What are Binary Options?
In a world where advancements in internet technology have made it possible for anyone to trade financial assets, binary options have become a lucrative way to navigate through the financial wilderness. But what are binary options and how do you trade the binary way?
In layman’s terms, binary options are tradable assets in the global financial market enabling investors to assess and predict the future direction of the assets through a binary options trading platform. For example, if you believe that the Expiry Rate of an asset will be higher than the Strike Rate, you buy a Call option, usually denoted by an up arrow. In order for the trade to be successful, the actual price of the asset at the time of expiry must be in agreement with the direction you anticipated when you entered your position. Conversely, if you believe that the Expiry Rate will be lower than the Strike Rate, you buy a Put option, denoted by a down arrow. For ease of reference, note that Strike Rate is the market price of an asset when you enter a position, while Expiry Rate is the market price of the same asset when the binary option expires.
How do binary options work?
When trading binary options, no actual assets are ever bought or sold highlighting a key difference between binary options and the more conventional options. The payout depends entirely on the direction of the underlying asset and the binary option holder has no further investment decision to make. The payout for a binary option is also fixed and predetermined with an all-or-nothing structure.
Making a trade in binary options is a simple 4-step process.
- You select the asset you want to trade
- You select the expiry time of the option
- You enter the investment amount
- Finally, you select the direction you believe the asset will move
At expiry time, depending on the outcome of the trade, you will either be “In the Money” or “Out of the Money”
Choosing an asset to trade
When trading the binary way, one key investment decision is selecting the asset you want to trade. Investors can choose assets from four different asset categories including:
As you probably already know, a stock is a share in a given company. When the value of the company rises, it often translates into the value of its shares rising. Top events that influence the value of a stock include quarterly earnings reports, lawsuits and the launch of a new product or service.
An index is a group of stocks measuring the change of an entire market. There are indices for markets all over the world including Nasdaq and S&P 500. Top events influencing indices include industrial production, GDP and Building Permit.
Currencies are always traded in pairs where the currency on the left is known as the base while the currency on the right is known as the counter currency. Understanding the events that matter the most to the value of a currency is important for investors who wish to trade in the foreign exchange markets.
And finally, commodities like gold, oil and silver are real-world resources that are heavily traded in the binary options arena. They are sensitive to events including surplus production, war and natural disasters.
What are the different trading tools available on BinaryOnline?
As mentioned above, binary options trading is one of the most simplified methods of trading, providing great flexibility and great investment opportunities. Trading is further facilitated by brokers, like BinaryOnline, which offer a platform that can be used for binary options trading. The best platforms offer different trading opportunities and features as well as different assets. At BinaryOnline, we offer over 200 tradable assets and ten powerful trading tools.
Classic Binary Options
The Classic Binary Options trading tool has simplistic features, designed to provide the best experience for both new and experienced traders. All you need to do is determine whether the price of an underlying asset will rise or fall by expiry time.
60 Seconds is the fastest trading tool at BinaryOnline , highlighting an opportunity to rapidly test your trading skills. This tool is especially useful in times of important economic events, which can have a positive or negative impact on the global financial market.
In stark contrast with 60 seconds, BinaryOnline’s Long Term trading tool offers expiry times of up to 1 year. Due to its long-term characteristic, this tool is particularly suited for traders with a wider perspective of the financial market and the performance of certain assets.
When a market is quiet and volatility is low, this tool can be useful to make lucrative trades. It requires an analytical approach and the trader has the opportunity to choose several strike times. For successful trading, the price of the asset should go through these levels like the steps of a ladder.
One Touch is the one of the two trading tools on BinaryOnline that allow traders to win trades even before the set expiry time. With One Touch, traders touch an up arrow to predict that the price of an underlying asset will rise to touch the upper target line at least once within the expiry time or they touch a down arrow to predict that the price of the chosen asset will decrease enough to touch the lower target line.
On BinaryOnline, Pairs is a trading tool that compares the performance of two assets against each other. A successful trade happens when the investor correctly predicts which asset will outperform the other within a predefined period of time.
FX/CFD trading is one of the latest trends in the binary options arena. On the BinaryOnline platform, the FX/CFD tool offers traders the opportunity to trade on various assets including currency pairs, commodities, indices and stocks using Stop-Loss and Take-Profit levels.
Brought to traders to increase the opportunity for successful and lucrative trades, Option Builder is a trading tool known for generating high ROIs. It gives traders the opportunity to build up their trades with a vast range of customisations.
And finally, Limits is an interesting and relatively new trading tool offered by BinaryOnline. It is suitable for trading a number of assets and traders can win trades even before the set expiry time.
Each trading tool carries a different potential payout percentage, depending on investment amount and expiry time. Payout percentages can range from 70% to 1500%.
What is the best trading tool for you?
Binary options are popular with traders because of the flexibility and transparency of trading the binary way. After all, the potential payout percentage is stated ahead of time. For example, if the payout percentage is stated at 80% and your assessment was correct on the expiry date/time, it means that that you receive 80% of your invested amount as profit plus the initial invested amount. The different tools on BinaryOnline offer different payout percentages. To choose the right tool for your trades, consider:
- Your objectives and goals for trading.
- Your investment plan, risk management strategy and trading strategy
- The potential payout percentage of each trading tool.
The pitfalls of binary options trading
As mentioned above, trading binary options is one of the most simplified methods of trading. This simplicity is also one of the biggest pitfalls of trading binary options because it can be misleading. After all, you are still trading a financial asset and there are financial risks. The risk is, of course, limited on each trade to the amount you place on each trade but a string of losses can result in a significant loss of capital or the loss of your entire investment. To help preserve capital, one of the most important things to learn is how to determine your position size or investment amount on each trade.
Other pitfalls of binary options trading include:
Lack of analysis
With Binary Options, you run the risk of losing 100% of the investment placed on a trade if you make the wrong prediction. Therefore, before you trade binary options, take the time to prepare strategies. You also need to know how to interpret a binary option price and understand the underlying asset. Binary options derive their financial value from the underlying assets so it’s wise to keep up with the financial markets and conduct market analysis before risking substantial sums of money.
All investments in the financial market carry a certain level of risk. To make successful trades, let your knowledge, and not your emotions guide your behavior. An intuitive trader knows how to act promptly when he feels that his binary contract is going to end out-of-the-money at expiration.
Lack of knowledge
And finally, like any other form of financial asset trading, binary option trading requires knowledge, skill, experience and strong nerve. Before risking substantial amounts of money, make sure that you get enough experience trading options by starting with small investment amounts. Remember that winning small amounts of money is still winning. Traders should also understand the relationship between risk and reward. In general, the less likely a particular outcome, the greater the reward associated with it.
Getting started with binary options
With over 200 tradable assets and a comprehensive set of powerful trading tools, BinaryOnline is a premium, fast-paced and intuitive platform for trading binary options. To start a successful trading career, open an account with us by following 3 simple and straightforward steps.
- Head to the BinaryOnline homepage and click on “Trade Now.” This will direct you to a page where you can fill in your details. At this point, please note that once chosen, the currency of your account cannot be changed at a later date.
- The next step in getting your account ready for trading is to activate it. To activate your account, fund it with the minimum amount of 250 USD, EUR or GBP (or the equivalent of the local currency in your region).
- The last step before you start trading on BinaryOnline is to provide your compliance documents in line with our KYC and Anti Money Laundering (AML) Policies.