What are binary options? How do you make money with binary options? These two questions are on the minds and lips of would-be binary options traders around the world. The reasoning for this is simple; binary options are a fairly new trading concept. Making money with binary options is often made to seem unrealistically easy by some marketers. While the concept is simple, it takes specialized knowledge for traders to become truly successful at using binary money-making strategies.
Can I Make Money with Binary Options?
Here we hope to provide answers for those asking, “Can I make money with binary options?” When looking for new ways to make money, binary options has become a growing interest globally. Be this as it may, making money binary options style does require specified knowledge. Binary options make money at a faster rate than other trading structures, because binary options allow shorter trading periods.The concept of making money with binary options stems from the original concept of “options” trading. Options were created as a way to allow traders the opportunity to participate in the asset markets without being obligated to Purchase a traditional contract to trade the asset. Options are available for a “premium,” which is usually a fraction of the actual cost of the asset being traded. Options also have an expiration date which determines when the trade closes.
Making Money with Binary Options
Binary options offer an easier method to trade options, by making the concept very simple. With binary options, the decision is straightforward; either you think the asset will go up, or you think the asset will go down. The word “binary” means to contain two parts. With binary options, this represents the two choices available for the trader. The binary options trader only needs to speculate whether the asset will go up or down during a selected period of time, to make money with binary options.Binary options are also called “all-or-nothing” options, because binary money is allocated on an all or nothing basis, based on whether the market follows your speculation or not. Making money with binary options is straightforward, but not without risk.
Binary Options Terminologies
Before we get into making money with binary options, we first need to describe the key terms used in binary options trading. It is important to understand the language spoken by binary options traders before attempting to make money with binary options. The following terms are fundamental to binary options trading:
- Asset – underlying instrument used to establish a contract; typically a currency pair, stock, commodity, or index.
- At the Money – a term used to describe a binary trade that closes at the same price as the purchase price
- Call – trading favorably towards the increase in an assets value at the time of order expiry; trading on the market going up
- Current Price – the real-time value of an asset.
- Digital (Binary) Option – an option with a predetermined return based on a contract
- Early Closure – closing a trade before its expiry
- In the Money – term used to describe a trade that expires in the position chosen by the trader; a winning trade; binary money is gained
- Market Price – a quoted price representing the current asset value
- Out of the Money – a term used to describe a trade that expires in a position that is not chosen by the trader; a losing trade
- Put – trading favorably towards the decrease of an asset’s value at the time of expiry; trading on the market going down
- Strike Price – the price at which an asset option is purchased
- Underlying Asset – general term used to describe a variety of traded financial assets, including: currency pairs, commodities, stocks, and indices.
Types of Binary Options
Aside from the terms associated to binary options, it is important to familiarize yourself with the various types of binary options. This is vital if you intend on making money with binary options. In this section we will describe the different types of binary options. These types include:
- Up/Down Options – Also referred to as High/Low, Above/Below, and Over/Under, Up/Down option is the most common type of binary option. If investors feel that the asset will rise during the option period, the place a “call” option, and if they feel that the asset will decline, they place a “put” option. The typical expiration times for the Up/Down option are: by the hour, by the day, and in some cases by the minute.
- Range Options – With range options, the object is to remain within a specified range, without going outside of that range. With “In Range” trades the market price must remain within the predetermined range without touching the two strike prices (above and below) during the option period, to close in the money. With “Out of Range” trades, the investor will close in the money if the asset price breaks out of the predetermined range within the option period. These types of binary options make money best when the asset volatility is low.
- Touch Options – With “One Touch” options, the price only has to touch the strike price at least once during the course of the option period, and can expire above or below that price and still close in the money. “No Touch” trades, on the other hand, require that the price does not touch the strike price at any time during the trade period, to close in the money. Touch trades are available at certain times of the day, and with some brokers, are even available on the weekends (while international trading is halted until Sunday 5pm EST). While a more challenging to trade, touch options also have higher payouts (between 250% – 400% of the risk premium).
Types of Market Analysis
While there are different types of options trades, there are also different types of analysis used by investors. Making money with binary options is easier when analysis is incorporated. The three types of analysis are: fundamental, sentimental, and technical. In this section, we will give a description of each type of trader:
- Fundamental Analyst – The fundamental analyst make money with binary options based on news, and major financial announcements. There are certain government/industrial announcements, and reports that seem to have a noticeable effect on the market. The fundamental trader stays abreast on these matters, and uses them as clues to determine the direction the market will take. This news can range from a national retail sales report, to a national unemployment claim report. These announcements are usually responsible for extreme volatility in the markets. The volatility usually resorts in the skyrocketing or plummeting in market price. Positive news means that an uptrend should occur, while bad news means that a downtrend is imminent. The downside to this is that volatile markets can switch direction without notice, resulting in loss.
- Sentimental Analyst – Sentimental analysts make money with binary options based on the sentiment or “feeling” of the market. The sentimental trader is driven by the psychology of the market. This is typically done by evaluating something called “consumer confidence.” Are investors confident to buy assets viewed as risky, or are they inclined to reduce risk by investing in “safe-haven” assets? This type of evaluation will assist the sentimental trader in making the decision on whether to enter into a put or call option.
- Technical Analyst – Technical analysts make money with binary options using charts and indicators to determine market conditions, and evaluate the current state of chosen assets. Indicators are markings that are placed on charts based on formulas and equations that are designed to dictate what actions the market will take in the near future. There are dozens of indicators that technical traders may choose from, and all of these indicators serve the purpose of dictating the actions that the market will take next.
- Combination – It is not necessary to pick one type of analytical style, because the most successful traders remain cognizant of all of these factors. A trader may spend most of the time charting indicators, but still monitor the financial news calendar daily, while still monitoring the market sentiment. In fact, this type of approach will increase the chances of a successful binary options trading experience. Putting them all together makes it easier to make money with binary options.
The Facts about Making Money with Binary Options
The allure behind learning how to make money with binary options is the possibility that you can make extra money, or even replace your job by mastering binary options trading strategies. While the concept of binary options is basic, 90-percent of the traders that participate in binary options rapidly lose their initial investment. The simplicity of only having to decide whether the asset will go up or down during the selected period, is quite misleading indeed.Most of the seemingly informative articles online about binary options are actually promotional in nature, and are not intended to offer a realistic view of the risks involved with binary options trading. Many binary options brokers offer commissions for getting people to register for live trading accounts. The aforementioned articles are sometimes written by people who have no experience with binary options trading, and only wish to earn money for getting new users to register for accounts with brokers they are affiliated with. These affiliate marketers focus on the potential to make a huge profit easily, and never mention the risk involvedWhile the goal to make money with binary options is realistic, it is unrealistic to think that you will be able to easily make money with binary options without any effort, or risk. Successful traders have done their homework, and trade with tact and decisiveness, while the gamblers are sent packing. One of the most important parts about any successful trading strategy is proper research. Good traders thoroughly research the assets they trade. This research is what separates the gamblers from the real traders. Here we will explain how money is made trading binary options.
Return on Investment
The return on investment with binary options differs from broker to broker, but typically ranges from 65%–90%. If you are on the losing end of a trade, you stand to lose between 85%–100% of your investment. This means that if you invest $100, and you win the trade, your profit will be around $65–$90, as a result of the winning trade. However, if you lose the trade, your financial loss will be around $85–$100.As you can see, with binary options the payout is directly reflected by the amount you invest in the trade. Some brokers offer trades as low as $5, and as much as $1,000 or more. As opposed to traditional (also called vanilla) option trading, with binary options your risk is controlled, and predetermined. With traditional options, the losses can be significant, and are undetermined.When looking to make money with binary options, you must have a success rate of 75% to be truly profitable. Maintaining this rate of success can be challenging, and without proper research and guidance, it can be nearly impossible to sustain. The objective here is to give you knowledge needed to get you started on the road to successful binary options trading.
Will I Lose Money?
As the saying goes, “No risk, no reward.” This is true for all forms of trading, and binary options are no exception. As we stated earlier, due to lack of education, research, and patience, 90-percent of new binary options traders quickly lose their investment. This is largely due to the fact that many traders do not respect the dynamics involved in trading binary options. The simple concept of choosing whether a market will travel up or down, lures traders into a false sense of ease. Thinking they can make money with binary options with no real effort, is a typical novice downfall.When they begin to lose trades due to lack or research, novice traders often resort to a gambler’s mentality, and begin to double the value of their trades to regain their losses fast, but instead they lose even more or their capital. Their dreams of trying to make money with binary options fade rapidly, at this point. This type of activity has no place in the successful trader’s repertoire, and is the reason why, this form of option trading that seems too simple, can prove to be risky and detrimental even though the risk is predetermined.If you do not wish to assume any risk whatsoever, then trading of any type may not be suited for you. While it is possible to be successful without losing your initial investment, it is unrealistic to begin trading, thinking that you will not assume any risk. Those who enter into the trading arena with this mentality are usually discouraged quickly once they find themselves on the losing end of consecutive trades. Our objective is to assist you in avoiding this fate; by giving you tangible knowledge that will get you started making money with binary options.
Making Money with Binary Options
Can you make money with binary options? Yes, with the proper knowledge. Now that you have the foundational knowledge about binary options, it is time to introduce you to our trading system used to make money with binary options. Our strategy is based on identifying trends, and trading based on the discovery of those trends.
Making money with binary options depends greatly on spotting trends. Trends represent a definitive movement of an asset in a given direction. This direction of the trend tells us what type of trade execution to use. We use candlestick charts to evaluate the market, and spot trends. When dealing with binary options it is best to use a five minute chart. Every bar on a five minute chart represents five minutes. There are three types of trends that can be spotted on a chart:
- Uptrend – indicates that the market value is consistently increasing; definitive sign to execute a call option (see Image 1)
- Downtrend – indicates that the market value is consistently declining; definitive sign to execute a put option (see Image 2)
- Neutral Trend – indicates that the market value is not in an uptrend or downtrend, but rather traveling in a sideways channel; do not trade neutral trends (see Image 4)
Image 1: UptrendImage 2: DowntrendImage 3: Neutral Trend
Step 1: Understand the System
To use this trading system, you will need to study charts representing the assets you wish to trade. When you look at the chart you are attempting to spot trends as shown above. The concept is very simple: if you see an uptrend place a call order; a downtrend, means you will place a put order, and a neutral market means that we will not engage in any trades for that asset.If it is unclear what direction the market is going in, it is best to treat the asset as a neutral trend, and refrain from engaging in any trades with that asset. Looking for strong, definitive trends is the best course of action when dealing with this system.
Step 2: Best Amounts to Invest
When looking to make money with binary options trading, it is best to use the 5% rule. This means that whatever you have in your account, you will spend only 5% of that amount. Follow this rule explicitly, for greater trading success. The following list demonstrates the amounts you would invest depending on your account balance:
- An account balance of $100, investment per trade will be $5
- An account balance of $200, investment per trade will be $10
- An account balance of $500, investment per trade will be $25
- An account balance of $1,000, investment per trade will be $50
- An account balance of $2,000, investment per trade will be $100
Step 3: Register to Trade
There is no shortage of binary options brokers to choose from online, but since binary options are not regulated as other financial asset markets, it is important to do your due diligence before deciding what broker to select. All brokers are not the same, and some are surely be ter than others. You may want to choose more than one broker, to compare the trading experience amongst the brokers you feel are the best for you. Remember to always stick to your trading system, and do not get emotionally involved with your trades, and you can make money with binary options. This is the true secret of successful traders.
Now that we have explained in detail the inner workings of binary options trading, you should have a clear understanding of how to make money with binary option trading. Resist the urge to gamble instead of taking the analytical approach. Use the system outlined to the letter, and you will begin making money with binary options.