1. What is Binary Options Trading?

A binary option is a fast and extremely simple financial instrument which allows investors to speculate on whether the price of an asset will go up or down in the future, for example, the stock price of Google, the price of Bitcoin, the USD/GBP exchange rate, or the price of gold. The time span can be as little as 60 seconds, making it possible to trade hundreds of times per day across any global market.

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 $10 you will receive a credit of $17 – $19 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 are known in advance and this structured payoff is one of the attractions.

Option Types


There are several different option types to choose from. The most popular types are listed in the brief glossary below.
             • Up/Down (High/Low) – The most simple and prevalent binary option. Will the price be higher or lower than the current price when the expiry time comes?
             • In/Out (Range or Boundary) – A ‘high’ and ‘low’ figure will be set. You are then deciding as to whether the price will finish within or outside of these boundaries.
             • Touch/No Touch – Levels will be set that are either higher or lower than the current price. You then enter a position as to whether the price will ‘touch’ these levels between the time of trade and expiry. Payout will come as soon as the touch takes place.

Expiry Times 

Another important component of binary options is expiry times. This is when the trade will end and the point that determines whether you have won or lost. These times can range from 30 seconds and 1 minute (turbos) to a full day (end of the day), and even up to a whole year.
As an intraday trader though, you will be more concerned with trading 5 and 30-minute binary options. Opt for binaries with 1 minute expiry times though and you have the ability to make a high number of trades in a single day 

Advantages 

There is a whole host of attractive benefits to trading with binary options. The greatest advantages have been outlined below.

  • Simplicity – Because you are deciding on only one factor, direction, your bet is straightforward. The price can only go up or down. You also don’t need to concern yourself with when the trade will end, the expiry time takes care of that. Whereas in other markets, you may need a system to limit your losses, such as a stop-loss.
  • Fixed risk – Trade stocks, gold, and crude oil and you’ve got a vast number of factors to contend with, from slippage and margin to news events and price re-quotes. With binaries, your risk is kept to a minimum with far fewer parameters.
  • Trade control – Because you know what you may make or lose before you enter the trade, you have greater control from the start. Trade-in stocks, for example, and you have no guarantee that your trade will make the entry price.
  • Profit potential – Compared to another trading, the returns in binaries are extremely attractive. Some brokerages promise payouts of up to 90% on a single trade. If you’re looking to make simple trades with large profit potential, binaries could well be worth a look in.
  • Choice – Rather than being constrained to a specific market, e.g. cryptocurrency or stocks, binary options gift traders the opportunity to trade instruments across virtually all markets, allowing you to start currency, indices, and bonds trading if you so wish.
  • Accessibility – In the binary options game, it’s always the best trading hours somewhere on the globe. So, you can log in at night, or on the weekends and join the groups of avid traders attempting to turn daily profits. Real-time charts are available for every market so if you’ve got the time you can invest 24 hours a day.


Risks

Whilst there are plenty of reasons to delve into trading on binary options, there remain several downsides worth highlighting:

  • Reduced trading odds – Whilst you can benefit from trades that offer in excess of 80% payouts, these are often when the expiry date is some time away from the trade date. If the odds of your binary trade succeeding are extremely high you may have to make do with reduced payout odds.
  • Limited trading tools – Whilst most brokerages offer advanced charting and analysis capabilities, trading tools for binary traders often fall short of the mark. Fortunately, there are other online sources for these graphs and tools, plus brokers are working swiftly to increase their offerings.
  • Price of losing – Your odds are tilted in favor of losing trades. Approximately for every 70% profit, the corresponding loss of the same trade would result in an 85% loss. This means you need a win percentage of at least 55% to break-even.
  • Risk management – Unlike other markets, brokers often set a trading floor, with minimum accounts a trader needs to enter the market. This means losing capital can happen with ease. Whilst a stocks broker may permit you to open an account with $250, trading micro-lots, most binary brokers won’t allow $50 trades. So, even with $250 in your account, just five trades that don’t go your way could see you sink into the red.