What Are Binary Options? Types of Options, Terms, Strategies of Earnings

Good day! Today we’ll talk about binary options. In this review we will examine: what binary options are, talk about the benefits of binary options over other trading tools, review the financial terms, we’ll list the assets you can trade in binary options, see the examples of trading operations on practice and learn some trading strategies.

What Binary Option is?

Binary option is an option that determines the end result of the transaction in terms of 0 or 1. In other words, is a derivative financial instrument characterized by a rapid terms of the transaction in which the trader is proposed to predict one of two options of market behavior in relation to the underlying asset: will the asset rises or falls within a predetermined period. A good prognosis, thus, provides the trader a return of the invested amount and, accordingly, the profits. A failed prediction, respectively, entails the loss of investment. While trading binary options software platform displays the profit that the trader can get.

It is considered that the operations with binary options are one of the most straightforward ways to trade on the market, as binary option involves trading in short-term prospects, and operates with high profits. It is not surprising that such operations are widely popular among traders worldwide.

Advantages of Binary Options

Speaking about the benefits of binary options over other trading instruments we should mention:

• The apparent ease of operating (you only need to predict positively or negatively closing of the asset within a certain time);
• Access to understanding the principles of operation of the tool and the absolute transparency of transactions, which you can verify with the help of any arbitrary external market indicators (you can work with binary options through any trading platform that does not oblige you to consult exclusively with its authentic monitoring system. That is, you can verify the legality of the closing of the transaction according to data from any third party source);
• All what the trader need to consider during the basic steps of trading — only market rate of the asset that he will trade;
• Limited risk and fixed profit (known in advance). Therefore, you won’t lose and can’t win more than your contract implies;
• Binary options can be easily adapted to most of the assets and, accordingly, to the widespread trading strategies and approaches to trading;
• In addition, the possibility of entering a large number of short-term contracts on different assets allows traders to make transactions 24 hours a day, five days a week.

Also, a novice trader interested in binary options need to learn a number of basic financial terms:

• Winning option is an option that involves profit;
• Losing option, in turn, implies the loss;
• Lose-lose option is a situation in which the validity of the contract closes at the same price of the asset on which the option was bought. Such cases imply a refund of the full contract value;
• Price upon execution of the transaction is the price at which you bought the asset at the time of buying of the contract;
• Price at the expiration is the price at which the asset is sold at the expiry time of the alleged option periods, which determines in turn whether the option is a winning option, losing option or lose-lose option.

Binary options involve the following assets:

• Currency pairs — option predicts the rise or fall of a particular currency in relation to another currency within a certain time;
• Stocks — option predicts the rise or fall of the stock price of a company (for example BARCLAYS, BMW, GAZPROM) within the specified time;
• Commodities - option predicts the rise or fall of the gold, silver, oil, wheat, etc.
• Indices — again, option predicts the rise or fall of the index (for example FTSE 100, MISEX, S&P FUTURES).

Types of Binary Options

Let’s examine the most popular types of binary options:.

60 seconds

We need to choose the direction in which the price is moving after 60 second time (or after 120, 180, and 300 second).

60 seconds - a popular type of contract for beginners. The option offers trading in 10 currencies, 5 commodities, 1 stock and 2 indices. Minimum deposit from $1 to $250, the percentage of payouts is up to 75%.

Classic Binary

Classic binary options is a contract with simple conditions of gain determination, or rather, prognosis in terms of the asset prices direction. There are 22 currency pairs in the option’s arsenal, 5 commodities, 5 indices and 22 stocks. Minimal deposit from $1 to $1500, payouts up to 80%.

Range

This type of option involves the movement of the price within a price band. We can widen the corridor by choosing the longer period of the option. In this type of option we do not trade down or increase.

One Touch

One touch implies that we trade within a certain range. If the price will touch the upper or lower line of the boundary that marked on the chart, then we get the profit.

The chart shows the top line, which must touch the price to get payment. It should say that payout is pretty good - up to 400%.

 

Trading strategies of Binary Options

Martingale strategy for binary options

To understand the martingale strategy, imagine a game in a coin. Let’s say you put a dollar on one of the options that heads or tails will fall out. With the expectation that the rate will sooner or later play, you increase each new bet in proportion to the previous, and then the first successful trade will cover the loss from all the previous ones.

How does it work with binary options?

Each subsequent option which you buy, should be twice as expensive as the previous one. Let’s say you bought a share for $10 and then the following you should buy for $20. Each winning trade will cover not only the losses from the previous one but will bring a guaranteed profit.

At first glance it might seem that the martingale system is quite complex, however, each trader is able to understand the principles of its operation and to successfully earn money with trading binary options.

Let’s open binary option in a random direction, let’s say PUT. Amount is $5. Review trading results:

Our contract closed with a loss, because the price was moved up. Taking into account the payout is 79%, we need to increase the next position rate from 5$ to 15$. And again we open PUT.

The price moved down and our second trade was successful.

After receiving the payout in 26.85$ we repaid our bet, the profit margin is 9$, which fully repay our previous lost bet. Here is such a simple trading system. If we had lost again, we would increase the bet to $30 and it would compensate our two previous losing bets.

Trading the news

As we know, during the release of news there can be a strong price movement on the market. This type of trading strategy involves working with the contracts of range type. The direction of movement of quotations is not considered. We buy the contract of the range type, focusing on high volatility at the time of the news release.

The best price movement occurs during the news release, at a time when the bulls and the bears are not able to find the necessary equilibrium price. Usually, the news signal provokes strong trading momentum, so it is important to ensure that our contract was closed down within 20-30 seconds after the release of strong news.

In other words, the strategy involves the opening of the external contract for 5 minutes before release of the news which is important for the market (for example Non farm payrol). We advise to trade traditional currency pairs.

As the standard range is the condition that is quite easy to overcome in such a market events, the price by expiry time will change with almost 90% probability, and, therefore, you get profit.

Unfortunately, at the moment, there is not strong news on the market. So I will try to explain the strategy schematically, step-by-step. Our current price range on the current chart is 5 pips. Therefore, in case of strong news it will be punched in either side (no matter which) in a very short time. You can watch news in the economic calendar. Every news has some force, which is noted with asterisks or bulls. We are interested in an exceptionally strong news.

 

Summary

Well, on this step our study can be considered completed and we can emphasize once more that such an instrument as binary options really deserves your undivided attention and thorough analysis.

We also want to wish our readers every success in trade and the increase in the number of profitable trades in binary options.

Take care, Michael

ForexTraderPortal.com