Binary Options trading is a unique kind of trade in financial options.
In fact, you can even refer to it as an exotic option trading alternative.
Increasingly we see that this form of option trading is gaining popularity.
However, it still remains a comparative niche area in a global perspective.
Therefore, it excites both curiosity as well as mis-selling opportunity.
So even before you begin to understand what binary options trading is, remember it is important to make an informed choice.
This is because this is an option where you can either, get fixed returns or nothing at all.
The chances of tackling complete loss are pretty high if you are not completely confident about how you play.
Only in-depth understanding of binary options will help yield a better profit perspective.
However, binary options also quote controversy in many places.
This form of trading is either banned or is questioned upon by many countries.
Moreover, there are several instances of brokers mis-selling it to beginners.
That only increases the chance of potential problems and future losses.
So it further emphasizes the need to understand this investment instrument properly.
Definition of Binary Option
The term binary option refers to a uniquely structured Options trade.
In this, you can either get complete profit or nothing at all.
The payback amount is always fixed in this case.
It never varies as per market forces.
The customer gets a fair idea of it the moment they buy the option.
So if the relevant option expires in the money, you get the pre-decided price.
However, in case the option expires out of money, you cannot expect any payback at all.
Perhaps the name Binary is also derived from here.
There are no shades of grey in between.
It is a very clear yes or no strategy without a scope for ambiguity.
This is where we get the concept of the binary from.
You must also remember that, in this case, an option holder cannot buy or sell the underlying asset.
Only the option can be exercised in totality.
Often the biggest charm of the binary options is the simplicity of the entire proposition.
After all, the investor has to simply guess a price and make a move.
However, often the simplicity of the concept is what highlights the inherent challenge.
You need an in-depth understanding of the market for making a proper guess.
Anticipating future market movement is not simple.
You have to be very thorough with the overall market movements to guess that.
There is no scope for making a generic prediction.
You have to only look for making specific guesses.
That alone can yield a meaningful profit going forward.
In many ways, this also defines the core challenge in Binary options trading.
It helps you make simple guesses about the future market movement.
That, however, is possible when you are through with the complex market developments.
How Are Binary Options Different from Plain Vanilla Options?
Those of you are well versed with the market may question how it is different from a plain vanilla option?
Well, there are many differences between the binary trading option and plain vanilla options.
As the name indicates, you do not have any special element in this kind of option.
Moreover, a vanilla option gives the trader the right to trade in the underlying asset too.
The Option holder, therefore, has the right to buy or sell the underlying asset as well.
However, that is never an option in case of the binary trading option.
In this case, only the option can be exercised.
There is no way you can take a position or sell the underlying asset.
This is one of the biggest difference between the two types of options.
The platform for Binary Options trading is also unique.
Binary Option occasionally trades on the SEC regulated platforms.
But almost always you find these on internet-based platforms.
They are most commonly traded on platforms that are outside the ambit of regulation.
Conversely, the Vanilla options almost always trade on major exchanges and well-regulated platforms.
As a result, these options are considered relatively safe.
In comparison, this is also a reason why Binary Options court controversy.
They are more prone to fraud and other types of mis-selling.
Even in terms of recovering profit, the Binary Options are not as dependable.
But Vanilla Options by far are more reliable.
As they trade on established exchanges, so there is a reasonable amount of surety about them.
There is always a better chance of recovering your investment.
Moreover, it also reduces the chance of risk involved with the investment.
The prospects of mis-selling also come down to a significant extent in vanilla options.
Examples of Binary Options Trading
But I am sure that the concept of binary options will be clearer with an example.
Let us assume that you bought an S&P Binary Option.
When you bought the Binary Option, assume S&P Index was trading at X level.
You expect the Index to touch 2x after a certain duration.
This is primarily after the announcement of some key news trigger.
Let’s say the economic data that is going to be announced is expected to impact the prices positively.
You expect the S&P 500 index go up on the basis of this news.
So the Binary Option that I buy indicates that I will get $100 when the S&P 500 touched 2x levels.
Now let us assume that the Index did go up that high.
That too within the stipulated time that I agreed to.
As a result, I can then claim the said amount of profit.
However, if the Index does not go up that high or slips for a different trigger, I lose my money.
I will not even get the $50 that I used to buy the Binary Option.
I lose the entire investment that I may have made into the Option.
Importance of Binary Trading Strategies
But for sustained benefits, you have to be careful about binary options trading strategy.
The right strategy is very important to maximize your returns.
At the same time, it also helps to moderate your risk profile.
Both the elements are extremely important for the quality trading experience.
Also only through this route, you can look at sustaining considerable profit.
The strategy, therefore, plays a crucial role in creating successful trading modules.
That is often the deciding line for the quality binary trading experience.
But then the question is what strategy you should choose,
Different kinds of market experts will suggest different strategies.
But the problem is different kind of strategies works for different traders.
Depending on whether you are a beginner or a veteran, you will select your trade.
Moreover, in many ways, this also moderates the level of risk that you can take up.
Some traders are okay with a large risk exposure.
But many may want to leverage a lot less in the market.
Based on that, you have to take a constructive call on the market.
Therefore when you are choosing a strategy, you have to be very careful about these facts.
Binary Options Trading Strategies
Here is the list of the binary options trading strategies that make money:
- Long-Term Strategy
- Semi-Conservative Strategy
- Aggressive Strategy
1. Long-Term Strategy
This is perhaps the most common strategy for beginners in binary options trading.
This allows newcomers to gradually build up an asset in the market.
At the same time, veterans can use it to consolidate gains in the market.
The main feature is minimizing risk and maintaining a steady pace of capital growth.
In this conservative binary strategy, traders need to identify the Key pint 1 & 2.
Normally these are the two ends of a zigzag on the trading graph.
These identify a downtrend or an uptrend in the market.
The point 1 and 2 are the two ends of this trend.
Keeping a tab on retracement level is very important in this case.
The higher the retracement level, better the profit prospects.
This is also because a high retracement level sends a stronger signal.
You have to enter the strategy when the price hits a Fibonacci level or is within a set range.
The duration of your Option can vary from few hours to a couple of days.
You can take a bigger position depending on the type of success you experience.
On an average, this strategy can yield close to 5K profit is less than 21 days.
Once the contract expires, you can start the fresh one from where you left.
2. Semi-Conservative Strategy
As the name indicates, this strategy is less conservative than the previous one.
Needless to mention, it also entails a higher risk level around it.
So if you are a complete beginner, this may not be the ideal strategy to start with.
You can undertake as many as 4-6 trades a day in this case.
Again, in this case, look out for the Value chart levels of 8 and the Fibonacci levels.
That often holds the key to sustained gains.
Though the money management levels are similar to long-term strategy, there is one difference.
Your money increases at a much faster pace in this case.
Therefore, it opens up a much higher earnings prospect.
The Fibonacci level, therefore, plays a crucial role in the overall success of the strategy.
Moreover, you have to also pay close attention to the charts.
That is what will help you extract maximum possible gains from these strategies.
The timing of the trade also plays an important role in the overall gameplan.
It is what decides the amount of built-in risk that is involved.
It is, therefore, needless to mention that analyzing the charts is also crucial.
If you want to master binary options trading, you need to master trading charts too.
3. Aggressive Strategy
This is perhaps one strategy that completely explores the potential of trading charts.
Apart from the Fibonacci levels, it seeks to profit from every possible breakout.
This is why in this case, you have Fibonacci levels drawn for every potential trading cycle.
In many ways, it opens up the prospect of steady gains at regular intervals.
It introduces the concept of steady and continuous returns in trade.
So you are pretty much identifying every possible short-term cycle.
The idea is to optimize the potential of every cycle that can yield the profit.
The retracement levels, as a result, gain considerable prominence in this case.
We have already mentioned a higher retracement level leads to improved profitability.
You can easily employ this strategy on a wide variety of asset classes.
From stocks to commodities and currency, this is a definitive winner.
But the point is you have to employ the right measure and regulate the risk exposure.
Most importantly, it is never a good idea to lose track of your trading objectives.
Key Elements to Include in Binary Options Trading Strategies
The binary options trading strategies can differ significantly.
The idea is never about which strategy to adopt.
This is because every broker will try and further their own strategies.
Given the nature of markets, every new broker may formulate their unique approach.
But whatever the strategy might be, it has to keep certain basic requisites.
Often that is what determines the final profitability of the product.
That can define whether binary options trading strategy is your cup of tea or not.
This is essentially about creating trading signals in the market.
The most common approach is looking for the right type of trigger.
It can be based on any specific economic news, data or political development.
The idea is to gauge how it may impact the market on the whole.
It basically gives a fair idea of the direction prices may move in a given period.
Being alert about market development is crucial in this case.
So the starting point is knowing what may happen and how best you can optimize the result.
That will also determine the extent of profitability.
2. Your Trading Position
It is very important to analyze how much you want to trade.
This depends on a wide range of factors.
The most important one is the overall risk exposure that you are comfortable with.
You have to calibrate the amount of money you are putting in each trade.
You have to also take into account consecutive loss possibilities.
3. Review Your Performance
This is very important to enhance your profitability.
You have to carefully analyze the patterns and the strategies and analyze what is working.
Accordingly, you must also incorporate course correction in your strategies.
That ensures long-term success in your trade.
Can You Make Money Through Binary Options Trading?
This is perhaps one of the biggest concerns around binary options trading.
How much money can you make using these strategies?
Well, different articles on the internet will offer different viewpoints.
But the point is your approach towards investing can be the biggest game changer.
Often beginners in the market are buoyed by emotion and take up trade on a hunch.
Well, this approach can never help you lock profit in binary options trading.
You have to remember that investing in these is not the same as gambling in a casino.
Moreover, if you are starting off, it is better to first master the concept.
In this context, you may often seek the help of simulated trading.
That will help you get a better grip on the overall strategy a lot more effectively.
You have to learn and understand the concepts of binary options trading properly.
It is always better to start off only after that.
Online binary options trading is perhaps the simplest format.
This is what will help clock longer-term gains for an extended period.
But again, you need time and attention to master these online trading platforms.
That will help you lock in your profitability a lot more effectively.
Choosing the right broker is also crucial.
After all, you do not want to lose your money being associated with a fraudulent partner.
Therefore, undertake thorough research and carefully study the track record of the broker you choose.
That will surely improve your chance to make money from these trading options.
Therefore, binary options trading per se are quite attractive investment alternatives.
But you have to be careful about the brokers and strategies you choose.
That will determine the final amount of profitability using these instrument.
Some countries have banned or are in the process of banning binary options trading.
As an astute trader, you must keep a tab on all these factors.
Only then, you can look at sustainable long-term gains from binary options trading.