The most popular trading alternative to arrive on the scene in quite a while has got to be binary options trading. This new investment vehicle is simplified in its approach, thereby shortcutting much of the time it takes to get up to speed for a beginner, whether you are interested in trading stocks, commodities, or currencies. A trader must still adhere to following a disciplined approach, but many of the issues pertaining to risk and money management have been eliminated due to this “all or nothing” approach.
In the following paragraphs, we will highlight what these specialized options are about and how to make money with them. Since the trading approach is so unique in how the data is presented and how execution orders are given, your current broker of record may not necessarily offer binary options. In this regard, we will give you sound advice on how to choose a broker that focuses on this trading genre. Due diligence is required in order to find a reputable firm that will provide the service quality you desire and the safety and security that will surely allow you to sleep well at night.
Step 1: What is binary options trading?
There are many websites that can provide an answer to this question, but a brief definition from one of these sources is as follows:
“A type of option in which the payoff is structured to be either a fixed amount of compensation if the option expires in the money, or nothing at all if the option expires out of the money.”
Many of the terms related to these options may sound like they emanated from a “casino”, but do not be fooled into thinking that gambling luck is necessary for success in this arena. As with gambling, however, the secret with binary options is to move when the odds are in your favor from a market perspective, varying your “bets” in size to improve your chances for consistent “net” gains. That last statement can be found in most tutorials related to any trading activity, so what is so different with binary options?
As an example, one option may promise a 72% return on your “bet” if you are right, and 10% refund if you are wrong about what the value of the Nasdaq will be at an expiration time of your choosing, typically an hour or more. The broker may also offer options for highly traded stocks, commodities, and currencies, but we have chosen the Nasdaq index here for illustrative purposes. You can bet if it will be below or above the specified value, and you can decide how much to invest in your chosen position. That is all there is to it. No margin calls. No hand wrangling over whether or when to sell. If you are right on a $25 bet, then you get back $43. If you are wrong, you get back $2.50. It is as simple and straightforward as that!
There are more complicated options for more experienced traders, and there are a variety of other features that a broker can support. These may go by the name of pure “high/low” or “Call/Put” options, in their simplest form, but “one-touch”, “no-touch”, and “double-touch” options can increase your flexibility for typical trending and ranging strategies. It is recommended that you defer using these more complex versions until after you become more familiar with the process and have attained a level of consistency and confidence with your personalized strategy.
Step 2: How do I make money on binary trading?
Every broker has developed a proprietary trading “dashboard” for your use, but most of all systems resemble the diagram below, using the numbers from our previous example:
After choosing your asset class and expiration time, the broker’s system will deliver the rest of the data for your consideration – the target value, the payoff percentage, and the potential refund if you lose. These last two items will vary depending on how close to the expiration time you are at the point of execution and your asset class. Trader sentiment, as with pari-mutuel betting at a horse track, will change as more “bets” are made, but this ratio gives you some idea of what others are thinking.
What other data do you need to make a sound decision? Your former broker’s trading screen may be of some help here. You need to view your preferred set of indicators and key benchmarks to evaluate how the prices might behave going forward. Key benchmarks that come into play are Fibonacci levels, 100 and 200 period exponential moving averages, highs and lows for the day or week, key pivot points, and technical support and resistance levels. This “system” is essentially what you would use under any other trading circumstances, as well.
Lastly, you will want to be aware of any significant press releases that might disrupt the trading environment. Be aware that at certain times of day, liquidity is higher and pricing behavior is more consistent with expectations. Once you move out of this “liquidity” comfort zone, then you may be subjected to other forces that are unexplainable. It is best to avoid these time periods and focus on the most active times of the day. When you determine that your indicators and benchmarks point to specific endpoint, execute an order for an appropriate amount, based on sound money management principles. Invest the time practice trading on “demo” systems to fine tune your personal system.
Step 3: How do I choose the best binary options broker?
Traditional brokers have generally not made the investment in their systems in order to offer binary options. For this reason alone, your first task will be to locate a capable and reputable binary options broker. Every week, however, brings a new set of entrants into the field, leaving many to question how do you evaluate so many firms in so many distant locations? This is one decision that is best handled by seeking support from other professionals, trying the various offerings for a trial run using their free “demo” systems, checking testimonials and other reviews, and relying on the “due diligence” of others that have already tested your final choices.
At Binarytradingworld.com, we have already done much of the “heavy lifting” for you. The brokers presented on our website have passed our “litmus test” and are worthy of your consideration. At the end of the day, weigh all the information at your disposal and make your final choice, but remember to monitor their service afterwards. You can always change later if you find something that disturbs you. Let caution be your guide! And good luck with your trading!
|Min. Deposit||Payouts||Markets Traded||Bonus / Specials||Allows US Traders|
|100$/€/£||85%||All||50% FTD Bonus up to $500||No|
|$100||85%||All||100% with $200+ deposit||No|
|$200||up to 85%||All||Limited time: 85% bonus up to $2,000||Yes|
|$250||up to 89%||All||Up to 150% Bonus||Yes|
This top list is our editors’ selection and recommendation of trusted binary options brokers after completing in depth reviews of more than 15 different brokers out there.