the area. We are also able to refer to IG markets in Sweden who have several other products in their library, something that is unique. You will get the latest news from us, not only financial news but also news about what is taking place on the market as we visit financial EXPOs all around Europe all year around. Hence, we have news from all brokers before all others on the Swedish market.
How Do I Earn Money With Binary Options?
When trading with Binary Options it is important to acknowledge one thing – either you win or you lose, there is nothing in between. The example below is a clear illustration of this. Here you are investing 100 Dollars on exchange EUR/USD – the trading option is to CALL (buy) or PUT (sell). What do you expect the relationship between EURO and Dollar to be after 1:30am – Is it above or below the current exchange rate?
If you are right in your expectations on the exchange market during this time horizon you will enjoy a return of 79% from BDSwiss. You invest 100 Dollars on the position and the trade and you will get 179 Dollar directly after the option has timed out. If you are not correct about your assumptions, you will lose EVERYTHING, the total invested amount.
The fact that you can lose the total amount is also the main criticism against trading with Binary Options. Also, the fact that the return is below 100% implies that you always need to win more options than you lose in order to just break even. The element of winning or losing is what gives trading with Binary Options a certain feel of gambling rather than a plain investment.
Are Binary Options Related to Gambling or Investments?
To us at Bank-invest there are no doubts that Binary Options should be seen as much as entertainment as it is regular financial trading. The framing has clear elements from the casino world, as trading is with and against the house, much like traditional casino products such as Roulette and Black Jack. If you win the house lose. And how often does the house lose?
Some areas within the EU view this type of trading, such as Cyprus and England, as a financial one. This is validated by both CySEC and the FCA in Great Britain. Hence, trading with Binary Options is to be considered trading much like the one with forex. We see both advantages and disadvantages with this view, and cannot neglect that this type of trade also considers a large extent of entertainment. Take the trade with Binary Options for what it is – it is entertainment with the possibility to earn money and not a day trading activity that demands your constant attention!
The main criticism against trade with Binary Options comes from the established forex brokers who do not want to consider the trade as an”investment”. We at Bank-invest understand this standpoint but we once again want to relate to time being a factor in trade, as Binary Options does not require careful monitoring of how stocks develop and vast sums for investment.
This is how you should look at Binary Options in order to remain positive about the concept:
- The fact that you can earn a 79% profit on the condition that the market develop by only 0,1 % in the direction you have chosen is unique, and there is no comparable profits or return opportunities in other financial products.
- It is easy to get going and try out your opportunities within Online Trading. It is a brilliant way to start trading and maybe later progress into “the big pond” with the trade of Forex or CFD.
- You have all the cards at hand before you make the trade. You know about the potential profit and you are also aware of how much you stand to lose – this is something you do not know about when trading with Forex as an example. There is much less risk involved here.
- Particularly the risk. You cannot lose more than the amount you have put into your trading account. If you start a MT4 platform at IG markets with CFD trading, you stand to lose much more than the money on your trading account as the trading has no end. This is a risk is not present when trading with Binary Options.
- Trade for smaller amounts. You can try out the various brokers for as little as 100 Dollars as a starting investment. You can trade for as little as 1 Dollar on the various stocks, so you are able to get a lot of experience for as little as 100 Dollars. There are a lot of stocks and opportunities so you can gain the experience you need for success.
- No spreads – that is, there are no other expenses or costs involved with your trading. Usually, the banks only charge a spread for the ability to trade stocks with your saved amount of money.
Binary Options is a great spot to learn about the various types of Online Trading. You will quickly learn which mechanisms to look for in order to establish good positions. You get an easy and uncomplicated entry to Online Trading that could lead to your own development for a small amount of money. As mentioned before, there is a big element of entertainment to this type of trade, but it could also be a start in the Online Trading world.
Why Trade Stocks Outside of The Bank?
For long, the investment in financial products has been reserved the banks and the world of the banks. Earlier, when private persons wanted to trade on the financial market, they had to visit the bank and the bank managed your trading. If you want to trade with Swedish stocks, the trade with Binary Options and their brokers might not be to your advantage. The Swedish stocks are usually too small for international partners to care about, but there are some exceptions. You are able to find the Swedish stock index available for trading but only during longer periods, such as a day-to-day basis.
If you want to make traditional investments and saving, stick to the bank. It is nothing you should apply to your trade with Binary Options. The trade with Binary Options could however provide you with a unique opportunity to invest without cost on large stocks abroad, such as Microsoft, Apple or Coca Cola. You could also look at the whole stock indexes, like Dow Jones or FTSE, which adds some extra entertainment to this world. It opens up a much larger world of investment and fun for you as an investor.
The main benefit is that you do not have to pay large expenses or commissions in order to trade with foreign stock, like you do at the bank. You are free from the bank’s high expenses for trading with foreign stock and positions.
Binary Options are simple because all purchases are simulated toward the actual market. Hence, there is no actual purchase of stock taking place and the buyer does not own any of the stocks at a point in time. That also means that there are no extra costs or expenses for owning stock. This gives you as a Binary Option trader a very simple form of trading where you only need to relate to how the market outlook is right now. The downside is that you do not have any claims or chances at voting at company meetings related to the stock.
Binary Options – Regulations in Europe
First, choose a regulated broker for all your investments in the Online Trading world. Within Europe, it is possible for brokers to be regulated and authorized by, for example, Cyprus Securities and Exchange Commission (CySEC), and receives a license to trade. There are also brokers who have a license at the FCA in England. There, much more information is needed in order to start an account. This is to provide a greater safety and reduce the risk of money laundry. CySEC is regulated through an EU-directive which gives you a full security over your money.
The brokers are needed to comply and implement the rules within the MiFID (Markets in Financial Instruments Directive). It is a directive from the EU in accordance with the investment services and the activities of the regulated financial markets. It negotiates the conditions for both banks and credit institutions within the European Union.
On Malta there is a less used regulation (here gaming licenses is still a big thing) where the Maltese finance institution are governing the regulations to make sure they comply with the MiFID.
Since 2012, it has been possible to apply for a license from CySEC and Cyprus was the very first country within Europe to implement the regulations within the area. Cyprus was also the first country that as a member of the MiFID chose to classify Binary Options as a financial instrument. The regulations became a form of assurance for the products, as certain demands were put on the products in order to follow the EU’s Markets in Financial Instruments Directive.
Bank-Invest Only Works With Regulated Brokers
At Bank-Invest we only work and recommend brokers who are regulated within the EU. It should also be the very first thing you are looking for when searching for Binary Option brokers. The security you get through the regulations are invaluable if you end up in a dispute with your broker. In order for the brokers to keep their licenses, they need to comply with the rules and demands that are in place – One of them is to solve disputes according to the EU directives.
This governs a complaint institution within the EU, where you can apply for the right to get a reply or the money back if you deem it suitable. Some might view this as troublesome as some documentation is needed to verify that you are the person behind a computer purchasing Binary Options. As a rule, full identification is needed in order to start account, much like in a regular bank. That is, a driver’s license, a passport and a verification of your address where you live. There are regulations for money laundry in the EU which control that you are a “real person”. Naturally, you should view these regulations as a security for yourself and not as a troublesome extra path of documentation and bureaucracy.
The market for Binary Options has become much sounder after the regulations from CySEC. Most of the “Wild West-brokers” are out from the European market. Now, they are mostly active within Australia, the US or the Emirates. Read through all the information from the various brokers make your choice of broker before your first steps within the Online Trading world.