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Trading stock binary options takes some understanding of how stocks behave in order to profit from it.
Stocks constitute one of the asset derivatives that can be traded on the binary options market. Usually, a trader will have access to trade hundreds of stocks, as brokers will list several stocks from the different stock exchanges across the world. A good spread will include stocks from the three American exchanges, the London stock exchange, and the stock exchanges from Germany, Spain, Switzerland, the Eurostoxx exchange (which contains stocks of companies in the Netherlands, Belgium, and other central European nations) as well as stocks from some selected middle East exchanges. This gives traders and unbelievable spectrum of stocks to change.
What Factors Should you Take into Account when Trading Stocks?
In order to trade stock binary options, traders must be conversant with the factors that cause movement in stock prices. Some of these factors are as follows:
1) Market sentiment: if there is a gloomy market sentiment and worry about the global economy, most investors will prefer to hold cash and will sell their stock holdings, leading to a fall in stock prices.
2) Earnings reports: A good or bad earnings report will cause a stock price to rise or fall respectively. What constitutes a good or bad earnings report? A company reporting a loss may look bad, but if the loss is less than a previous loss, this may be viewed in a positive light by investors, leading to increased demand and a rise in the price of this asset. Conversely, profits declared by a quoted company may not necessarily be viewed in good light, if the profits are less, or are viewed as an underperformance when compared with its peers for the period. The trader must have access to historical data to be able to use factors like earnings reports for stock binary options trading. Another limitation to the use of earnings in trading stock binary options is that they are seasonal and can only be used during the quarterly earnings season.
3) Mergers and Acquisitions: A merger or an acquisition is meant to improve the standing and competitiveness of the companies in question, and usually have a positive impact for the companies involved.
4) Government policies: these could have a positive or negative effect on stock prices. For instance, increasing import duties on raw materials for a particular industry could erode the profit margins of affected companies and negatively impact their ability to remain competitive against foreign goods. On the other hand, import duty waivers could enhance profitability of the same companies in question.
How to Trade Stock Binary Options
The first step is to identify in what direction the stock is likely to head after a news release affecting the share price of the company in question. From there, the trader is free to choose any binary options trade type to fit his trade profile. For instance, an earnings report can lead to a sustained response that lasts for many days. In such a situation, the trader can decide to trade the Touch/No Touch option, using an appropriate price barrier while taking into consideration any recent supports or resistance levels.
If there is a particularly strong news release that is likely to cause the share price of a company to spike in any direction, the trader can decide to trade any of the high-yield option varieties. For instance, the sudden announcement by the CEO of JP Morgan about the trading losses recently incurred on its positions is the kind of news release that can lead to a move so hard that it could breach the price barriers of the high-yield option types. It is ultimately up to the trader to determine what kind of trade will suit the news release he wants to trade.
Guide on Trading Stocks Successfully
Updated on: 6 January 2020
Perhaps the biggest advantage of binary options trading over traditional forex trading is the fact that binary trading allows traders to trade on stocks as well. In options trading, traders will not have to actually purchase stocks; they will only have to predict if the value of a stock will go up or go down during a certain time frame.
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The great thing about this is that this has absolutely nothing to do with random luck and chance. Obviously, the changes in the value of a stock have absolutely nothing to do with luck and chance. If you understand some fundamental principles you will be able to predict the direction in which the value of a stock will move in the future.
In this article we’ll be talking about strategies to predict the future movement of stocks in binary options trading. There are essentially two types of strategies. The first category are those that focus on news and events that will influence the value of a company while the second is speculating on the movement of a stock based on trader action.
Read this article below in order to learn how to trade on stocks in binary options.
How to Trade on Stocks?
Like said above, there are essentially two ways to trade on stocks in binary options. The first is to trade on a stock during a specific event that will influence the value of a stock in a predictable way. The second is speculating on the influence other traders will have on the movement of the value of a stock.
Below you’ll find all these strategies.
New product releases
One particular way to trade binary options on stocks is to trade during periods when a particular company is expected to release a new product. A product launch usually always influences the value of a company significantly.
Before a new product is launched and the launch date is approaching, the value of that company is expected to increase continually. During these periods you should buy binary options contracts that predict that the value of that asset will increase.
After the product launch is completed, two things can happen. If the new product is not that great, then the value of that company will decrease. If the product is really awesome, then the value of that company is expected to increase. Based on these, you can make appropriate predictions.
Another types of events are profitability reports. Usually the release date of these reports is always revealed in advance. If the company is believed to have been performing well during a certain period, then before the profitability report is released the value of that company will slowly increase continually.
If after the report it becomes evident that the company did indeed perform well, then the value of the company will increase. If, however, the company managed to generate fewer revenues in the recent past, then the value of that company will definitely decrease.
When dealing with profitability reports you should trade binary options after the report has been published.
Mergers and acquisitions
When a company announces a merger or an acquisition of another company, then the value of that company is expected to increase considerably in the future. Most of the time mergers are not always announced in advance; so trading is only possible after the announcement of such news.
This is perfectly fine, because after the announcement of such an event the value of the purchasing company will steadily increase. In these situations it’s very safe to bet on the fact that the value of that company will increase.
However, you may also watch out for takeover or merger rumors in the business world. If a rumor is spearing (doesn’t matter if true or false) that company X will buy company Y, then the value of company X will definitely increase.
Government related events
Actions taken by governments will also influence the value of companies. For example, if the US government would implement a law that would tax all tech companies with 20% next month then you will know with high certitude that the value of companies such as Apple and Microsoft will decrease dramatically soon.
If a law is implemented or is planned to be implemented that will, say, abolish all regulations and tariffs on oil imports, then you will know for sure that the value of companies like BP and Exxon will increase dramatically in the near future.
Speculative Trading on Stocks
The above cases all referred to trading on special events and news related to specific companies. However, these kind of events happen only very rarely. Most of the time you will not be able to rely on news to trade binary options on stocks.
For this reason, experts have devised various ways that will allow traders to predict the movement of certain stocks using technical analysis. Technical analysis will analyze trading sentiment and its possible outcomes and consequences.
Trading sentiment is the perception of all traders trading on an asset on the future movement of that asset. The collective actions performed by traders will greatly influence the short-term movement of assets.
So, for example, if you would know that a huge number of traders suddenly decided to buy a certain stock during a given moment, then you would know with high certitude that the value of that stock will increase in the near future.
Well, doing exactly what was described in the above example is perfectly possible using so-called candlestick indicators in binary options trading.
Candlesticks are financial trading indicators that denote the influence of trader action on the movement of assets such as stocks. Candlesticks are made up of two shadows and a real body.
The real body, which is either green or red, denotes how much traders have influenced the asset to move. A short green real body means that the value of the stock has only increased with a small number. A long red real body means that the value of the asset has dropped significantly.
The shadows are the two lines above or below the real body. These denote the amount of traders needed to determine the change displayed by the real body. A long upper real body means that a large number of traders have bought the asset. A short lower shady means that only a smaller number of traders have sold the asset.
How to use candlesticks to trade on stocks?
There are multiple strategies on how to use candlesticks to trade binary options. We have given a detailed description on all of these. You can find them linked from the menu on the top of this page, below the intro. You should definitely read all of these strategies.
In short, using these tricks you will be able to tell in which direction a stock will move in the short term. For example, if you see a very long green real body with a very long upper shadow and very short lower shadow then it means the following:
– A very large number of traders have bought the stock
– A very small number of traders have sold the stock
– The value of the stock increased significantly
In this case, you will be able to know with high certitude that the value of that stock will continue to increase in the short term and as such, you will be able to purchase a binary options contract with the right prediction and may win most of the time.
So, in short, this is how you speculate on stocks in binary options trading. However, please read all the other articles we have written about candlestick binary options trading. Knowing all those strategies will increase your winning ratio considerably every time you trade.
Also, feel free to check out all the other articles and guides on our website in order to learn everything about binary options trading on stocks and other assets.
A Guide to Trading Binary Options in the U.S.
Binary options are financial options that come with one of two payoff options: a fixed amount or nothing at all. That’s why they’re called binary options—because there is no other settlement possible. The premise behind a binary option is a simple yes or no proposition: Will an underlying asset be above a certain price at a certain time?
Traders place trades based on whether they believe the answer is yes or no, making it one of the simplest financial assets to trade. This simplicity has resulted in broad appeal among traders and newcomers to the financial markets. As simple as it may seem, traders should fully understand how binary options work, what markets and time frames they can trade with binary options, advantages, and disadvantages of these products, and which companies are legally authorized to provide binary options to U.S. residents.
Binary options traded outside the U.S. are typically structured differently than binaries available on U.S. exchanges. When considering speculating or hedging, binary options are an alternative—but only if the trader fully understands the two potential outcomes of these exotic options.
Now that you know some of the basics, read on to find out more about binary options, how they operate, and how you can trade them in the United States.
U.S. Binary Options Explained
Binary options provide a way to trade markets with capped risk and capped profit potential, based on a yes or no proposition.
Let’s take the following question as an example: Will the price of gold be above $1,250 at 1:30 p.m. today?
If you believe it will be, you buy the binary option. If you think gold will be below $1,250 at 1:30 p.m., then you sell this binary option. The price of a binary option is always between $0 and $100, and just like other financial markets, there is a bid and ask price.
The above binary may be trading at $42.50 (bid) and $44.50 (offer) at 1 p.m. If you buy the binary option right then, you will pay $44.50. If you decide to sell right then, you’ll sell at $42.50.
Let’s assume you decide to buy at $44.50. If at 1:30 p.m. the price of gold is above $1,250, your option expires and it becomes worth $100. You make a profit of $100—$44.50 = $55.50 (minus fees). This is called being in the money. But if the price of gold is below $1,250 at 1:30 p.m., the option expires at $0. Therefore you lose the $44.50 invested. This called out of the money.
The bid and offer fluctuate until the option expires. You can close your position at any time before expiry to lock in a profit or a reduce a loss, compared to letting it expire out of the money.
A Zero-Sum Game
Eventually, every option settles at $100 or $0—$100 if the binary option proposition is true and $0 if it turns out to be false. Thus, each binary option has a total value potential of $100, and it is a zero-sum game—what you make, someone else loses, and what you lose, someone else makes.
Each trader must put up the capital for their side of the trade. In the examples above, you purchased an option at $44.50, and someone sold you that option. Your maximum risk is $44.50 if the option settles at $0, and so the trade costs you $44.50. The person who sold to you has a maximum risk of $55.50 if the option settles at $100—$100 – $44.50 = $55.50.
A trader may purchase multiple contracts if desired. Here’s another example:
- NASDAQ US Tech 100 index > $3,784 (11 a.m.).
The current bid and offer are $74.00 and $80.00, respectively. If you think the index will be above $3,784 at 11 a.m., you buy the binary option at $80, or place a bid at a lower price and hope someone sells to you at that price. If you think the index will be below $3,784 at that time, you sell at $74.00, or place an offer above that price and hope someone buys it from you.
You decide to sell at $74.00, believing the index is going to fall below $3,784 (called the strike price) by 11 a.m. And if you really like the trade, you can sell (or buy) multiple contracts.
Figure 1 shows a trade to sell five contracts (size) at $74.00. The Nadex platform automatically calculates your maximum loss and gain when you create an order, called a ticket.
Nadex Trade Ticket with Max Profit and Max Loss (Figure 1)
Trading Stocks with Binary Options
Stocks are just one of the many types of underlying financial instruments you can trade using binary options. It’s most helpful to look at a binary option as a way of trading an asset such as a stock—you can also use it to trade currencies, commodities like gold and oil, and more. How do you trade stocks with binary options, and how does it differ from traditional stock trading and other stock option investments?
Binary Options Versus Stocks and Stock Options
Though many people know the basics of how the stock market works, most do not know of the many options available to investors. Included in this are binary options, a higher risk but straightforward alternative to trading traditional stocks and stock options. Below we compare and contrast the similarities and differences between trading stocks and binary options.
Price: A Major Difference Factor
Stocks are priced initially based on a number of different factors including how much the corporation is worth and the number of stocks made available to be publicly traded. Thereafter the market takes control and the current stock price is based on whatever investors are willing to pay for it at that point in time.
Stock options give the investor the right to lock in these shares at the selling price for a set period of time. Essentially, it is the right to purchase stocks for that price regardless of whether the stock increases in worth during that period of time. Profit is made by purchasing the option to shares that are expected to increase in price, then turning them over as soon as the expiry period ends.
Binary options are quite different. Instead of purchasing a stake in the company, you are essentially betting on the worth of that stake in the company. Since you do not own a share of the company, you cannot profit off of its gains and do not receive dividends. Instead you predict whether the company’s stock price will rise or fall to a certain point and bet accordingly. The advantages in doing this are the fact that you have the ability to bet on the stocks of a company or other asset that is out of your price range if you wanted to purchase shares.
For example, shares in Apple are currently quite expensive relative to other stock prices and, as such you may not be able to afford the amount you would prefer to purchase. Instead, by trading Apple binary options you do not have to pay the stock price, simply the cost of the option.
Level of Risk
Although there is risk anytime you are investing, many investors consider binary options to be a higher risk style of investment compared to traditional stocks and stock options. With a stock, if the price after purchase begins to fall, you can hold on to the stock for as long as necessary, in the hope that it will eventually begin to rise again, enough for you to recoup your initial investment, or a large percentage of it. With a stock option, you can choose not to purchase the shares if the price drops and simply forfeit money invested in the option.
Alternatively, binary options have a fixed time to expiry and there are typically only two outcomes: in the money or out of the money. Essentially, what this means for investors is that there are fewer possible ways to earn money and more potential for loss. The benefit, however is that the potential returns are much higher.
Technique Used in Trading
Often unrealized by investors are the similarities in technique used in investing in stocks, stock options and binary options. If you currently are actively purchasing stocks, then you most likely have a good grasp of the market and how to make wise investments. These skills are necessary for trading binary options and will make the learning process go infinitely faster. By understanding how to read financial statements and charts, you will easily translate this into signals that help you determine when the best time is to buy binary options.
Another similarity between traditional stocks and binary options is the different types of assets that are available to trade. Stocks and stock options can be purchased for a single company, commodity, index or in foreign exchange. This holds true for binary options as well only, as stated previously, you are not holding a share of any of these assets, simply a bet against it.
By first becoming familiar with the stock market and how to trade stocks, you will feel more comfortable and have a head start when it comes to trading binary options. Consider the similarities and differences and determine if trading binary options is something that would be attractive to you.
Binary Stock Trading vs Traditional Stock Trading
The most basic type of stock trade is where you simply buy and sell stock in a company. Buying stock in a company is essentially a bet that the company is going to do well, and that you’ll later be able to sell the stock at a higher price than you purchased it for, resulting in profit. While it’s possible to short sell stocks, the process is highly convoluted and somewhat risky. This is how most people profit in a bearish stock market, by ‘short selling stocks’.
Binary stock trading allows you to bet on whether the price of a particular stock will rise or fall without actually purchasing the stock itself. You can bet the price will go up, and use a ‘call option’ or you can bet the price will go down and place a ‘put option’.
With binary stock trading, the magnitude of price movement is not a factor in the amount of payout received on the trade. With binary trading you either win or lose the trade. It does not matter how big of a win you have, your payout is the same as if you squeaked in a 1 pip win. With traditional stocks the magnitude of movement greatly affects how much money you earn or lose with the trade.
Traditional Stock Options vs Binary Options
Traditional stock options give you the right to buy or sell a specified amount of stock at any price and time before the option expires (which we call a “call” or “put,” rather than a buy or sell). With stock options you don’t actually own a piece of the company—a stock option is just a temporary contract, and there is always another trader at the opposite end of your stock option trade. Someone will win and someone will lose. These trades typically appeal to people with less capital; they offer a higher leverage than traditional stock trading as well.
Binary options for stocks are contracts, like traditional stock options. They have expiration times, just like traditional stock options. You also have the option to call or put, which means you can profit in a rising or falling market. When you take out a binary stock option, however, what you’re doing is betting that the stock will or won’t reach a certain price within the expiration period. If you win the bet, you win the amount of money you invested in it. If you lose the bet, you lose your investment.
So you can look at a binary option as a specific type of stock option. Except instead of making a buy or sell decision during the expiration period, you make your decision when you call or put, and then you wait to see what happens (or get out if you think that is best).
With binary options you may be able to enter the market with less capital, as you can with standard stock options, and you may profit in a bullish or bearish market. Trading binary options does include large risks and spreads, however, so you’ll need to account for that when you figure out your bankroll and how you’re going to manage your money. And as with any other type of stock trading, you will need to approach binary options with some kind of solid method in place which has proven results in order to become profitable over the long term.
Are binary options right for you? That depends on you—different personalities and budgets may be better suited to binary options trading, standard stock options, or traditional stock trading.
How to Trade Stocks in Binary Options
Trade Stocks Using Binary Options
by Oscar J. December 1, 2020, 8:52 AM 226 Views
Trade Stocks/Stocks Trading
In order to gain profit from stocks trading in binary options, you have to understand the behavior of stocks trading. Stocks is one of the trading asset constitutes which traders can trade in binary options market. It is possible to trade stocks in binary options. More than hundreds of stocks are traded in binary options. You will find several stocks list from the several stock exchange around the world in the binary options brokers.
A good binary option broker include stocks from most of the major stock exchanges like the London Stock Exchange, and the stock exchanges of America, Switzerland, Germany, Spain, the Eurostoxx exchange (which includes several stocks of the companies of Belgium, Netherlands and other countries of central Europe) as well as selected stock exchanges from Asia and Middle East. This huge variety gives the stocks traders’ opportunity to trade the best stocks.
Trade Stocks/Stocks Trading: The Factors You Should Count
Traders must be well aware of the factors of stocks trading which causes stocks price movement. Here are the factors:
(1) Understand the Market Sentiment: Sometimes market has the gloomy sentiment and the global economy stays in the worrying position. In this case, most of the traders hold their cash and following by the fall of stock prices they sell their stock holdings.
(2) Analyze Earning Reports: Stock prices can rise or fall respectively by the good or bad earning reports. So what is the matter with good or bad earning reports? It may look bad that a company’s earnings report shows the loss, but for the investors, it may be a positive sign if the loss is lesser than the previous one. It means the demand is increasing for that company stock and a sign of asset price rise.
On the other hand, it is not necessary to view a company’s profit as the positive light because the profit can be lesser than the previous one. This is viewed as the underperformance for that company stock comparing the previous periods. For stocks trading in binary options traders should be able to use this earning reports factor and for this, they need to access the historical data. This is a limitation of earning reports. Moreover, earning reports are seasonal and it can be used only at the time of the quarterly season of earnings.
(3) Merger or Acquisition: In the question, the improvement of the companies’ competitiveness and standing is meant by the merger or acquisition. Usually, for the involved companies, they have positive impacts.
(4) Government Policies for Stocks Trading: Government policies have a clear impact on the stock prices. It can be positive or negative. The increase of import duties of raw materials for an industry can erode the margins of profit of the affected companies and oppositely its impact on the company’s competitive ability against the imported foreign materials. On the other hand, for the same companies, the waivers of import duty can enhance their profitability.
How to Trade Stocks in Binary Options
Identify the stock possible heading direction after the release of the news which affects the companies share prices. This is the first step. After that, you are ready to choose from any binary options trade type which fits your trading profile. For instance, the earning reports are able to lead you to the sustained responses which remain for many trading days. In this circumstance, you can choose Touch/No Touch option for trading, because it considers the resistance levels and recent supports for using accurate price barrier.
If in the market has very strong news release which causes a price spike in any direction of the company share price, then from the varieties you can choose to trade any high yield option. For example, the JP Morgan’s CEO announcement of trading losses incurred on their positions recently and this is the kind of news release which moves so strong that it is able to breach the high yield option type price barriers. It is completely up to you to determine what news releases suits you for your trading.
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