Binary Options For Beginners – Strategies For Beginners

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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.

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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.

Option Types

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.

Expiry Times

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.

Advantages

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.

Risks

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.

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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?

Cost

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.

Deposit

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.

Asset-Specific

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.

Regulation

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.

Platform

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.

Reliability

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.

Trading apps

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.

Extras

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.

Demo accounts

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.

Strategies

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.

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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
• Trends
• Babypips
• Mirrors
• Options close to expiry

For more detailed guidance, see our charts and patterns pages.

News

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
• CNBC
• Business Insider
• Bloomberg
• 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.

Martingale Strategy

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.

Percentage Strategy

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.

Straddle Strategy

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.

Timing

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.

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Tips

Education

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.

Trading Journal

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.

Psychology

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.

Regional Differences

Regulation

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.

UK

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.

US

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.

Taxes

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

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