Who Can Trade Binary Options – FAQ

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Contents

Trading FAQ

In order to help new traders to understand basics about trading cryptocurrencies, CFDs, forex or binary options we have put all basic questions and answers on this Trading FAQ page. From here you can find basic information and then continue reading into more detail other articles on our site that provide more information and explain more complex concepts such as trading strategies.

What are Binary Options?

They are one of many different types of options one can trade on the market. Binary options unique property, that sets them apart from other kinds of options, is the fact that payoff can take only two possible outcomes, either some fixed monetary amount or nothing at all. Also, major difference is that investors don’t need to actually purchase the assets they invest in, they only need to predict future price trend

What are the returns for Binary Options trading?

Returns are amount of money traders get back from broker after successful trade minus amount invested in that same trade. Usually returns are shown in percentage. Some brokers boast with returns close to 90%, so it really depends on the broker you are trading with. Return also depends on particular asset and market volatility. Good thing with binary options is that trader know return amount before they enter the trade. Take for example a trader who invests $1,000 on a binary option with an ROI of 85%. If the option expires ‘In the Money’, then the trader receives a return of $1,850. If the Option expires ‘Out of the Money’, the trader loses the principal amount invested.

What is an Underlying Asset?

Underlying asset is any asset which trader is buying an option for. It can be a variety of goods, but also underlying asset can be stocks, currencies and indices (Nasdaq, Dow Jones, FTSE…).

For further reading about underyling asset visit this article.

What Instrument Types are being offered?

One Touch – In this option, the investor predicts that the price of the asset will touch a specific value before the end of the given time

High/Low – This is probably the easiest and the simplest option for trading. The investor only needs to predict whether the price of the asset is going to rise or fall within a given time. The investor then selects Call if the prediction is a rise in price and Put if it is a fall. Other name for this type of trading is Call/Put.

No Touch – It works the same way as the CALL/PUT option only that in this case, you select the price at which the asset must not reach before the selected period

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  • BINOMO
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Boundary Options – These options offer boundaries of a lower and upper definition with a rate that can exist inside or outside of its boundary

30 Second Trading – The option comprises prediction of a rise (Call) or a fall (Put) in the value of the asset in 30 seconds

Read more about instrument types in our article Genres of Trading Option

All named instrument types are offer by broker reviewed by Optionsreviews:

What is the meaning of Target Price?

Broker determines the target price (also referred to as strike price) from a set of live pricing feeds that are taken from the market. Target price/strike price represents the amount at which broker is willing to sell each individual option. Traders can buy an option on either side of the target price, this depends on the way trader considers that that asset may move in the market.

Read more about target/strike price in our article Binary Options Strike Price and Underlying Price

What is the meaning of Expiry Time?

The Expiry Time of an option is that point in time at which it will no longer be active. Then, all the investments made in that option are exercised, and clients will be allocated their profits accordingly. The Option’s Expiry Time is always clearly displayed directly in the trading platform next to the option.

Can I close an Option before Expiry Time?

It is possible to close an option before expiry, but how to do it and how long before expiry it can be done depends on broker. This option is usually available within few minutes after time of purchase. The broker adjusts the amount of profit based on the market price of the asset when the trader closes the position.

What is the Expiry Level?

The expiry level is the real value of the underlying asset at the moment the option expires. This may sound simple but it can be very complicated. Many assets are sold on several markets/exchanges at the same time. Asset prices change in real time. So, if binary trade is very close to being in-the-money, traders will want very much to know how the expiry level is determined. How expiry level is determined depends on broker’s policy.

What is ‘In the Money’ and ‘Out of the Money’ expiry?

In the money expiry means that trader has successfully finished trade and will receive profit (money). Out of the money expiry is naturally exact opposite and it means that trader has lost amount invested in the trade. Various trading instruments can have different definition when trade is in the money or out of the money. You can read more about that in our article Genres of Trading Option

What happens when an option expires at the Target Price?

Trader is asked to estimate whether the option will expire above or below the target price. But if exact target price is reached at the expiration trader doesn’t receive any profit, but retains amount invested in the trade. This occurs only with the High/Low option and is called ‘At the Money’.

What is an Investment Amount?

Invested amount is amount trader invests in specific trade. Invested amount is the basis which determines the option’s profit or loss. If expected return is 80%, investing 100 dollars will make profit of 80 dollars, but if trade expires out of the money trader losses 100 dollars (invested amount).

What is the Minimum Investment Amount Possible?

Minimum invested amount depends on the broker you are trading with, but mostly it is 10 dollars.

What is the Maximum Investment Amount Possible?

Maximum invested amount depends on the broker you are trading with, but most brokers allow at most 10.000 dollars trade.

What Is The Maximum Amount Of Options That Can Be Purchased Simultaneously?

Trader can enter an unlimited amount of options at any given time. Brokers have different policies, but mostly they don’t allow for all trades placed at the same time to exceed the maximum invested amount

What Computer Requirements Are Required To Trade Binary Options?

Any PC, tablet or smartphone with an internet connection will do. Usually java script muste be enabled for trading and sometimes flash player needs to be installed to view all web-site elements properly. No download of any extra software is usually required, but sometimes brokers can offer you certain educational materials for download. It is advised to use Google Chrome (v4.0), Internet Explorer (IE7.0, IE8.0) or FireFox (v3.5, v3.6) as your internet browser.

How Is My Confidential Data Protected?

All data transmitted from your computer to any broker’s web site is securely sent through the Internet using SSL encryption certificate.

How Can I Get Help If I Am Unable To Trade?

Any problems can always be directed towards broker’s technical support center. All brokers reviewed by Optionsreviews have very good support services.

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)

7 Binary Options

How can I start trading with binary options?

1. Register to a trading platform/ broker, preferably one or more of our recommended platforms.

2. Select the asset or item to trade. For example, the EUR/ USD.

3. Determine the amount you wish to invest, make your prediction on direction the price of the asset will take. If you predict it will rise, select Call (up), and if you predict it will fall, select Put (down).

4. Collect your winnings.

Which trading platforms do you recommend?

We have collected and critically analyzed the best trading platforms, which are on this website. We recommend these platforms.

Which automatic trading software would you recommend?

We highly recommend Binary Option Robot program, which is the best in the industry. It will help you in trading and in getting the best results to generate more winnings and more money.

Which service do you recommend for buy/sell -signals?

We recommend the services covered by the absolute elite signal tip back and forth service.

What investing strategy do you recommend?

Trend Strategy is the commonly used and most profitable strategy.

What are binary options?

Binary options are options which when traded; one gets the payoff or gets nothing. One can either win or lose and therefore, the word binary which means two. The trader knows the income or loss before investing. Trader may invest in commodities, indices, and currency pairs.

Where can I open a free demo account for testing trading before using real money?

You can open a free demo account on Banc de Binary trading platform for you to practice. You will get $ 50,000 for use.

What do put and call mean?

These are options used in binary options trading / investing.

The Call (Up) option is used if you predict that the value of the asset will rise. If you predict that the value of the asset will reduce, then you select Put (Down).

What does the expiration time mean?

Expiration time is the time in which a particular trading expires. For instance, a 30 seconds trading expires after 30 seconds. It is at this time when you see if you have won or lost.

What does the maximum winning percentage for trading platforms mean?

It is the maximum returns, which you can get on an investment. For instance, in Banc de Binary platform it is 91%. If you invest $100, you get a profit of $91.

Is it possible to invest with a mobile device?

Yes, you can invest using a mobile device in many of our recommended platforms.

Do you have reviews of Forex Brokers too?

Yes, you can find full reviews here.

John Miller

Latest posts by John Miller (see all)

  • Interview of Daria Glazko from IQ Option – July 20, 2020
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2 comments

Very informative, t hanks

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Best Binary Options Brokers 2020:
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    BINARIUM

    Best Binary Options Broker 2020!
    Ideal for beginners!
    Free Demo Account + Free Trading Education!
    Get a Sign-up Bonus:

  • BINOMO
    BINOMO

    2nd place in the ranking!

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