Binary Options 101

So what are Binary Options all about?

Binary options are a relatively new way to trade in the world’s financial markets. Born out of the financial crisis in 2008/9, binary options were regulated in the US in 2008 and they have fast become the most convenient, effective and user-friendly way to trade in the financial markets. Unlike stocks trading where you actually purchase and take possession of stocks, binary options do not require any such thing. You’re merely speculating on the future price movement of the underlying asset. Some analysts liken binary options trading to wagering on the outcome of a sports match. Of course the more information you have about the playing conditions, the team members, overhead conditions and your opponents – the more likely you are to make a correct prediction. There is no certainty with binary options predictions; however you can reduce the likelihood of making a poor decision by using strategy, insight and your trading prowess for maximum effect.

Understanding Binary Options Functionality

Consider the name binary options for a moment. Binary means 2, and with binary options you have 2 potential outcomes. Your trade can either end in the money in which case you make a profit, or your trade can end out of the money in which case you make a loss. There is no middle ground. These are oftentimes known as all or nothing trades, or exotic options. Do not be dissuaded by the all or nothing approach to trading binary options. They are easy to work with and you can increase your winning chances by selecting tradable assets which you understand and enjoy trading. All you have to do is to forecast whether the price of that asset will increase or decrease. Once you have made that prediction, and selected your preferred broker, you can easily verify the percentage return it will generate if your trade ends in the money. Likewise, you will know precisely how much you stand to lose if your trade ends out of the money. Typically binary options losing trades limit your losses to the amount of money you have invested in the trade itself. Sometimes however you will even receive a percentage of your losing trade back.

In practical terms, the process is a lot simpler than all the theory. You simply register at your preferred binary options broker, make a deposit and then select the underlying asset that you wish to trade. Remember this can be a stock, currency pair, index or commodity. You then decide if you wish to place a call option (the price will rise at expiry) or a put option (the price will fall at expiry). The amount you wish to trade will then be multiplied by the percentage return you will generate if you end in the money. One click is all it takes to execute that particular trade. You can watch all of the price movements in real time on the binary options trading platform, or wait for the trades to expire and enjoy the profits you have generated. Very rarely, if ever, in any other form of trading do you know precisely how much you’re going to generate at a specific point in time. This is why these are such attractive tradable assets to so many traders around the world. You can ascertain from the beginning how much you can generate or how much you stand to lose, and only you are in charge of every aspect of your trading activity.

Binary Options 101

Binary Options 101

What Types of Financial Instruments Can You Trade?

There are 4 basic categories of assets that you can trade with binary options, including: commodities, indices, stocks and currency pairs. And since binary options can cover virtually any type of asset on the markets, you are not limited to the Dow Jones Industrial Average, the London Stock Exchange, or the Shanghai Composite index. You can trade all of them every day, as much or as little as you want. And then there are hundreds of available stocks in each of these bourses. Depending on which binary options trading platform you select, the number of tradable assets will vary.

The better binary options trading platforms provide you with many available options. A little sage advice: Start trading the financial assets that you understand and enjoy trading. After you become successful you can start to branch out into other categories. Popular stocks include Google, Facebook, Apple, Yahoo, Goldman Sachs, Alibaba, BP, Bank of America, Wells Fargo and others. Commodities like gold, silver, platinum, coal, wheat and oil are also highly popular. Currency pairs like the EUR/USD, USD/JPY, and GBP/EUR also rank highly on traders lists. When you choose a credible, regulated and professional trading platform you get to enjoy all-encompassing trades on all of the aforementioned assets.

What is the Duration of Trades?

The size of price movement in binary options does not matter, but the duration of the trades does matter. There are very specific timelines with binary options that you need to adhere to. Short timeframes and long-term timeframes are available to traders, and each has specific benefits and pitfalls. One of the decisions that you must make as a binary options trader is to determine what duration works best for you. You may be the type of trader who enjoys turning money around in a relatively short period of time. In that case, short-term trades will be better suited to you. If you have no problem having your money tied up for several hours then long-term trades are better suited to you. In this vein, short-term traders can choose anything from 60 second binary options to 5 minute binary options.

Once you have decided upon a particular timeframe, you will need to stick to it. There is no backing out of the trade. With many other types of trading activity, including CFDs, stocks and other options, you can sell your purchased assets prior to the expiry time. This happens all the time with futures. Remember though that this generally cannot be done with binary options brokers. In very rare instances, your selected binary options broker may offer a small refund on a trade that you sell prior to expiry time. However it is not recommended until you have sufficiently advanced your trading capabilities to a professional level, and only if your particular broker allows for such eventualities.

What are the Most Popular Option Types?

There are several binary options trading types that you should be aware of. These include call and put options, one touch options and boundary trading options. Starting with call/put options, you simply forecast whether the price of the underlying asset will increase at expiry time or decrease at expiry time. The next available option is known as the one touch trade. With this option you will be provided a target price point at the commencement of the trade. Should the underlying asset reach that price (touch that price or exceed it) at any point during the trade’s duration, your investment will pay out. Note that you will always know ahead of time what the price point is, because the broker will provide it to you. The final option type that you need to be aware of is known as a boundary trade. These range-bound trades have fixed price points. When you make your trade, you will make a decision as to whether the asset price will fall within that price range or outside of that price range.

Naturally, there are multiple variations of each of the aforementioned trades. Sometimes it is entirely possible to generate a profit of 300% on things like one touch options. Of course, it all depends on the broker you have selected in order for you to generate a payout so generous. One should be cognizant of the fact that payouts in the 300% range have stringent requirements that need to be met. If the price seems unlikely to be attained, you may need to wager on that particular price being reached in order to receive that type of payout.

How Do I Know Which Binary Option is Best Suited to My Personal Needs?

Every person is different. And here at TopTenBinaryBrokers we celebrate those differences. For this reason, there is no one size fits all strategy. It all begins with your level of knowledge, your available trading income, your preferred trading timeframe, your appetite for risk, your strategic objectives, and how committed you are to binary options trading in general. If trading binary options is something that you wish to do on the side as an additional activity, you may benefit from placing traditional call/put options on assets that you understand. If however you are more of a risk-seeking individual, one touch options or range bound options would be your preferred option.

As you start narrowing down the timeframes from several hours to 60 seconds the risk increases too. Remember that there is high volatility in short-term trades, so you may wish to consider that in your overall strategy. You can certainly generate hundreds of dollars every week by trading binary options, provided you pick the right timeframes and the right underlying instruments to trade. TopTenBinaryBrokers presents you with everything you need to know about each of these individual trading options, and you can decide based on personal preferences what to do. Remember that it’s not always about how many winning trades you have; it’s about how much you win on trades overall. You could lose 80% of your trades and still generate a big profit!

How Do I Get Started?

Believe it or not, you have already gotten started in your binary options trading activities. Your next step is to select a reputable broker from any of the Top 10 options featured on TopTenBinaryBrokers. Next, make a deposit via bank wire transfer or a credit card. We cannot stress enough how important it is to only trade with money that you can afford to lose. Never trade binary options with money that is designated for your necessities such as food, accommodation, education or well-being.

As soon as your account has been established and money has been deposited, you’re all good to go. But before you get started, check for things like demo trading platforms. You will gain tremendous advantage from trading with a practice money account under real market conditions before you place real money into binary options positions. Most binary options brokers will not allow you to use their demo trading accounts unless you have registered and made a deposit first. This is a complimentary value-added extra for you to use. The goal of course is to shorten your learning curve to the point where you feel confident and competent enough to trade for real money. Use the demo trading platform to the best of your ability, learn how the system works and maximise your knowledge.

The Final Word

There is absolutely no doubt that trading binary options is going to be one of the most exciting things you have ever done. In moments you will be immersing yourself in the global financial markets, making deals just like those institutional traders in their ivory towers. Binary options can be traded from the comforts of home, or on the go. Binary options trading platforms are fully compatible with Android and iOS smartphones and tablets. That means you can trade anytime the mood takes you. There are tremendous opportunities to generate significant profits, but caution is the order of the day.  Tactical planning, strategy and knowledge cannot be substituted for. TopTenBinaryBrokers is here to assist you from inception until your final trade. Learn to maximise every available opportunity by poring over the available economic data, charts, trends, analyst opinions and so forth. Binary options provide an invaluable opportunity for you to maximise your profit potential with currency pairs, indices, stocks and commodities.