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Binary Options Trading Psychology 101
Why do you want to trade binary options? This may be one of the most important questions you will ever ask yourself, especially if the answer has something to do with actually making money. Even if you are getting into trading largely to entertain yourself though, you can benefit from examining your own motives. It can prevent you from making foolish decisions with your account balance that could cost you more money than you are willing to lose. It also can help you to get more out of your bankroll and stay in the game for longer.
There are a lot of different reasons traders get into binary options. Here are just a few:
- Some traders trade binary options because they are in it to have a good time. You may look on binary options as an alternative to going to a casino. Like roulette, a slot machine, or a poker game, trading binary options involves elements of chance. This can be a thrilling prospect. The idea of winning or losing money based on luck can be very enticing. And if you do happen to win, even better—you get to profit while having fun.
- Other traders trade binary options because they are looking for a new source of revenue, or even a replacement for a primary income stream. This is a noble goal, one which can be highly motivating. This does not mean you should quit your day job. But one day, you might be able to. The only way to get to that point however is to trade with a great deal of discipline, base your trading decisions off of a top-notch trading system, and learn as much about yourself as possible. Find out is it possible to earn a living trading full time?
- Some traders trade to make some extra money (whether a little or a lot) so that they are able to achieve another goal. Your goal might be something like this: “I want to make extra money trading so I can cut back on my work hours and spend more time with my family.” Another example would be, “I want to make enough money trading that I can finally fulfill my dream of taking a trip around the world.” Or maybe your goal is, “I want to make extra money trading so I can donate it to charity.” These goals are also highly motivating because they have specificity and meaning. Use these tips to trade with a full-time job
Here some examples of goals that are not helpful:
- “I want to make a ton of money trading.”
- “I want to be a millionaire within a year.”
- “I want to double my trading account within a week.”
These goals suffer from several different problems. The first goal is nonspecific. The others suffer because they are time-based. There is nothing wrong with wanting to make a lot of money fast, but that is a given. Of course you want to make a lot of money fast. But thinking in terms of time may lead you into making hasty trading decisions, which will actually make your goals harder to reach, and slow you down in the process.
Figuring out why you want to trade tells you a lot about yourself as a trader. Knowing your own motivations is the key to figuring out your approach and your style. A trader who wants to have a good time will not necessarily need to invest the same time and energy as one who wants to trade for a living, but both types of traders will need to manage their money responsibly. Use our guide on bankroll management to ensure you are being responsible. There is nothing wrong with trading for fun, but it is important to acknowledge the difference between gambling and running a business.
There are many other aspects of your personality which can play into your trading. Not every trader excels at using every trading system. You can take ten systems that work (in theory), and ten people who can handle the pressures of trading. If you give each person the system that suits his or her trading personality best, all ten may be profitable. But if you give each person a system that does not suit him or her, all ten may fail. This should tell you a lot about the role of the trader’s psychology. It is one of the core elements of success or failure.
Here are some questions to ask yourself. The answers will lend you some useful information which you can use to try and determine which trading methods may or may not suit you.
- Are you prone to impatience during trades? Or do you have more difficulty dealing with the pressure of fast-paced trades?
- Do you feel more comfortable if you have a lot of signals telling you that a trade is a good one? Or do you feel overwhelmed by too much complexity?
- Do you know a lot about economics, or would you consider yourself a novice in that regard? Do you find economics intuitive or dense?
- Are you good at spotting patterns, especially visual ones?
- What kind of work schedule do you have? What about your sleep schedule? What hours are you available to trade?
- Do you prefer to spend a lot of time each day in front of the computer looking for trade opportunities? Or would you rather spend longer time periods in trades but less time at the computer?
- How many trades would you be comfortable being in at one time? How much of a multi-tasker are you? How many assets are you comfortable working with and keeping track of?
- Would you consider yourself to be someone with good intuition?
- Would you benefit from making discretionary changes to your trading on the fly, or do you think you would do better following your signals with rigid, mechanical discipline?
- How comfortable would you be relying in part (or entirely) on others? Do you think trade signal services are useful, or would you tend to look at them as a crutch?
Some of these questions you may be able to answer even before you get started. Others you may discover the answers to while you are researching trading systems and testing them. Different systems are ideal for different personality types. For example, if you do not enjoy the feeling of being rushed, you probably would do better using a method designed for trading longer expiry contracts. If on the other hand you tend to get impatient and make foolish decisions when you are waiting, you might do better with shorter term contracts like 60 Second binary options.
Another example would relate to the question about complexity. If you prefer to have a lot of signals telling you to buy or sell, you might do best to use a technical analysis system that involves a lot of indicators. If on the other hand complexity only confuses you with conflicting signals and uncertainty, you might want to opt for a more simplistic method like price pattern analysis, and leave off all those indicators. Likewise, if you find economics intuitive or you happen to be an expert in the field, it would make sense to choose a system based on fundamental analysis. If you don’t, it would make more sense to go with technical analysis or price action.
Emotions and Trading
One more important aspect of trading psychology to consider is your emotions. Everyone likes to say, “Leave your emotions at the door” when you start trading, but if we face reality, we recognize that is on some level impossible. You are not a machine, and no matter how mechanically you attempt to behave, you cannot alter that fundamental reality. So to some extent, your emotions are going to have an impact on you as a trader. That being said, you can still attempt to minimalist their impact, or at least be as honest with yourself as possible so you can mitigate their effect.
How do you learn about this aspect of yourself? You will start to discover it when you begin testing a system. Even in backtesting you may notice yourself making emotional choices. During demo testing and live trading, the effect of your emotions will become even more pronounced.
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Keeping a trading journal is a great way to keep track of your emotions and how they impact you. Both negative and positive emotions can be detrimental if they are not kept in check. Despair and confusion can make you trade poorly, but so can pride and arrogance. Doing really well may lead you to make foolish decisions out of overconfidence, just as under confidence and uncertainty can cause you to fail.
Always seek to cultivate balance in your emotions when you are trading and to come from a clear, level-headed perspective. Learn how to identify times you should not be trading, and come up with ways to clear your environment of distractions and ensure you are always at your best when it comes time to trade. Make healthy lifestyle choices and get plenty of food, sleep, and leisure time so that you are leading a balanced life. This will help you take a balanced approach to your trading.
Do What You Can to Never Lose a Trade
When we talk about binary options trading, we talk a lot about winning. How many trades have you been winning lately? How large are your winning trades? What do you do to ensure that you win as often as possible? It can pay off now and again though to consider your losses. When you spend all your time thinking about how far you can get if you succeed, you often overlook the setbacks which can lead to your failure. Impatience and overconfidence can cause you to start losing more trades.
When you lose a trade, in a way, it’s like you have lost twice. Not only do you lose the money which you have, but you also lose the money which you could have made. Still though, closing early from a trade which is going against your position could spare you half of that loss. Even though you would still lose the potential money you could make, at least you would not lose the money you already have. If you lose all the money you risk on a trade, first you have to make that money back, and only then can you consider making a profit. You find yourself fighting just to break even again.
That is why it is important to think about losing. Next time you sit down to test your trading system, ask yourself this question: “Am I doing what I can to never lose a trade?” If you can manage to reduce your losses, your profits will generally take care of themselves, since there is nothing which slows down profitability quite as much as losing. After all, it takes a lot of breakevens or small losses to add up to a single big one, and even if trading conservatively means you trade less often or make smaller profits, be sure they will add up if they are not overset by large losses or frequent losses.
Always Think In Terms of Risk
The lesson you can learn from reducing your losses goes beyond your actual trading methodology and encompasses your psychology. When you start doing everything you can to never lose a trade, you change the way you look at your trading. You stop asking yourself what you can gain (wishful thinking) and start thinking about what you can lose (good money management). This is not to say you should become skittish or anxious. But it can make you a more conservative trader and can help you to focus on realistic goals instead of on how fast you can become a millionaire trading binary options.
Steps to Take
Here are some considerations that you can take into account to try and prevent your losses. You may want to add them to your trading checklist for entering and exiting trades:
- Before you enter a trade, ask yourself whether you would consider this an “A” trade (think in terms of grading scales). If the trade is not an “A” trade, you should not take it. There is no reason to ever take a trade you would rate as a “B” trade, when you can find an “A” trade by looking at another financial asset or by waiting patiently for another setup to come along. The moment you start compromising on your trade standards, you will begin losing more trades.
- Do not change how much money you wager arbitrarily. There are two reasons for this. One is that making arbitrary money management decisions will lead to unpredictable results. The second reason is that you should again be asking yourself why you would wager more on one trade than another. Doesn’t that indicate that not all of your trades are “A” trades?
- If your broker permits you to use early closure, you should monitor your trades and consider getting out of them if circumstances change to adverse ones. Always ask yourself this question when you are having difficulty deciding whether or not to stay in a trade: “Do the original reasons for taking the trade no longer exist?” If they do not, then it probably would benefit you to pull out early and reduce your loss (or keep whatever profit you have managed to achieve by this point). If the rationale is gone, so is the trade. Learn how to choose your own expiry time
- When you do lose a trade, do not simply accept it. Ask yourself why you lost that trade. If you are unable to come up with the answer right away, come back to it later and analyze it again. Once in a while you will find a loss which seems inexplicable, but often you will discover the reason for a loss is obvious once you sit down and mull it over. Often it has something to do with breaking your trade rules or ignoring context. Make corrections in the future to avoid repeating losses that you do not have to incur.
Trading binary options can be fun and rewarding, and even profitable. Some traders even manage to stay in the game for the long term or trade for a living. Those tremendous wins will only happen if you take care to reduce your losses however. Do everything you can to never lose a trade and your profits will take care of themselves.
Trading psychology and money management
In my recent blog posts I’ve been doing a lot of trade analysis, going over my daily trades and explaining the thought process that went into each one. But quite honestly, the reason why many traders have issues becoming consistently profitable is not so much about finding an effective strategy (although it’s immensely important) as it is battling the mental obstacles that can derail your trading.
I truly believe that the top trait that separates successful from unsuccessful traders is the ability to stay patient and wait for only the best set-ups. In my spot forex trading (trading off the four-hour and daily time compressions), I largely avoid this issue because I’m setting limit orders, stop losses, and take-profit levels all at pre-determined points in the market. However, in binary options with strike-entry brokers, I don’t have that convenience, so I’m forced to wait and play close attention to the charts to execute a trade exactly where I want it to be. This is, in my opinion, what makes binary options trading so much more difficult than swing trading spot forex. But mentally I don’t have an approach to binary options that is fundamentally any different from the way I approach forex. Strategy-wise, it might be slightly different since I’m waiting for confirmation to take a trade at my price levels in binaries, whereas in spot forex I simply enter in a limit order price and the trade triggers automatically if the market reaches that level. But with regard to my mental approach, I always have everything planned out – specifically what level I’m targeting potential call option set-ups, and what level I’m targeting put options right down to the tenth of a pip. Sometimes I may only be considering one type of option (call or put) if the trend is sharply in one direction or another. In rare instances, I may not be considering any type of trades at all if the market is simply too wild (e.g., impending important macroeconomic news releases). And if the market does get to the level I’m looking at, I’m not just excitedly hitting the button to take the trade, but rather waiting for price to reject that level and taking the trade if it touches on the next candle. Then and only then am I taking the trade.
Always stay patient when trading, even if that means looking at the charts for eight hours yet not finding a set-up worth trading. Exercising patience is the same as exercising rationality, as it’s a uniquely human ability and exercises higher-order cognitive functions, and not the more primitive parts of the brain that take over when an individual trades emotionally. Overtrading is a definite problem for many individuals and is probably the number one trading-related issue that prevents many from becoming good traders. It only makes sense. People want to make money quickly and binary options do seem like a good means to rapidly multiply your available capital. Therefore, they trade a lot as if they’re trying to compel the markets to make money for them. It takes a certain maturation process to understand that you’re not going to become rich right off the bat in trading, especially since lowly capitalized traders tend to be beginning traders.
Then again, if you’re eyeing a certain price level, be confident in your set-ups. On the other side of the spectrum, being “overly patient” and “undertrading” – i.e., having issues pulling the trigger – is another problem that definitely affects traders. In fact, in many cases a trader might have both issues at some point or another. But when trading a support and resistance based strategy similar to what I use, you should always have your price levels planned out ahead of time and take your trades when you receive validation that they are likely to hold (similar to the touch-rejection-and-retouch strategy I’ve discussed in my recent trade analysis posts). And, of course, ensure you are keeping your trade sizes small enough such that you have absolutely no emotion over the outcome of the trade.
If you’re ever experiencing anxiety over a trade’s outcome, I can safely assert that you have are putting way too much money into a single trade. When deciding on an investment amount, it should be so small that it almost feels like a waste to even take the trade. By that, I mean you should be investing less than 1% of the money you can afford to lose (leftover disposable income) on any given trade.
Also, never ever set a certain profit target for the day. Or even the week, month, or year. This never turns out well, as inevitably failing to meet that monetary target routinely causes individuals to trade emotionally because money – instead of trading the market – becomes the primary mental focus. Trying to recoup previous losses by doubling up, tripling up, quadrupling up, and so forth in Martingale-style fashion will result in disaster at some point sooner or later. I believe the best strategy for traders is to invest a relatively small, fixed amount of money on each trade. As you become more advanced and can sufficiently assess the general probability of a trade working out, you can be afforded some leeway and mix up the amounts from time to time. But as a binary trader, you should be focused on your winning percentage (60% in-the-money is a realistic goal). If you are achieving your desired winning percentage (which, of course, should be above break-even) and keeping a fixed-amount money management strategy in place, you can consistently make money doing this.
Obviously, there are several mental and emotional hurdles that traders encounter on their trading journey. Of all the issues I discussed above, I personally went through every single one of them at one point and wiped out several accounts in the process. But in all honestly, finding an effective strategy wasn’t my biggest issue at all. With some refinement, I’ve basically been using the same price level-based strategy since I first began trading seriously roughly two years ago. There are many excellent technical analysts out there, but there are a much smaller number of consistently profitable traders. That, of course, resides in the fact that you have to master the mental aspects of trading before you can truly become good at it.
The good news is that learning these things is not difficult. As a matter of fact, you probably found everything I just said very self-evident. Truth be told, just about all of us have been good at a certain activity or profession in our lives. But whatever skills we needed to be successful in that endeavor very likely has little to no relevance to what it takes to being successful as a trader. It just takes time, practice, and the right mindset toward the markets. If an individual can master and ingrain these seemingly simple and common-sense psychological tidbits and combine it with an effective strategy and money management plan, he or she can ultimately become a profitable trader.
Binary Options Day Trading 2020
Binary options trading hinges on a simple question – will the underlying asset be above or below a certain price at a specified time? If so, you can make substantial profits with one of the most straightforward financial instruments to trade. But what exactly are binary options, and what are their benefits and drawbacks? This page will answer those questions, as well as detailing how to start day trading binary options, including strategies, tips, and regional differences to be aware of. Use the broker top list to compare the best binary brokers for day trading 2020.
What Are Binary Options?
Firstly, let’s have a look at how it all works. Put simply, binary options are a derivative that can be traded on any instrument or market. They appeal because they are straightforward. You know precisely how much you could win, or lose before you make the trade. No complex maths and calculator is required. This is why they are also known as ‘all or nothing’ trades.
If you anticipate news announcements, quarterly reviews, or global trends, then you may be able to make an accurate determination as to whether the price is going to increase or decline at a certain point in the future, turning a profit.
There is a whole host of derivatives to choose between. You can trade binary options on commodity value, such as aluminium and crude oil. You can opt for a stock price, such as Amazon and Facebook. There are foreign exchange rate options, including all the major and minor pairs. Even cryptocurrencies such as Bitcoin, Ethereum, and Litecoin are on the menu.
A Brief History
If you want to start trading binary options full-time, a detailed understanding of their origins will help. Binary or ‘digital’ options have been around for decades. Originally though, it was only large institutions and the fabulously wealthy that had access. However, 2008 saw the US Securities and Exchange Commission open the floodgates by allowing binary options to be traded through an exchange.
The internet and technology have since given the whole world access to these ‘digital’ options. As it stands, with low barriers to entry for savvy day traders and a simple to understand preposition, the demand for these digital trades will only increase.
There are a number of different option types to choose from. The most popular types are listed in the brief glossary below.
- Up/Down (High/Low) – The most simple and prevalent binary option. Will the price be higher or lower than the current price when the expiry time comes?
- In/Out (Range or Boundary) – A ‘high’ and ‘low’ figure will be set. You are then making a determination as to whether the price will finish within or outside of these boundaries.
- Touch/No Touch – Levels will be set that are either higher or lower than the current price. You then enter a position as to whether the price will ‘touch’ these levels between the time of trade and expiry. Payout will come as soon as the touch takes place.
- Ladder – These are similar to up/down trades. However, instead of using the current price, the ladder will have pre-determined levels that are staggered up or down. These normally demand a substantial price move. The flip side of this is returns will frequently exceed 100%. Although it is worth noting, both sides of a trade are not always available.
Another important component of binary options is expiry times. This is when the trade will end and the point that determines whether you have won or lost. These times can range from 30 seconds and 1 minute (turbos) to a full day (end of day), and even up to a whole year.
As an intraday trader though, you will be more concerned with trading 5 and 30-minute binary options. Opt for binaries with 1 minute expiry times though and you have the ability to make a high number of trades in a single day.
Is Trading Binary Options Legal?
Despite the somewhat negative reputation, the reality is binary options are legal. The majority of companies operate fairly. Opinions have been split because there are some out there that operate scams.
Regulation in certain regions has meant binaries have been withdrawn from the retail market. In the EU for example. But professional traders can still use them. In regions such as India and Australia, binary are legal – but traders should make sure they use a reputable broker, and read our section below on avoiding scams.
Scams & Frauds
The binary reputation has suffered from dishonest marketing and cybercrime. Too many unregulated brokers promise quick cash, whilst operating frauds. Regulators are on the case and this concern should soon be alleviated.
Binaries themselves are perfectly legitimate, but steer clear of ‘instant money’ promises, brokers that cold call, and celebrity endorsements, plus any claims that you can ‘start trading binary options for free’.
So it isn’t a question good or bad, it’s simply a question of being alert to the dangers and knowing what to look out for. If you’re unsure about a broker, ask the question in a live trading room to check they’re properly regulated.
Binary Options Vs CFD Trading
Although in some ways similar, there remain some crucial differences between binary options and CFDs. With CFDs, you have potentially unlimited risk. If the price of the asset moves significantly, the value of the trade can grow very large, very quickly – for better or worse.
Whereas binary options work slightly differently. Whilst you are still investing without owning the asset in question, the gain and loss rate is fixed. With a call option, it doesn’t matter if the price rockets, you retain the same percentage as if it rose by just a couple of pips.
Likewise, if the price sinks to zero, you’ll only lose what you put in. So, to define the difference – with binary options you get fixed risk.
Having said that, just as if it was binary options versus forex trading, you are restrained in your profit potential.
Why Trade Binary Options?
If you want to profit trading binary options, you need to first understand both their pros and cons. You need to make sure binary options will suit your trading style, risk tolerance, and capital requirements.
There is a whole host of attractive benefits to trading with binary options. The greatest advantages have been outlined below.
- Simplicity – Because you are making a determination on only one factor, direction, your bet is straightforward. The price can only go up or down. You also don’t need to concern yourself with when the trade will end, the expiry time takes care of that. Whereas in other markets, you may need a system to limit your losses, such as a stop-loss.
- Fixed risk – Trade stocks, gold, and crude oil and you’ve got a vast number of factors to contend with, from slippage and margin to news events and price re-quotes. With binaries, your risk is kept to a minimum with far fewer parameters.
- Trade control – Because you know what you may make or lose before you enter the trade, you have greater control from the start. Trade in stocks, for example, and you have no guarantee that your trade will make the entry price.
- Profit potential – Compared to other trading, the returns in binaries are extremely attractive. Some brokerages promise payouts of up to 90% on a single trade. If you’re looking to make simple trades with large profit potential, binaries could well be worth a look in.
- Choice – Rather than being constrained to a specific market, e.g. cryptocurrency or stocks, binary options gift traders the opportunity to trade instruments across virtually all markets, allowing you start currency, indices, and bonds trading if you so wish.
- Accessibility –In the binary options game, it’s always the best trading hours somewhere on the globe. So, you can login at night, or on the weekends and join the groups of avid traders attempting to turn daily profits. Real-time charts are available for every market so if you’ve got the time you can invest 24 hours a day.
Whilst there are plenty of reasons to delve into trading on binary options, there remain several downsides worth highlighting:
- Reduced trading odds – Whilst you can benefit from trades that offer in excess of 80% payouts, these are often when the expiry date is some time away from the trade date. If the odds of your binary trade succeeding are extremely high you may have to make do with reduced payout odds.
- Limited trading tools – Whilst most brokerages offer advanced charting and analysis capabilities, trading tools for binary traders often fall short of the mark. Fortunately, there are other online sources for these graphs and tools, plus brokers are working swiftly to increase their offerings.
- Price of losing – Your odds are tilted in favour of losing trades. Approximately for every 70% profit, the corresponding loss of the same trade would result in an 85% loss. This means you need a win percentage of at least 55% to break-even.
- Risk management – Unlike other markets, brokers often set a trading floor, with minimum accounts a trader needs to enter the market. This means losing capital can happen with ease. Whilst a stocks broker may permit you to open an account with $250, trading micro-lots, most binary brokers won’t allow $50 trades. So, even with $250 in your account, just five trades that don’t go your way could see you sink into the red.
Binary Trading via Mobile App
How Does Trading Binary Options Work?
Trading binary options for beginners is straightforward. Simply follow the steps outlined below.
Step 1 – Find a broker
This is one of the most important decisions you will make. You need a broker that meets all your requirements and who will enhance your trade performance. But with so many options out there, how do you know what to look for?
If you’re high-frequency binary trading each day, the commission fees and costs will quickly rack up. You want to maximise your profits so look for brokers with a competitive and transparent fee structure, and remember, different asset classes pay out different amounts.
One point worth investigating is rules around minimum deposits. Whilst some brokers will offer binary options trading with no minimum deposit, many will expect a deposit of close to $50, and some $100. A broker offering low minimum deposits is ideal if you’re strapped for cash. Trading binary with JC and GCI are good choices if you’re looking for low deposits.
Some brokers will specialise in certain assets. If you’re set on crude oil, it may be worth finding a broker that’s geared towards those binaries. You may benefit from relevant news feeds and the most prudent option choices available. Trading binary stocks with 212, for example, is ideal for those interested in stocks.
With scams out there it’s important you check your broker is properly regulated by the relevant financial body, e.g. FCA, CySec, CFTC. Trading with 247 Binary Options, IQ option, and Binary.com are all safe bets.
Binary options platforms are your gateway to the market and where you’ll spend many hours a day. There are now many online trading platforms, so, make sure it’s easy to use and offers all the charts, patterns and tools you need to make smart and accurate trade decisions. For example, will you be trading binary options with candlesticks or more obscure charts?
Both Keystone and Nadex offer strong binary options trading platforms, as does MT4. Before you buy, conduct a thorough trading platform comparison and check reviews.
Any problem could cost you time, and as an intraday trader, time can cost you serious cash. So, check the broker offers reliable support. Some brokers will offer 24/7 customer support through calls, live chat, and in a number of languages. Binary options trading with Etrade and 24 Option are smart moves if you want top quality support.
A growing number of people use mobile devices and tablets to enhance their trading experience. However, software for trading binary options varies hugely. So, it’s worth checking whether your broker offers cross-platform capabilities. Also, check the charting tools you need will work on your iOS or Android device. Binary options trading with IQ Option, for example, offers fantastic trading apps.
Many brokers will sweeten the deal with some useful add-ons. Some may offer free trading plans, courses, and lessons. So, find out first if they offer free courses online to enhance your trading performance. Some brokers will also offer free binary trading trials so you can try before you buy.
You could also benefit from trading bonuses, tips, the best strategy and trading signals reviews, plus free, practice demo accounts. Not to mention some brokers allow for binary options trading using Paypal. However, don’t be put off by no binary options trading deposit bonus, these can be a sign of potential scams.
For newbies, getting to grips with a demo account first is a sensible idea. Funded with simulated money, you can try numerous assets and options. It’s the perfect place to make mistakes and learn before you put real capital on the line. In addition, you’ll find most free binary options demo accounts require no deposit, so you can start practicing whilst you save that initial capital.
There is no universal best broker, it truly depends on your individual needs. Some brokers offer minimum trades of just a couple of pounds, whilst others require hundreds or even thousands. The solution – do your homework first.
For more guidance on making the right choice, see our brokers page.
Step 2 – Choose An Instrument/Market
You can trade binaries in pretty much everything, including stocks, forex, indices, and commodities. You can bet on anything from the price of natural gas, to the stock price of Google. Opt for an asset you have a good understanding of, that offers promising returns.
Step 3 – Decide On An Expiry Time
As a short-term trader, you’ll probably be more interested in 30 seconds, 1 minute and end of day expiry times. You need to balance binary options trading volume with price movement. Whilst the more trades you make means greater profit potential, it’s better to make fewer and more accurate trades. Also, find a time that compliments your trading style.
Step 4 – Decide On Size
In the binary options game, size does matter. The greater your investment the greater the possible profit. On the flip side, remember the entirety of your investment is on the line. You need an effective money management system that will enable you to make sufficient trades whilst still protecting you from blowing all your capital.
Step 5 – Choose An Option
You will have any number of the options outlined above to choose from. Think carefully about how confident you are in your determination. Consider factors that will jeopardise your investment, and select an option that gives you the best chance of succeeding. Don’t automatically select a ladder trade because you want huge returns, consider which options are the relatively safe bets.
Once you’ve made that decision, check and confirm your trade. Then you can sit back and wait for the trade payout.
Below is a video explaining how to trade binary options on the platform of a leading provider:
Binary trading strategies will differ from trade to trade. What may work for a ladder option in forex, may prove useless in a range option on gold. Having said that, there are two reasons you must have a strategy.
Firstly, a strategy prevents emotions interfering in trade decisions. Fear, greed, and ambition can all lead to errors. A strategy allows you to focus on the maths and data.
Secondly, a strategy allows you to repeat profitable trade decisions. Once you’ve found out how and why that binary option worked, you can replicate it to create consistent profits.
Building A Strategy
There are two crucial elements to your binary options trading method, creating a signal, and deciding how much to trade. The second is essentially money management. How do you go about determining these two steps then?
Step 1 – Creating A Signal
The signal will tell you in which direction the price is going to go, allowing you to make a prediction ahead of time. The two main ways to create signals are to use technical analysis, and the news.
Charts, Patterns & Indicators
If you can identify patterns in your charts, you may be able to predict future price movements. They rest on the idea that ‘history repeats itself’. You can start trading binary options using Heiken-ashi, other candlesticks, and line charts. Armed with charts and patterns, successful traders will build a strategy around their findings.
You can then build indicators into your strategy, telling you when to make a binary option, and which binary option you should go for. These technical tools can prove invaluable, so make sure your broker offers the features available to conduct thorough market analysis.
One of the great things about trading binary is you can use any number of your normal indicators, patterns, and tools to help predict future binary options movements. So, you can start trading with/using:
- Support and resistance levels
- Price action
- Stochastic oscillators
- MACD indicators
- Options close to expiry
For more detailed guidance, see our charts and patterns pages.
You can trade binary options without technical indicators and rely on the news. The benefit of the news is that it’s relatively straightforward to understand and use. You’ll need to look for company announcements, such as the release of financial reports. Alternatively, look for more global news that could impact an entire market, such as a move away from fossil fuels. Small announcements can send prices rocketing or plummeting.
If you can stay in the know you can trade your binary options before the rest of the market catches on. To do that you’ll need to be tuned into a range of news sources. You can browse online and have the TV or radio on in the background. Some of the most useful news sources in terms of trading information are:
- Yahoo Finance
- Business Insider
- Financial Times
Step 2 – How Much You Should Trade
If you’re just starting off it’s often best to keep things simple. Trading the same amount on each trade until you find your feet is sensible. Below are 3 binary options trading strategies for both beginners and experienced traders.
Binary options using the martingale trading strategy aim to recover losses as quickly as possible. To do this you’d trade larger amounts of money in the trades following a loss. So, you’d set an amount that you trade each time, say $250. However, if you lose on that $250, you’d bet $500 on the next trade. If the trade wins, you’ll already be back in the black, rather than being stuck around the break-even mark.
The problem with this strategy is that if you go on a losing streak you can lose a serious amount of capital in a short space of time. So, only use this strategy if you’ve got a relatively accurate means of making trade decisions. If you’re still in the trial and error stage, consider a different approach.
A percentage based system is popular amongst both binary options traders and other traders. The idea is you specify a percentage you’re willing to risk. Between 1-2% is common. So, if you’ve got $10,000 in your account, and your risk value was 2%, you could trade $200 on a single trade.
If you have a greater risk tolerance and consistent results you may want to increase that risk margin to 5%. The benefit of this system is that you should never lose more than you can afford. This makes it an ideal approach to take if you’re new to trading on binary options.
This example is best employed during periods of high volatility and just before the break of important news announcements. This technique can be utilised by traders of all experience levels. It gives you the capability to avoid the call and put option selection, and instead allows putting both on a specified instrument.
You aim to utilise put when the value of the instrument has risen, yet you think that it’s going to decrease soon. Once the descent has begun, place a call option on it, anticipating it to bounce back swiftly. You can also do it in the reverse direction. Simply place a call on the assets prices low and put on the rising asset value.
This significantly increases the chance of at least one of the trade options producing a profitable result. If you’re in a volatile market, this simple system could you see turn handsome profits. This works well as a binary options trading 60 seconds strategy, and will also cover expiry times of up to one day.
Bots & Algorithmic Trading
Once you have honed a strategy that turns you consistent profits, you may want to consider using an automated system to apply it. These robots usually rely on signals and algorithms that can be pre-programmed.
The bots then do all the leg work, trading options on your behalf. The plus side is they can make far more trades than you can do manually, increasing your potential profit margin. They can also trade across different assets and markets.
It’s worth investigating your brokers offering when it comes to auto trading and checking for robot reviews. Many allow you to build a program with relative ease. You can use your own entry points that rely on Bollinger bands, RSI/MFI patterns, and moving averages.
However, even when you’ve got your system up and running, you can’t go into trading binary options on autopilot, you need to stay tuned in. If any mistakes take place, you need to be there to remedy the problem. Technical crashes and unpredictable market changes can all cause issues, so stay vigilant.
Many binary option strategies pdfs fail to sufficiently consider time variables. Certain strategies will perform better with specific time options. You may want to look specifically for a 5-minute binary options strategy. Alternatively, trading 15-minute binary options may better suit your needs. So, whichever strategy above you opt for, ensure you take time into account.
Summing Up Strategy
Trading binary options with success rests on finding a strategy that compliments your trading style. So, consider the instrument you’re going to be trading. Then, employ an effective money management system and use charts and patterns to create telling indicators. Also, utilise news announcements to your advantage.
If you’re trying a new fence, gap, hedging, or any other binary strategy for the first time, why not try it on a trading practice account first? This will allow you to address any issues before you invest your own money.
For more detailed guidance, see our strategies page.
Binary options trading 101; immerse yourself in educational resources. As Benjamin Franklin asserted, ‘an investment in knowledge pays the best interest’. The top traders never stop learning. The markets change and you need to change along with them.
To do that, utilise some of the resources detailed below.
- Books & eBooks – There is a whole host of books and ebooks out there that can impart invaluable information on day trading binary options. You can benefit from the binary options trading knowledge of experts with decades of experience. The good thing about a book it is allows you to learn at a pace that suits you. One book that has made binary options trading easy is ‘Trading Binary For Dummies’, by Joe Duarte.
- Video tutorials & seminars – Engaging and easy to follow. There are numerous online video tutorials out there that can walk you through making a trade. With seminars, you’ll also be able to have questions answered and the binary options trading basics explained, plus some brokers offer weekly seminars to keep you up to date with market developments.
- PDFs & instruction guides – These will give you a clear breakdown of steps that you can follow and apply. The best part is you can find plenty online that are totally free and easy to download, whether you’re using Android, Windows, or iOS. The trading binary options ‘Abe Cofnas’ pdf is particularly popular.
- Forums & chat rooms – This is the perfect place to brainstorm ideas with binary options gurus. You can benefit from recommendations and learn in real-time whilst investing in your binary options. You can also swap live chart screen grabs to get a feel for other binary methods and tactics.
- Newsletters & blogs – These are brilliant for keeping up to date with upcoming developments that may affect your markets. Plus, you could hear about binary options competitions (yes, they really do exist).
- Copy trading – This is when social trading networks/platforms are combined with binary trading tools. You can follow experienced traders, analyse their strategies, and then replicate their trades. Check out copy trading reviews before you sign up.
All of the above will play a key part in your binary options trading training. Free trading videos and examples will help give you an edge over the rest of the market, so utilise them as much as possible.
There currently exists no binary options university. So, explanations as to why that option didn’t work can be hard to come by. Keeping a journal with all your binary option trading results in could solve that issue. A detailed record of each trade, date, and price will help you hone your strategy and increase future profits.
Whether you keep it an excel document or you use tailor-made software, it could well help you avoid future dangers. As an added bonus, it can make filling in tax returns at the end of the year considerably easier. A journal is one of the best-kept secrets in binary options, so now you know, use one.
Trading binary options successfully isn’t just about having the right strategy. If you can’t control your emotions you will make costly mistakes. As Robert Arnott stated, ‘what is comfortable is rarely profitable’. When the pressure kicks in, fear and greed can distract you from the numbers.
You need to accept that losses are part of trading and stick to your strategy anyway. If it’s based on accurate maths and careful technical analysis then you have to keep your faith. As soon as you start acting inconsistently your profits will suffer.
As the popularity of binary options grows across the world, regulatory bodies are rushing to instill order. That means where you trade and the markets you break into can all be governed by different rules and limitations.
If you’re day trading binary options in the UK, for example, you will require a license from the UK gambling commission. If you opt for a broker regulated by the Financial Conduct Authority (FCA), you’ll be guaranteed an extra level of protection. Beware some brokerages register with the FCA, but this is not the same as regulation.
Brexit has brought with it complications to trading regulations. The MiFID II guidelines were set to be implemented across Europe enforcing rules around binaries, however, the UK may not now implement the guidelines. This means the UK is no longer under pressure from Europe to reclassify binaries as financial instruments.
Binary options trading for US citizens is limited by a choice of just two brokers. Nadex and CBOE are the only two licensed options. Fortunately, they are both huge firms offering competitive prices and a range of different assets to trade binaries on.
Rest Of World
In Australia, the Australian Securities and Investments Commission (ASIC) runs the show. If you’re interested in brokers based in Cyprus and Israel, then check they are regulated by CySec. In Dubai and the rest of the UAE, binary options are regulated by the Dubai International Financial Centre (DIFC).
You can also start day trading binary options in Canada, India, Pakistan, South Africa, Malaysia, Kenya, New Zealand, Nigeria, Vietnam, Indonesia, and the Philippines. Each has their own regulatory bodies and different requirements.
So, if you want protection, ensure you do your research before you sign up for a binary broker on the other side of the world.
Another important regional distinction comes in the form of taxes. Some countries consider binary options as a form of gambling, such as the UK. This comes with notable benefits. The HMRC will not charge you any taxes on profits made through binary options. However, in the future binaries may fall under the umbrella of financial derivatives and incur tax obligations.
Having said that, if day trading binaries are your only form of income and you consider yourself a full-time trader, then you may be liable to pay income tax. Whilst you are probably still exempt, it is worth seeking clarification.
Outside the UK, tax regulation differs hugely. Binary options in Japan and Germany come with vastly different tax obligations, for example. So, before you start trading seek advice to ascertain whether you’ll be exempt from tax. If not, will you pay income tax, capital gains tax, business tax, and/or any other form of tax?
For more detailed information, see our taxes page.
Can Trading Binary Options Make You Rich?
Although exciting and dynamic, to make a living trading binary options you’ll need to use this page and other sources as guides. Can trading binary options make you rich then? Done correctly, yes it can. There is no question of binary options potential profitably, this is evidenced by numerous millionaires. To get there though, you’ll need the right broker, an effective strategy, and you’ll need to invest in your trading education, by utilising the resources outlined above.
Are binary options legal?
Yes, but regional regulation varies.
In India and Australia for example, binary options are legal.
In the US, binaries are available via Nadex, and perfectly legal.
In the EU, binaries have been withdrawn for retail investors, but it is still possible to trade binary options legally, by professional traders. Certain criteria need to be met in order to be classed as ‘professional’.
Can you trade at weekends?
Yes. There are two ways to trade at weekends. Firstly, forex markets are still open in some parts of the world during the “weekend” in other parts. Binaries can be traded on forex during these times.
There are also ‘synthetic’ markets with some brokers (such as binary.com) but traders should note there is no underlying market with these options. They are ‘virtual’ markets created solely to cater for traders looking to trade anything at all. They are not for sophisticated traders.
Are binary options banned in Europe?
Binary options have been withdrawn for retail traders by the European regulator, ESMA. Brokers not regulated in Europe may still offer binaries to EU clients.
It is also possible for EU traders to nominate themselves as professional traders. This waives their rights to regulatory protection, and means binaries are free to be used again.
Some synthetic markets can also be traded by EU traders, and while the product works exactly as a binary options, they are referred to slightly differently.
Do binary options work on MT4 or MT5?
There are no binary options brokers offering Metatrader integration. It is however, possible to perform technical analysis in MT4 and place trades on a separate trading platform.
Can you use binary options on cryptocurrency?
Yes. The leading binary options brokers will all offer binaries on Cryptocurrencies including Bitcoin, Ethereum and Litecoin. As a derivative, traders will not “own” any cryptocurrency, they will purely be speculating on the price. This does mean however, there is no need for a Crypto wallet or crypto account.
How To Make Money Trading Binary Options
Now that we have a basic idea on how binary option trades work, let’s take a look at a simple example.
Let’s say, you decide to trade EUR/USD with the assumption that price will rise.
You then look at your trading platform and see that the broker’s payout is 79% on a one hour option contract with a target strike of 1.3000.
After much deliberation, you finally decide to buy a “call” (or “up”) option and risk a $100.00 premium.
You could say it’s similar to going “long” on EUR/USD on the spot forex market.
|Ending Scenarios After Entering a CALL Option||Gain/Loss|
|Expiry price is above the strike price
|$100.00 x 79% = $79
$100.00 + $79.00 = $179.00
You gain $179.00 on your account.
|Expiry price is equal to or below the strike price
|You lose your stake and your account declines by $100.00.|
As you can see from the calculations above, the risk you take is limited to the premium paid on the option.
Payouts in Binary Options
Now that we’ve looked at the mechanics of a simple binary trade, we think it’s high time for you to learn how payouts are calculated.
More often than not, the payout will be determined by the size of your capital at risk per trade, whether you’re in- or out-of-the-money when the trade is closed, the type of option trade, and your broker’s commission rate.
In the example given above, you bet $100 that EUR/USD will close above 1.3000 after an hour with your broker offering a 79% payout rate. Let’s say that your analysis was spot on and your trade ends up being in-the-money. You would then get a payout of $179.
$100 (your initial investment) + $79 (79% of your initial capital) = $179
Easy peasy, right? Don’t get too excited just yet! You should know that there’s no one-size-fits-all formula for calculating payouts. There are a few other factors that affect them.
Factors in Payout Calculations
Each broker has its own payout rate. For starters, Forex Ninja’s intel shows that most brokers offer somewhere between 70% and 75% for the most basic option plays while there are those who offer as low at 65%.
Various factors come into play when determining the percentage payout.
The underlying asset traded and the time to expiration are a couple of big components to the equation.
Next, the broker’s “commission” is also factored into the payout rate. After all, brokers are providing a service for you, the trader, to play out your ideas in the market so they should be compensated for it.
The commission rate does vary widely among brokers, but since there are so many binary options brokers out there (and more coming along), the rates should become increasingly competitive over time.
When a Binary Option Trade is Closed
As mentioned before, binary options are typically “all-or-nothing” trading instruments in that the payout or loss is only given at contract expiration, but there are a few brokers that allow you to close a binary option trade ahead of expiration.
This usually depends on the type of option, and usually it’s only available within a certain timeframe (e.g., available 5 minutes after an option trade opens, up until 5 minutes before an option expiration).
When trading with a binary option broker that allows early closure of an option trade, the value of the option tends to move along with the value of the underlying asset.
For example, with a “put” (or “down”) option play, the value of the option contract increases as the market moves below the target (strike) price.
This means that, depending on how far it has moved passed the strike, the closing value of the option may be more than the risk premium paid (but never greater than the agreed maximum payout).
Conversely, if the underlying market moved higher, further out-of-the-money, the value of the option contract decreases and the option buyer would be returned much less than the premium paid if he/she closed early.
Of course, in both cases, the broker commission is factored into the payout of an option trade when closed early.
So before you decide to jump head first into trading binary options, make sure you do your research and find out what your broker’s payout rates and conditions are!
Master The Psychology of Forex & Binary Options Trading
Сертификат об окончании
- A basic understand of Forex or Binary Options trading
Have you ever been in a situation where a series of winning trades have caused you to start increasing the size of your investments? Only for the next couple of trades to lose and wipe out all of your profit
Have you ever been in a situation where the frustration of losing has caused you to start chasing your losses? Do you ever find yourself taking impulsive trades that you wouldn’t normally take in a calmer state of mind?
Do you ever find yourself over trading even though you promised yourself that you wouldn’t do it? Have you ever walked away from a disastrous trading session where you made countless irrational decisions and thought, “what the hell came over me?’
In section 1 I explain the role that mass psychology plays in determining the direction of market movement. I also explain the role that our individual psychology plays when it comes to processing information and interpreting chart data
In section 2 I delve a little deeper into individual psychology and explain how our default mental programing dictates the emotions we feel and the decisions we make when trading. In section 3 I cover the elements of human emotion and explain how to recognize and disrupt rash behavior before it causes you to make impulsive or irrational decisions. I also introduce the building blocks of emotional intelligence
In section 4 I explain the key differences between conscious willpower and subconscious habits and outline how to bridge the mental gaps between the 2. And in section 5, I explain how you can take all of the content contained in the program and embed it subconsciously so that you can automatically implement it in your own trading
I’ll also show you how to develop a workable strategy that will drastically improve your performance, boost your win percentage, and set you on your way to consistent profit
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