What Are The Attractions Of Binary Options – FAQ

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What is binary options trading?

Binary options trading is a relatively simple way of betting on whether or not a certain outcome will occur. The name ‘binary’ (meaning ‘two’) reflects the fact that you must choose from just two scenarios – yes or no.

In financial trading, this is typically whether the price of an asset will be lower or higher than a certain level at a pre-determined point in time.

The most common type of binary option is a digital option, sometimes broken down further into ‘up/down’ or ‘call/put’ options.

With a simple call/put option, if you think the price of the underlying asset will end at or above the strike price, you buy a ‘call’ option. If you think the price will be below the strike price at expiry, you purchase a ‘put’ option.

If you are correct, the option is ‘in the money’ and pays out a fixed amount of compensation.

This compensation is typically money but in some contracts can be a quantity of the underlying asset itself.

If you are wrong, it is ‘out of the money’ and you receive nothing.

Because of this, binary options are sometimes called ‘all-or-nothing options’.

The attractions of binary options trading

Because you have just two possible outcomes to consider, binary options trading is considered simpler than many other kinds of financial trading.

Typically, all you need to decide is in which direction you think the price of the underlying asset will move.

Unlike with other forms of financial trading where your potential profit or loss is determined also by the size of a price movement, it doesn’t matter to a binary options trader how far prices have moved above or below the agreed strike price when the option expires. With binary options, a winning trade always produces the same payout.

Because of this, you have a clear picture of your risk-to-reward ratio before you enter a trade.

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  • Binomo
    Binomo

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This is in contrast to traditional options, where profits and losses can be limitless.

With binary options, therefore, you don’t have to sit at your trading terminal, anxiously watching prices – once you have made your trade, you don’t need to check in until the contract has expired. You also don’t have to worry about applying complicated risk management tools like stop losses.

Binary options are flexible, with brokers typically offering contracts for a wide variety of underlying assets – from foreign exchange or commodities to company shares or indices like the FTSE or S&P 500.

Contracts can also run for anything from 30 seconds to several months, depending on what your broker offers. This means you can tailor your trading to your own areas of expertise or trading style.

If you’re an experienced trader in other markets, such as foreign exchange or shares, you can apply some of the skills you have already developed.

Fundamental and technical analysis, for example, can both be used to help you form a view on future price movements.

The risks of binary options trading

With binary options, it is possible to lose all the money you have invested if none of your trades are successful.

Careful money management (see Lesson 6 https://learn.tradimo.com/lessons/1278) should however ensure that you do not wipe out your entire trading account.

An example trade

All or nothing call:

The current price of Uncle’s Apples shares is $10. If you think the price will go up and trade above $10 this time tomorrow, you can profit from this expectation by buying a one day binary call option.

Before buying the option you need to decide how much money you put on the trade. This will be your investment (your risk) and your payout will be a certain percentage of this amount. If the broker is offering a 50% payout, it means, if you win, you get your investment back plus 50% on top of it.

Let’s say you invest $20 in a one day Uncle’s Apples binary call option with a 50% payout. You come back same time tomorrow to see how your trade performed. You were right, the price is above $10 per share, that is, your option expired in the money. You get your $20 investement back plus 50%, that’s $10. So you get $30 altogether.

However, if Uncle’s Apples shares were below $10 when the contract expired, the contract becomes worthless. Then the option would be out of the money and you would lose your initial investment of $20.

Other types of binary option

With a ‘one touch option’, you predict that the price of the underlying asset will at some point during a defined contract period touch (reach or surpass) a certain level. If it does, you receive a payout. If it doesn’t, you receive nothing.

With a ‘no touch option’, you predict that a certain price will not be touched during the contract period, and are compensated if you are correct.

With a ‘double touch option’, you define two price levels and predict that at least one of them will be touched during the contract period. You receive a payout if this happens. If the price stays within the range of these two prices and touches neither, you receive nothing.

Note that the closing price at the end of the contract period is irrelevant with any kind of touch option. This makes them perfect for traders who believe that prices will be volatile but aren’t confident about predicting a sustained price move.

They are therefore particularly popular for trading volatile assets like foreign exchange and for very short-term trading with contract periods as short as one minute.

Summary

So far you have learned that:

  • binary options got their name from the fact that there are only two scenarios to consider: the market ends up either above or below your target price when the option expires
  • you get paid a set amount, typically a certain percentage of your investment if you are right or you lose your investment if you are wrong
  • it is because of these two reasons that binary options have gained a huge popularity in the last few years
  • brokers have created a variety of binary options contracts so you can take advantage of special market conditions, such as ranges, breakouts, tests of significant price levels and trending markets

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Binary Options FAQ – Binary Options Frequently Asked Questions

Welcome to my binary Options FAQ section! You still got questions about binary options trading and how to choose the best binary options broker for your needs? Keep on reading to find the frequently asked questions about binary options and how to trade them!

Binary Options Faq´s Answered

What are binary options?

Binary Options are a fixed return financial trading instrument limited to two possible outcomes, In the Money (Won option) or Out of the Money (Lost Option). You can read a detailed explanation here!

When can you trade binary options?

This depends on the asset you are trading, there are currency pairs, stocks, indices and commodities you can trade as binary options. Normally you can trade while the markets are open, this depends on the form of asset you are trading!

Is it legal in my country of residence to trade binary options?

This depends mainly on your broker. In most countries it’s legal, but many brokers don´t accept trades from all countries! If you live in the USA for example, it becomes hard to find a broker accepting clients from the US!

Do I need any software to trade binary options?

Normally not really, but I highly recommend a real-time chart software like the Metatrader 4 or 5 for example! Depending on your Broker its also possible to download a trading desktop application or mobile app, so for example IQ Option!

Where to trade binary options?

This depends on the country you are living on the one hand and what you want to trade exactly. Other points to consider are the amount you want to invest and what assets you want to trade mainly! You can check out my broker tests to find the best binary options broker for your needs!

How much do I need to invest to trade binary options?

This depends mainly on your broker and your money management. Never trade with more than 5% of your overall account balance in a single trade. So if you plan to invest 200 USD into binary Options, you need a broker with a minimum trade amount not higher than 10 USD (200USD * 5% = 10USD)!

Can I make money trading binary options?

Basically yes, but not without the requirements needed to use binary options! Its needed to control your emotions as well as proper money management and knowledge about technical analysis and trading strategies/pattern.

How to predict market movements in order to trade binary options?

There are 1000s of methods to analyze and predict market movements, so-called trading patterns. The main problem is not to find the best, but to learn when to use wich trading pattern for best results! Anyway, you will never win all your trades, loses are a part of trading!

How to choose the right expiry for your trading pattern?

This depends on many factors like the trading pattern, the time frame and the kind of asset you want to trade! Ensure to test new pattern first inside a demo account (Check out my IQ Option review to get one) for a few days at least! After some time you will get some kind of feeling to choose the right expiry!

What does “In The Money (ITM) and Out of the Money (OTM) mean?

In the Money means that the binary options expire in your odds. If you trade a call option, the price needs to rise till the expiration, if you trade a put option the price needs to decrease till the end of the expiry time – In the case, an option ends in the money, you get back your investment as well as the additional profit! Out of the Money means the direct opposite, the option expired against your prediction, and you lost your investment! Read more about ITM and OTM here!

How much can you win if your trade expires “In The Money”?

This depends on your broker, but also on the asset you are trading as well as the expiration time you have chosen! You will know how much you can potentially earn before you enter the trade!

Are there good books for binary options?

There are only a few books about binary options trading, but many books about technical analysis and how to analyze the financial markets! Ensure to check back on this website in the near future for book reviews and more…..

DO I need to invest in order to try out the binary options principle?

No, you can open a free demo account at IQ Option for example in order to test binary options without risking any money – of course, you won´t make money this way!

I am new to trading and would like to start. Can you give me some advice?

Sure, just browse this website and learn more about the basics of binary options trading! Do not miss to search on youtube and Google for additional information about binary options trading!

What is the best “binary options trading pattern/strategy”?

There are too many factors define the best trading pattern for binary options! One reason is that the majority of a trading pattern is designed for a specific market situation. get this wrong and you will lose your money in most cases!

I’d like to trade binary options. Do I have to be 18 years old?

Yes, all regulated and the most un-regulated broker require a trader to be 18 years old or older!

How much can I earn trading binary options?

This depends on various factors! In the case you are an experienced trader it mainly depends on your performance, how much trades are you winning out of 100 on average? The other important aspect is your capital, the more you can invest in one trade, the higher your potential win in the case the option expires in the money!

Shall I lend money to invest in binary options?

No NEVER! Only invest the amount of money you can afford to lose! Even experienced Traders can lose their money!

Questions not answered in my binary options FAQ Section?

No problem! Just use the comment form on this binary options faq page and ask whatever you want related to binary option or trading in general! I will do my best to answer your questions as soon as possible!

Best Binary Options Brokers 2020:
  • Binarium
    Binarium

    The Best Binary Options Broker 2020!
    Perfect For Beginners!
    Free Trading Education, Free Demo Account!
    Get Your Sing-Up Bonus Now!

  • Binomo
    Binomo

    Good Broker. Only For Experienced Traders!

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Binary Options Guide For Beginners
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