Binary options are the recent fad doing the rounds in the financial market and have certainly become a hot topic for discussion. A hot topic since the general public is not at consensus amongst each other regarding the use of binary options and its implications in trading. Traders find binary options as an attractive avenue because of its apparent simplicity, especially since the investor only needs to predict the happening of an event. The aim of this post is to educate one about binary options via a short comprehensive binary options guide detailing its working and other attributes.
What are Binary Options?
Before dwelling into the complicated jargons and acronyms of the subject, let’s understand what binary options are really about. A binary option is nothing but a type of derivative option where a trader makes a prediction on the price movement of an underlying asset in the near future for a fixed amount. It really is a simple way to trade fluctuations in the financial market. Binary, as we know means two and in simple terms, it can be termed as yes or no, true or false or 0 or 1. So in a binary option, a trader has to bet on any one out of two possibilities which are based on a buy/sell – up/down basis of an underlying asset and whose price may rise or fall in the future which could either earn you a good money or result in a loss.
Take into account a simple example like a trader Mark who is expecting the price of XYZ Company will rise two months from now and will go above $15 on 11 January 2017 at the opening of the trading day. If the price of XYZ Company goes beyond the expected price as predicted, then the option automatically exercises and the option holder gets the preset amount of cash. Now, binary options also go by different names like fixed return option, one touch options, digital options, bet options or all or nothing options. The basic gist remains the same.
For experienced investors, the term “in the money” is easily understood but it can be a problem for new traders who are still learning to trade options. Options trading involve the use of certain jargons. These are “In the money” and “out the money” binaries which are used to describe the position of an underlying asset in relation to its strike price of a stock option. There are three essential factors that determine whether an option is in the money or not: The stock price, the strike price, and the option type.
In the Money (ITM)
An In the money placement indicates that the asset price is currently in a profitable position. This option can lead to a positive cash flow to the holder if it is exercised immediately. For instance, if you have decided upon a call position and the asset price is now higher than the price point when the trade was initiated, then that kind of trade is said to be In the money at that point. In a closed trade, an ITM payment is the one which has ended in the placement of your prediction and has now resulted in making you a profit.
Using in-the-money calls is a good play if the options trader is looking to earn a consistent moderate rate of return. With an ITM binary, the underlying market is already above the strike price which means that not only are you paying for time value, you are also paying for intrinsic value. Your probability percentage goes up, which is an advantage for you as it is already ITM which means that the market does not have to move for the binary to become profitable. It can stay put or even slightly move against your trade and still be profitable for you.
Out the Money (OTM)
An Out of the Money trade is an option that would lead to a negative cash flow if it were to be exercised immediately. An open trade indicates that the asset price is currently in a state that will not lead to any profit. An out of the money scenario occurs when your prediction of the underlying asset wasn’t correct. This being said, the probability of an OTM binary expiring with a profit has very low chances. It’s fair to state that avoiding such placements for binary options trade is a better alternative for traders.
Out-of-the-money binaries can be profitable if you know market placement techniques. OTM have a special advantage over other binaries like At the money(ATM) and In the money(ITM). With a right priced OTM binary, one does not need a stop loss because if the amount you have put up for the binary is low enough then there is no need for a stop loss. This means that putting your trade on, planning your take profit exit point(which one can exit any time trading on Nadex) and then moving over to look for better trades.
What are Binary Options Brokers?
Now when you have gathered some basic to and fro knowledge on binary options, the next step comes in choosing a binary options broker who can help you with the intricacies of the trade and help you earn money. There are more than 600 trading platforms where one can join and start trading binary options. Currently, there are only a handful of governing bodies or regulator who oversee and regulates the binary options and Forex activities. In the US there are two regulatory bodies namely the Commodity Futures Trading Commission (CFTC) and the National Futures Association (NFA). In the UK, this is regulated by the Cyprus Securities and Exchange Commission (CYSEC) and the Financial Conduct Authority (FCA). There are also many countries that have an unregulated binary options market like India and South Africa. As the concept of binary options has recently made its way through in the financial markets, it becomes important for one to choose a proper platform and broker that suits their best needs. Given below is a detailed list of things to look out whilst choosing a trading broker and platform for oneself:
- Is the broker providing with a simplified user interface and platform?
- The minimum deposit fees of the trading platform.
- What kinds of payout options are available with the broker?
- The various kind of handy trading tools available on the trading platform.
- Clarifying deposits and withdrawal options.
- Does the platform support multiple asset investing?
- Is the broker providing a first time user with a demo account?
- Type of stock options and warrants available with the broker.
What are Binary Options Robots?
Binary options robots have been a topic of controversy among traders and investors since their inception and inclusion to the world of the binary options market. Binary options robots are automated traders. The purpose is to ease the work of investor and trade on their behalf. Yes, you heard it right. An automated robot takes remote access and does trades on your behalf. The auto trading bots run along your background software and analyze the enormous heaps of data which is gathered by observing market trends and movements. The working of the binary options robot depends on the experience and skillset of the developers in developing the program. The binary options robots generally make use of complex mathematical algorithms and the latest technology to come up with the best results and enhance the user’s experience.
Binary options robots not only provide you with real time analysis of the latest market trends but also places the trade on the user’s behalf. One of the reasons why it is said to be the most efficient way to trade is because it allows for automatic placement of trades but one thing should be remembered that this form of trading doesn’t guarantee the best trades. Therefore one should be cautious when getting an auto trading signals software for themselves. Using the best auto trading signals software will help minimize risk and maximize overall profit. Working with binary options robot involves initial initiative on the user’s part. Reliable binary trading systems provide with the opportunity to sign up with a reliable broker. The choice of broker is crucial in this regard before one starts trading with the binary options robot.
Let’s present you some cold hard facts about binary options robots.
- The market is filled with countless binary options robot that assure you 100% returns on your investments. The fact is that no binary options robots can give you a 100% returns since the binary options market is a market of chance. Even the best pundits with extensive years of experience can’t accurately predict an outcome of the changes in the price of the indices and underlying assets.
- The fact is that 93% of the binary options robots present in the market today are a sham and do not work as promised. Complaints forums are filled with grieving customers who have lost their money trusting a robot to do their dirty work. This is why it is advisable to do a thorough research before getting a binary robot for use.
That being said, there are a few binary options robots that work well. Now you may be asking as to how that can be true when it was just said a moment ago that 93% of these binary robots are sham. There are some binary options robots that work very well but as has been said before, no robot can guarantee a 100% returns. The returns on good binary options robots in the market stand between 71-94 %. On an average this number stands at 83 %. So, these binary options robots still have a better chance of success than failure.
The arguments surrounding the use of trading robot is of misrepresentation. Misrepresentation because the surplus providers of binary options robots are nothing more than a sham that is just a way to suck your hard earned money and there have also been arguments about the use of such auto trading robots which cannot be relied upon because of the experience of the developers in making such a software. With that being said, there are also some legit tried and tested binary options robots which have made money for their users coming off as a handy tool to have for traders in the binary options market. Binary options robot can be a handy tool for seasoned experts in the business who already have a knowhow and functioning of the binary options market. For amateurs and novices entering the fray, learning trading strategies and opting for manual trading is the key to learning perspective about the binary options market since using an automated trading system would hardly allow for any learning experience as everything would be managed by the auto trading robot.
What are Binary Options Signals?
Trading in binary options may have its ease but it also has some shortfalls of its own. Surely no one likes to lose their hard earned by making misinformed decisions that they would choose to regret later. As there are only two potential outcomes in binary options and each of these trades involve predicting whether the price of a specific asset will rise or fall within a span of time. Since one cannot study the movement of assets for hours at end and monitor the changes in the financial markets and study asset charts like a hawk, the binary options trading signals help out in this endeavor to make the user aware of the changing prices in the commodities market, the currency values in the forex market, the various indices around the world. The best binary signal providers notify its users when a trade has the potential to make a profit.
Binary options signals are provided by companies who develop software that carries out technical analysis and identify trends in the movement of assets and currency pairs in different markets. The software uses a specific algorithm to recognize established trends and forms patterns all on its own to provide real time date to the users using the medium of mail, SMS or instant alerts on the phone.
The best binary options trading signals provide detailed analysis and tips. The software equips the users with updated and concrete information on the most profitable assets doing the rounds in the market, the ongoing trends in the market and the corresponding expiry date of the asset. These signs are the handiwork of experts who after careful analysis submit their interpretations of the market. There are many types of binary options trading signals and each come with their own advantages and weaknesses. These binary trading signals are listed down below:
Manual Trading Signals
Manual trading signals help to get your trade set up manually. This is done through a social group or network or one may get these signals through their custom trading platform or through their skype link. The advantage of these trading signals is that they are not auto generate signals but are trading alerts sent by experts which give you the chance to get a follow up with these experts. These signals usually provide with information pertaining to a viable trend in the market, for one to capitalize on.
Live Trading Signals
Live trading signals allow one to gain an insight into real-time trading on the market. A user can sit for a live trading session via a live video feed which gives them an opportunity to learn trends and make trades.
Copy Trading Signals
Considered to be the most efficient of all trading signals, copy trading signals allow one to copy other trader’s signals. This type of signals are provided on a real time basis and often expert traders are at the other end of this which enables other users to follow in their trading patterns and make informed decisions. There are many good copy trading signals available in the market like the MT4 platform which has the built in ”copy trading signals”.
As is understandable from the name itself, SMS signals allow SMS to be sent to your phone or tablet and show you the assets that can be traded. These usually come in the form of standard text messages providing you with the latest updates and vital assessments from the market even before they happen.
How to Avoid Scams?
Binary option is a lucrative market and everyone wants to get a piece of the action because of the money aspect involved. Trading binary options surely opens a new avenue for money but one needs to be cautious whilst dealing with the very subject matter of money. Scamsters look to exploit such markets with their over the top lucrative deals. The reasons why so many scammers are present in the industry is due to easy access to the binary options market which is open for the regular public to get into. One can make their account in a matter of minutes which means that there are a lot of traders in the market making it vulnerable for scammers to con innocent gullible people of their money. There are some basic binary options guides for everyone to follow before stepping into the binary options market:
Using Recommended Brokers
The first step towards setting your own binary option involves getting a broker. Now this is where the initial scammers get in. These scammers will try and tell you unconditional lies about their brokerage services and how they have many successful clients and how can they even give you bigger bonus incentives. Look out for brokers that have had previous experience in the matter. Check out websites, do a thorough screening and go for recommended brokers.
Do Not Go For Managed Accounts
Many binary options managers offer personalized services like one on one session, personal account managers for your trading account and get you to divulge and share your account with them. This is highly unethical for account managers to offer managed accounts to clients. Many a times clients end up losing their money and see their slate wiped by their managers who not only took extra money to upgrade the clients account into a VIP one but also traded the account to the ground.
Start With a Demo Account First
To ensure transparency in your dealings, always check the trading software and your broker. A demo account is a sure shot way of analyzing the trading system before you start investing in it. It will also provide for a confidence booster as and when you start investing in the binary options market.
Avoid the Lucrative Binary Signal Providers
There are these smart scammers sitting on the edge of their seats for their next scapegoat posing in front of the customers as a binary options signal provider who has the most accurate trading signals that can generate 100% returns on investments and binary options robots that could do the deals for you. Do not fall for that trap. Nobody can provide with a 100% probability on your investments and binary options robots do not have a secret formula that could make you millions. This does not mean that there aren’t any good signal providers or binary options robots. One should be aware of the service they opt for.
Join Trading Forums
Joining open binary trading forums is a good way to gather information. You can learn more about other people’s experience and also voice your concerns. Most of us don’t realize this but sharing experiences and asking for opinions and feedbacks can help better your experience in the binary options market.
Can You Really Make Money with Binary Options?
Getting to the most obvious question of the lot, yes you can really make money trading in binary options. The key to binary options trading is to control risk. Binary options have a controlled risk to reward ratio which means that the reward is predetermined at the time of the contract. One can never lose too much money on a particular trade and hypothetically, a trader has 50% chance of being correct on any trade whether they have opted for a call or put option. If you are someone who has just started in the binary options market, here are some possible ways to boost your chances at earning:
Using Technical Indicators
Making yourself familiar with the basics of trading is one good way to start. Take cue of technical things like price charts to predict future price fluctuations of assets. There are many indicators out there that can help you in this regard like moving averages which consist of MACD indicators that make use of convergence or divergence of moving averages, relative strength indexes etc. Find an indicator that works well for the security you are trading and work towards honing that to ensure success.
Making Use of Signaling Service
As it goes, signaling services can really help give you a know-how of the market trends. One can opt for paid services or make use of free signal services to gain perspective on the market trends. This can bolster your chances at increasing your chance at making money.
Tracking Your Performance
Keeping a track of your performance in every binary option security you invest your money in is a good way to understand your strength and weaknesses. Some people are good at tracking indices while some are good with currency pairs. If you are consistently profitable with a handful of options trades then stick by it and increase your size. Knowing your niche and improving on it can save you the dilemma of losing money on unprofitable trades.
Buying the Right Kind Option Lengths
There is a range of trading options like short-term trades and long-term trades available in the market. Invest in what you feel is comfortable for you, for example, a value investor would not be sensitive to price changes over a minute option but may be right for a super high percentage of trades over a longer duration of time.
Trading in the binary options market can certainly be a very rewarding prospect. Binary options trading has gained a lot of popularity since its induction as a financial instrument. Smart investors are now making a switch towards this form of trading due to its many benefits. Binary options provide for high returns with only a small level of investment, it is slowly becoming the next best avenue for investments. Learning to make good use of the resources around you, keeping up with market trends and reading the signs of the market will certainly set you up towards your first paycheck. The key is to start slow and start well. If you are a first time trader, then starting with a demo account can help you get the confidence you need to start. Being smart about your decisions and choosing the right broker and right platform to trade also is vital to getting a headstart in the binary options market. The sudden surge in the binary options trading is yet to achieve its maximum potential and the road ahead promises to be exciting for the financial industry.