In this article we go straight to the point without filter and tell you what Binary Options are and provide you with the most valuable information in order to get a good start with Binary Options Trading and online trading.
What are Binary Options?
Binary Options are like a casino game or old fashioned betting. Here, we are only concerned with single stocks (Apple), stock indexes (Dow Jones), Forex trading (EUR/USD) or raw materials (Gold). In all of the above categories, you bet an amount on one of the categories – and you will only have two possible outcomes of your bet. You could be right or wrong and it can go up or down – hence the name ”binary”.
How do Binary Options work?
Trade with Binary Options is characterized by a pre-determined end-time that you as a trader choose. The trade with Options could take anywhere between 30 or 60 seconds, up to 30 minutes, 1 hour, one day or up to a month. The time horizon however, will always be short – hence the trade with Binary Options is very short-term oriented and most bets and gambles will be over within 24 hours.
You choose where you want to invest your money and which turn you expect the market to take within the chosen time horizon. If you decide to trade on an up going market within a certain time horizon, you are choosing a CALL Option, and will end up “in the money” if the stock has gone up with 0.1% or more before the ending of the trade. If you notice that the market is going the other way, that is that the stock is going down, you choose a PUT Option in order to “bet” against the market and earn money on the market going down!
In this way it is possible to earn money on even the smallest movements on the market within Binary Options regardless if the market is going up or down. Your potential profit is not dependent on the percent of deviations the stock has from the starting position.
The broker or the platform informs you at the start on which possible profit you have on the contracts of Options that is being bought. The profit is normally from 75-95% of the amount that you decide to bet from the start. This could however vary between different brokers and markets – it is mostly due to how much is being traded on these stocks. Simply put, you will get more back the higher the percentage gain is at the particular broker you choose. It could therefore be a good idea to have several accounts since there are differences between both brokers and stocks. Some platforms give you return within currency, others in stocks.
Remember that when you lose your trade, you lose all the invested money – this is common practice on almost all trading platforms and among all brokers. You can optimize your profit and return by choosing the broker that has the highest payback percentage on the stocks that you choose to buy. If you are right in your guess on the markets success or decline, you will get your invested amount and the pre-determined percentage profit, that is:
If you bet $100 and the payback percentage is 90 %, you will get $190 back into your account. Contrary, if you are wrong in your guess about the market, you will lose all of the invested $100. Due to this fact, this trade can be called “All or Nothing” Options, it is a common name for Binary Options, especially in the UK.
One example on the trade with Binary Options:
You choose to trade stocks on the German DAX Index. With information on solid German economic numbers and you seeing that positive shifts in Asia is having a positive effect on European markets, you choose a CALL Option at the Banc De Binary platform.
You choose an expiry time of 4:30PM the same day, Banc De Binary offers a payout percentage of 72% on this Option/position.
You are betting $100 on that the DAX index value will increase, if you are right by 4:30PM you will get your invested $100 and a profit of $72 right into your trading account. Notice however, that if you are wrong in your guess, you will lose the entire amount, in this case $100.
This relationship means that you should always win more Options and be right in more predictions than the other way around, this in order to make a break even on your investments. It could be compared to Roulette which has poor payout in some regards. You should always trade with Binary Options in a cautious manner and not bet without care on 30 second Options just for the thrill.
How to succeed with Binary Options – 10 good advices, tricks and tips
What is mentioned below should be seen as tips and tricks for beginners. If you are new in the area of Binary Options and which a safe and secure entertainment from the beginning, keep on reading. With the following 10 advice you will ensure a safer and better informed start.
1. Start a Demo Account
Like with almost all trading, the trade with Binary Options demands some knowledge of the product. Therefore, you should start a Demo Account for Binary Options. With a Demo Account you can try out both the broker and the platform as well as practice and learn your limits. With a Demo Account you can get your first experience without putting any money at risk, so it is risk-free trade from the start. Feel free to start a Demo Account on various platforms, and provide your real information when signing up. Notice that not all brokers are offering Demo Accounts. Some of the better ones that offer Demo Accounts are Banc de Binary and Opteck.
Carefully scrutinize the carious brokers as some of them require you to make an investment before you have the possibility to make a Demo Account. If you are a beginner, we advise you to only start trading on platforms with Demo Accounts so that you can get into the vocabulary and jargon of the various platforms.
When you feel ready to trade Binary Options using real money, you should upgrade to a trading account where you can start trading with smaller amounts, for example $100. And you will not lose more money that you invest in your account.
2. Sit down and make a plan
When you are facing the risk of losing an entire invested amount, like you are when trading with Binary Options, it is important to think twice before trading. The starting position for the plan is always to win more Options that you lose and make a profit on your trading. Therefore, always look forward and do not invest too large amounts at a time.
Within the trade with financial products, stocks and services, there are a lot of good news-outlets to follow. It could be a great advantage to follow these sources daily and also preferably some weeks before your first trade. Then you can get some solid information and more knowledge on the specific market on which you plan to trade. You will become more likely to succeed.
3. Ask your brokers questions
There are no stupid questions, only stupid answers! When it comes to your hard earned cash there is no reason to not ask all the questions you have before you make your trade on the platforms. You should feel safe and sound at your broker. Pease note that Binary Option brokers earn money when you lose and there again the resemblance to a Casino can be made. The brokers are simulating a trade and the brokers themselves are not part of the trade with the actual stock. They want you to trade as much as possible as it give them a money making advantage.
It is important to trust your broker. Find the platform and spot on which you feel comfortable and safe. If you have that in your mind before trading, there is not”hidden agenda” from any party. Ask questions!
4. Be patient
within the field of Binary Options you can practically trade during all hours of the day. Forex trading is made 24/7 with stocks and indexes from all over the world, so you can trade from the market’s opening in Asia to the closing in the USA. The stock market is hence open during many hours of the day. This gives you the ability to follow the active markets and see how they develop and affect each other throughout the day. The stocks are hence available between 16 to 19 hours a day.
You should not have the need to throw yourself into making any Option-contracts. Find the stocks that you feel are interesting today and wait for the possibilities. It can be tricky to view the whole spectrum of stocks from the start when you are not comfortable with the news and information that is available. To not trade on your own gut feeling, rather use your smarts and rational thinking. That is, do not throw yourself into gambles in order to make quick cash.
Patience is a virtue. You will lose several Option-contracts. This is not uncommon, even for the pros.
5. Do not trade with large sums of money on 30-60 second Options
Always remember that short-term Option-contracts are pure gambling, it is like red or black on the Roulette table. These Options are also the ones that bring up the question if Binary Options are investment or gambling. You cannot predict the movement of the market in a short-term. Stocks that have a violent rise one day will have small dips during the day.
Try to buy with a long-term focus where you can use your skill and information about the market. If you want to gamble with 30-60 second Options, be ready to know from the start what this type of product implies and do not tempt yourself with gambling too much on these Options. See it for what it is, a fun part of the trade with Binary Options!
6. Start with small investments
Do not put too much money into your account from the start. It’s common that platforms are tempting you with bonuses, we are however sure that you can get these later. With less money you are not affected to do more Option-contracts than what you can handle. It’s easy to lose a lot of money fast on Binary Options, like with the trade of regular stocks, so this is not something new for an investor.
Online you can always deposit more cash and you should maybe be cautious before you deposit money a second time. To trade for the sole purpose of earning back lost cash is pure gambling and could be seen as a gambling addiction. Step away from the computer, think through the upcoming investments and start again the next day.
7. Do not deposit more cash that you stand to lose
This is one of the more important rules to follow. It’s real money that is on the table, even in casino games. You stand to lose everything, therefore it should only be money that you can lose. View Binary Options trading as a way of entertainment. If you experience problems, there are several organizations which provide help. You should not end up on the street due to your Binary Options trading.
8. Learn from your own history
Here is the big difference between casino and gambling. Here, you can learn from your own history by making notes on what has happened. Where have you been successful and where have you lost the most money? It is important to be able to learn from your own experience and follow the news on the latest updates. This combo is a good one and you will see that you make more informed choices the longer you trade with Binary Options.
It cannot be stretched enough that you should keep a log on the Binary Options-contracts. Several brokers have solid historical information, print it and have it in front of you. With this you can create your own patterns and learn from your own experience.
9. Never stop learning
You can never get tired of the information on financial trade. Make sure that you continue your own learning through the above mentioned points. If you understand the importance learning from both mistakes and successes, you will build your own unique knowledge in this area. You will create synergies and better understanding for the various market powers that affect which stocks affect which in the different markets across the globe. Finally, it will make you to a better online day trader and it will increase your success rate within Binary Options or other types of financial trade.
Most brokers offer both e-books and webinars – try it out and see if it is something for you, it is for free. Several brokers have professionals from banks or financial institutions employed. There are many ways to get information if you dare to ask the stupid questions.
10. Binary options trade comes with a high risk
Find a broker who is regulated through a financial institution. In Europe most brokers are regulated through CySEC on Cyprus. Binary Options are like all other form of financial trade coupled with a high risk to lose all of the invested money. You should understand this before you start trading for the first time.
Binary Options have two main advantages, you can invest small amount during a longer period. And you have all of the information at the start of the trade, how much you can win and lose, the amounts and the expiry date.
Straight to the point, do not consider the trade with Binary Options as being made for “large investments” or a long-term plan for your pension. See it more as online entertainment with a financial touch. There are a lot of free stock games online if you do not want to invest, but there is nothing to win. You could place Binary Options next to Casino, Bingo or Poker – but it is not a 100% fit, because with Binary Options you can learn from your history and have the possibility to follow economical peaks and troughs.
We do not put Binary Options under the categories “gambling” or “investing”, Binary Options have parts of both, but it is mostly entertainment for investors.
If you are a beginner in Binary Options or online trading, or only think of trying out your first stock trade, Binary Options will always be the best way to try it out. You can get going in a few minutes and you can start for as little as $100. You can try out stocks from all over the world, both fast and “cheap” – it is a lot of fun too, we can guarantee that.
If you decide to start trading with Binary Options after reading this, you might want to continue with Forex or CFD trade – where both the possibilities and challenges increase. Within CFD trading you should also remember that you can lose more money that what you have invested from the start- this is something that cannot happen with Binary Options trade.