Speculating on the Binary Options Market

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Speculating on the Binary Options Market

Thanks to modern technology and access to the internet, many opportunities have opened up for anyone who desires to earn money online from nearly any place on the globe. One of these is speculating on the market with binary options, which are futures contracts that enable you to earn a heavy profit through an incredibly simple algorithm. This article will fill you in on everything you’d ever wanted to know about speculating on the binary options market.

What Are Binary Options

We’ll find out, for starters, what this financial tool is, where it came from and the secret to its popularity. So, binary options have existed as a tool in the financial sphere since 2008. A decade has already come and gone since the moment when the first trader opened a trading terminal and placed a winning trade. They were “born” on the Chicago Financial Exchange (CFE) that, in the midst of the international financial crisis, created a simplified version of “vanilla” options, accessible to everyday people both technically and financially. When binary options appeared, traditional “vanilla” options had already been around since the late 90’s, especially for large companies, hedge funds and financial conglomerates who could better diversify risk and earn additional income with their aid.

These kinds of options are still around today, however, they have a more complex structure and require larger investments. To put it simply, the principle behind traditional options is buying/selling in the future a specific asset price the moment the trade is closed on the exchange. When the financial crisis hit, the demand for “vanilla” trading dropped, so the leaders in CFE decided to make traditional options binary, with a simpler working principle and significantly lower minimum threshold per contract.

Binary options are also contracts on the exchange, however, their acting principle lies in the materialization of either the growth or decline of asset price through the course of a predetermined time period. More simply, to close a trade you must correctly determine ahead of time where on the asset chart the price will move to, either above or below the place it is situated when the trades are placed. If your forecast is correct, following the trade’s fruition, you will earn up to a 90% return on the initial investment, although, if it is incorrect, you will lose all funds investment. There is no need to physically acquire assets, only to correctly forecast their rate movements on the chart, BUYING if the prediction is up, SELLING if the prediction is down:

You either make a profit or lose the entire investment when the trade is closed. This binary logic lead to the name of this type of contract, that has opened to door to the financial market to even the most average of joes.
Simply put, nothing that has been described here is innovative in any way. Even in the 70’s of the last millennium, during the Great Depression in the States, there were companies who took out short-term stakes on the future value of securities. Meaning that the option we have before us today is a modernized, well-advertised version of the old practice of betting on rates.

Why has speculating on the binary options market become so popular? The leading factor is financial access. The issue is that, in order to speculate on currencies, funds or raw material goods, you need to have a large capital at your disposal, totaling to thousands of dollars, then you need to physically acquire the national currency, corporation asset or gold. You can start speculating on the binary options market with as little as a $10 dollar deposit. The short period for earning profit plays a significant role in their popularity as well, with periods starting from 60 seconds. Meaning that if, for example, you place a trade with $100 dollars, in only a minute you can earn 90 dollars of pure profit. This type of profit can’t be made on any other existing tool online.

Where Can You Speculate On the Binary Options Market

You have one of two options as to where you can speculate on the binary options market or the futures market as it is sometimes called. You can either go through official exchanges, such as the CFE, Cantor, or the CME, or the online platforms of brokerage companies. In general, the majority of traders in most countries only are able to access the latter option, as all the official options exchanges are located in the US, and are closed to Russia, CIS and many other countries all over the world. Moreover, trading on options exchanges is less lucrative as American exchanges set high entrance thresholds, offer a very limited assortment of assets and don’t provide fixed percentages of profit. Of course, if you really want to, you could trade on the exchanges’ official online platforms, to avoid the traffic, study complex English-language contracts and cough up huge starting deposits. However, as experience shows, the profitability of trades on the official exchanges don’t compensate for the conditions put on traders. Moreover, speculating with binary options on the exchanges hasn’t even gained popularity amongst Americans themselves, who also aren’t thrilled with the aforementioned trading conditions.

Therefore, the most accessible and, at the same time, profitable option is speculating with binary options outside the confines of the exchanges, made available through online brokers. Don’t worry about going around official exchanges, as these companies are legal entities as well, they are licensed by financial regulators and provide you access to real exchange asset rates on the chart. Meaning that you receive the very same financial tools as American traders, but with much less hassle, both to you and your wallet.
You can start speculating with these companies without any confusing red tape and with nearly any amount of starting capital. Of course, to trade, you need to go through a registration process, although, unlike the official exchanges, this can be completed very quickly. For example, it only takes several minutes and $10 dollars or more of starting capital to register on most of platforms. Many platforms offer trades starting from $1 dollar as well. When you register, a demo account is automatically opened with a virtual trading balance, enabling you to gain all the experience you need without risking any of your personal savings.

Trading Platform

Speculating online is conducted through a trading terminal, it is necessary for trading, enabling lucrative trading from the comfort of your couch. The trading terminal itself is a unique web program, loaded on the broker’s site with your chosen chart for asset trading and manually for opening options. There are often 50 various assets for price forecasting on trading platforms, such as currency pairs, oil, gold, and cryptocurrencies. You can open the rate chart for any individual asset you’ve chosen, as well as the interval and the type of price display. The interval is equipped with specialized tools for market analysis, enabling you to forecast analytically, not blindly. Typically professional trading software for speculating looks like this:

How to Earn a Profit From Binary Options

We have finally reached the main question regarding how to profit from speculating on the binary options market. In this plan, it is worth mentioning off the bat that it isn’t enough to know just one approach to speculating because if you open options at random, assuming future price fluctuations, you will lose all your investments right away.

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Your trading experience begins with completing a basic educational course. It is vital for every trader, regardless of if you are economically and financially literate or not. The point is that no one can conduct this kind of speculating through intuition alone. The trading process is conducted with the help of technical and fundamental market analysis, enabling you to forecast, with roughly 85% accuracy, where the price will move next. Specialized trading strategies are used in analysis. They are combinations of various expected price behavior conditions, the appearance of which is generally considered to signal further price movement. Precisely in order to learn the approaches to forecasting the market and how to use trading systems, it is vital to go through an educational course. Furthermore, these courses are available on the brokerage platforms completely free and are made up of easy-to-understand materials, such as dictionaries of trading terminology, step-by-step instructions, interactive books and video lessons. Therefore, you really need to spend a bit of time studying materials at your disposal and gaining some experience on a demo account.

Speculating in Practice

There are a ton of effective trading strategies that you can apply to the binary options market that produce profit no less than 80% of the time. That means that 8 out of 10 trades opened will be profitable when using a trading system. It isn’t possible to go through all the approaches to analysis in one article. You can learn more about them in the educational materials available. In this article, we will provide an example of speculating with a simple trading strategy, based on the Moving Average and the MACD. They should be set up on your chart, displayed with candles and the interval M1. These indicators should have the following parameters, which will identify the points when the asset price shifts short-term

● EMA, period 10
● EMA, period 5
● MACD with no changes to the setup

The indicators’ trading signal will appear in the chart as an intersection of the EMA lines in a specific direction and an intersection of the lines with the same direction in the MACD window. As you can see in the screenshot, the indicators show 2 lucrative rate reversal signals, where you can close the contract profitably.

If you place trades using the trading signals of these technical indicators, you must set the expiration period within the range of 5-10 minutes, depending on how volatile the price movement is.
That is how this approach to speculating on the binary options market looks. It is the easiest and most accessible way to make a profit online with minimal starting capital required.

“General Risk Warning: Binary options and cryptocurrency trading carry a high level of risk and can result in the loss of all your funds.”

Binary Options

Binary Options is a trading instrument that offers a guaranteed return for a correct prediction about an asset’s price direction within a selected timeframe.

An Option is part of the derivatives types of assets. This means that their value is intrinsically tied to the value of an underlying asset.

When you buy or sell an option, you do not own the underlying asset. You’re typically speculating on whether the asset’s price will go up or fall over a specified period. An in-the-money binary option offers up to 95% of profit, while an unsuccessful one will result in the loss of the investment.

With Binary Options one can speculate on the price movements of the most popular assets like Tesla, Google, Amazon, EUR/USD and 66 more.

Also popularly known as high-low option, binary option trading involves speculating whether the price of an asset will rise or fall over a given amount of time. Your trade entry marks the strike price.

If you anticipate that the option will expire when the price is higher than this, all you need to do is enter a higher position. The trade expiry is always predetermined. On the IQ Option platform, this ranges from 1 minute to 1 month.

IQ Option binary trades always have a fixed return which is calculated as a percentage of the trade investment. The return you receive depends on the asset being traded and market volatility.

MetaTrader 5

What is CFD trading

A Contract for Difference (CFD) is a financial derivative that allows you to potentially profit by speculating on the rise or fall of an underlying asset, without actually owning that asset.

The movement of the underlying asset determines your profit or loss – depending on the position that you have taken.

Advantages of CFD trading

  • Trade with leverage
    Trade a larger position than your exisiting capital.
  • Hedge your portfolio
    Offset potential losses to your investment portfolio by hedging with CFDs.
  • Go long and short
    Trade long and short positions, depending on your preferred strategy.

What you can trade with CFDs

Contracts for difference (CFDs) allow you to speculate on a number of markets, including indices, shares, and commodities. At Binary.com, we offer popular cash indices, cryptocurrencies, as well as proprietary Synthetic Indices that simulate market movement.

How to trade CFDs

New to CFD trading? We explain a few basics that all CFD traders need to know before they start trading.

When to buy and sell

When you are trading CFDs, you can choose to open a buy position (if you think that the price will rise) or a sell position (if you think that the price will fall).

Buy

In this case, you predict that the price will rise. This is also known as ‘going long’.

Sell

In this case, you predict that the price will fall. This is also known as ‘going short’.

Let’s use the US 100 index as an example:

If you decide to buy or ‘go long’ on the US 100 index, your profit will continue to increase as long as the price of the US 100 index keeps rising. However, if the price falls, the losses you incur will also increase.

The opposite is true if you decide to sell or ‘go short’ on the US 100 index. This means that your profit will continue to increase as long as the price of the US 100 index keeps falling. However, if the price rises, the losses you incur will also increase.

How to calculate your profits and losses

Let’s say a US 100 contract is worth USD 1 per point in the underlying asset. If you decide to ‘go long’ on the US 100, and the asset price rises by 10 points, that represents a USD 10 profit for you.

However, if the asset price falls by 10 points, that represents a USD 10 loss for you.

To learn more, please read our CFD contract specifications.

How to close a position

When you decide to close an open contract, you only need to take the opposite position in order to close the contract.

For example, if you buy a US 100 contract and it’s not going as planned, you just need to sell it to cut your losses at the current market price.

CFD margin policy

Margin allows you to trade on leverage – giving you the same level of market exposure using much less capital.

For example, if you wanted to purchase 100 units of a particular asset trading at USD 50 per unit through a traditional broker, it would cost you USD 5,000 for this transaction.

With leverage, you can purchase 100 units of the same asset at a fraction of the cost.

How to calculate margin

You can determine the margin for our CFDs by using the formula below:

For example, if you buy one lot of an underlying asset at a price of USD 20,000 and a margin rate of 0.01, the margin required to purchase that one lot will be calculated as follows:

What’s a margin call and how is it applied

Equity is the sum of your balance and floating profit and loss (PnL). Margin level is the ratio of equity to margin. When that ratio reaches a specified percentage (usually 100%), your account will be placed under margin call. This does not affect your ability to open new positions; it serves to alert you that your floating PnL is moving lower. However, it is recommended to add funds to your account in order to keep your positions open. Alternatively, you may close losing positions.

What’s a stop out level and how is it applied

If your margin level reaches an even lower level (usually 50%), it will reach the stop out level where it is unable to sustain an open position. This will lead to some, or all your open positions being forcibly closed (also known as “forced liquidation”).

When your account hits the forced liquidation level, your orders and positions are forcibly closed in the following sequence:

  1. We delete an order with the largest margin reserved
  2. If your margin level is still under the stop out level, your next order will be deleted. However, orders without margin requirements will not be deleted
  3. If your margin level is still under the stop out level, we will close an open position with the largest loss
  4. We will continue to close open positions until your margin level becomes higher than the stop out level

CFD contract specifications

Cash Indices

Symbol Description Lot size Minimum volume Volume step
DAX_30 Germany 30 Cash Index 1 0.10 0.10

Synthetic Indices

Symbol Lot size Minimum volume Volume step
Volatility 10 Index 1 0.20 0.01
Volatility 25 Index 1 0.50 0.01
Volatility 50 Index 1 3.00 0.01
Volatility 75 Index 1 0.005 0.001
Volatility 100 Index 1 0.10 0.01
HF Volatility 10 Index 1 0.20 0.01
HF Volatility 50 Index 1 3.00 0.01
HF Volatility 100 Index 1 3.00 0.01
Volatility 10 (1s) Index 1 0.10 0.01
Volatility 100 (1s) Index 1 0.01 0.01

Crash/Boom Indices

Symbol Lot size Minimum volume Volume step
Crash 1000 Index 1 0.10 0.01
Boom 1000 Index 1 0.10 0.01
Crash 500 Index 1 0.10 0.01
Boom 500 Index 1 0.10 0.01

Step Indices

Symbol Lot size Minimum volume Volume step
Step Index 10 0.10 0.01

How to read the table above

A Contract for Difference (CFD) is a derivative contract that allows you to profit by speculating on the rise or fall of an underlying asset. Your profit and loss is calculated through the difference in the buy and sell prices of the underlying asset.

Each time you open a position on an index symbol, you can start with a minimum volume transaction as indicated in the table above.

With Crash 1000 (500) Index, there’s an average of one drop in the price series that occurs at anytime within 1000 (500) ticks.

With Boom 1000 (500) Index, there’s an average of one spike in the price series that occurs at anytime within 1000 (500) ticks.

With Step Index, there is equal probability of up/down movement in the price series with fixed step size of 0.1.

Important notes on our swap rates (overnight funding)

If you keep any positions open overnight, an interest adjustment will be made to your trading account as indication of the cost required to keep your position open.

The interest adjustment is calculated in annual base for long and short positions according to the formula: (volume in lot *specified swap size/100)/360.

Please take note that our swap rate also depends on the time and days you hold your positions open.

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In the EU, financial products are offered by Binary Investments (Europe) Ltd., W Business Centre, Level 3, Triq Dun Karm, Birkirkara, BKR 9033, Malta, regulated as a Category 3 Investment Services provider by the Malta Financial Services Authority (licence no. IS/70156).

Outside the EU, financial products are offered by Binary (SVG) LLC, Hinds Building, Kingstown, St. Vincent and the Grenadines; Binary (V) Ltd, Govant Building, Port Vila, PO Box 1276, Vanuatu, regulated by the Vanuatu Financial Services Commission (view licence); Binary (BVI) Ltd, Kingston Chambers, P.O. Box 173, Road Town, Tortola, British Virgin Islands, regulated by the British Virgin Islands Financial Services Commission (licence no. SIBA/L/18/1114); and Binary (FX) Ltd., Lot No. F16, First Floor, Paragon Labuan, Jalan Tun Mustapha, 87000 Labuan, Malaysia, regulated by the Labuan Financial Services Authority to carry on a money-broking business (licence no. MB/18/0024).

This website’s services are not made available in certain countries such as the USA, Canada, Hong Kong, Japan, or to persons under age 18.

The products offered via this website include binary options, contracts for difference (“CFDs”) and other complex derivatives. Trading binary options may not be suitable for everyone. Trading CFDs carries a high level of risk since leverage can work both to your advantage and disadvantage. As a result, the products offered on this website may not be suitable for all investors because of the risk of losing all of your invested capital. You should never invest money that you cannot afford to lose, and never trade with borrowed money. Before trading in the complex products offered, please be sure to understand the risks involved and learn about Responsible Trading.

In the EU, financial products are offered by Binary Investments (Europe) Ltd., W Business Centre, Level 3, Triq Dun Karm, Birkirkara, BKR 9033, Malta, licensed and regulated as a Category 3 Investment Services provider by the Malta Financial Services Authority (licence no. IS/70156).

In the Isle of Man and the UK, Synthetic Indices are offered by Binary (IOM) Ltd., First Floor, Millennium House, Victoria Road, Douglas, IM2 4RW, Isle of Man, British Isles; licensed and regulated respectively by (1) the Gambling Supervision Commission in the Isle of Man (current licence issued on 31 August 2020) and by (2) the Gambling Commission in the UK (licence reference no: 39172).

In the rest of the EU, Synthetic Indices are offered by Binary (Europe) Ltd., W Business Centre, Level 3, Triq Dun Karm, Birkirkara, BKR 9033, Malta; licensed and regulated by (1) the Malta Gaming Authority in Malta (licence no. MGA/B2C/102/2000 issued on 01 August 2020), for UK clients by (2) the UK Gambling Commission (licence reference no: 39495), and for Irish clients by (3) the Revenue Commissioners in Ireland (Remote Bookmaker’s Licence no. 1010285 issued on 1 July 2020). View complete Regulatory Information.

Binary.com is an award-winning online trading provider that helps its clients to trade on financial markets through binary options and CFDs. Trading binary options and CFDs on Synthetic Indices is classified as a gambling activity. Remember that gambling can be addictive – please play responsibly. Learn more about Responsible Trading. Some products are not available in all countries. This website’s services are not made available in certain countries such as the USA, Canada, Hong Kong, or to persons under age 18.

Trading binary options may not be suitable for everyone, so please ensure that you fully understand the risks involved. Your losses can exceed your initial deposit and you do not own or have any interest in the underlying asset.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 78.6% of retail investor accounts lose money when trading CFDs. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

Best Binary Options Brokers 2020:
  • Binarium
    Binarium

    Best Binary Options Broker 2020!
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    Free Demo Account!
    Perfect for Beginners!

  • Binomo
    Binomo

    2 place in the ranking!

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