First Steps for Beginners
Binary options are speculative financial instruments that allow you to gain profits by estimating the value that a certain underlying asset will reach during a given time frame.
The underlying asset is the value on the financial market of a stock, futures, currency, index, commodity (such as gold, silver, oil, etc.) on which a derivative’s price is based.
Common features in all Binary Options types:
- here is always just 2 possibilities. In one case you make profit, in the other case you lose, hence the name Binary.
- The PAYOUT, in other words the profit you make in case of successful trade, is known in advance.
- There is always a predetermined time and date in which the trade expires.
The most common Binary Options types offered by Brokers are: “HIGH/LOW”, “ONE TOUCH”, “RANGE HIGH/LOW” at various expiry periods.
There are different kind of trades you can choose from, and the market is always creating more and more offers, but the one thing that all Binary Options types have in common is that we know from the start how much we are going to profit in case of successful trade. This is called Payout.
Payouts range from a minimum of 60% and can go up to 600% according to the difficulty of the trade.
For instance, if the payout is 80%, and we invest $100, we will earn $80 in case of successful trade.
The Broker decides the payout, and it is usually pretty visible in all platforms, just like in the ‘Profit’ in sports bets.
It can also be seen as a benchmark of the difficulty of the trade itself.
Some Brokers include the amount of the investment in the payout rate; for example, the payout is 180%, and you have invested $100 , so in case of successful trade you will receive $180, that is to say $100 that you have invested + $80 profit. No big deal, you just need to know in advance.
All Binary Options types have an expiration, that is a specific time and date when the trade closes. Compared to investments on traditional financial products, the expiration in the Binary Options world are rarely more than a few-day time. Regarding the duration, we have:
- Short-term trades, from 1 minute to 1 hour.
- Mid-term trades, from 1 hour to 1 day.
- Long-term trades, from 1 day to few days.
From an investment strategy point of view the expiration is one of the critical factors to take into account when opening a trade.
The expiration can be defined by the time/date in which a certain condition is met, or a time frame in which a specific event may take place.
Therefore, depending on the expiration we have two types of trades:
- Trades in which an event takes place exactly at the expiration (Options: HIGH/LOW – RANGE HIGH/LOW)
- Trades in which an event takes place within the expiration. (Options: ONE TOUCH)
Binary Options type HIGH/LOW
This is the most common Option type, considered by many traders the Queen of Binary Options. It is a type of option appreciated both by beginners and expert traders especially for its simplicity.
The prediction here is whether the asset will be higher or lower than the opening price at the expiry time.
Payout is 65%~75% in average.
Binary Options type HIGH/LOW - 30 or 60 seconds, up to 5 minutes.
Basically it works just the same as the normal HIGH/LOW type, the only difference is the short time (30 or 60 seconds).
The shorter time frame allows you the possibility to multiply your profit in few minutes, or to loose it very quickly.
The quick expiry of this option type appeals to opposite trader profiles: “Traders” that have a more gambling approach to Binary Options and Scalper Traders with experience that exploit its huge profit potential.
It is not easy for a beginner to succeed in quick options, and those who decide to try them out should be aware of the risks and limit the amount they invest.
Binary Options type ONE TOUCH
The One Touch option allows you to decide if the market price will touch (or not) a certain value before the expiry time.
In this case the expiry time is the furthest moment to when a certain event should take place (touch), or not (no touch).
In standard One Touch options, expiry times are within few hours and the payout is around 70%~85%
This Binary Option type is suitable for Traders that use technical analysis, for the fact that by detecting the correct trend you can close the trade, in most cases, successfully.
Will the Oil Price touch $93.789 by 14:00?
If, at any time before the expiry, the value of Oil will touch the Target Price, the “One Touch” option will be successful, in the opposite case the “No Touch” option will be the winning trade.
Binary Options type High Yield Touch
Basically it works just the same as the ONE TOUCH option but with long term expirations, up to one week and the target price is further to reach.
The payout for this option can reach up to 600%.
This is an Option to be used when you are absolutely convinced that the next movement of the asset is going to be <<spectacular>>, which in most cases occurs at the same time a news blast of macroeconomic or corporate data is released.
Binary Options type RANGE HIGH/LOW
The Broker sets a floor and a ceiling between which the value of the asset should be at the expiry date.
The principle of the Range High/Low options (also known as Boundary Options) are very simple; if the value is within the range at the time of expiry, the value is IN, if it is outside the range (regardless of the uptrend or downtrend) the value is OUT.
Range High/Low options are particularly interesting during periods of high laterality or volatility of the underlying market.
In Range High/Low Options expiry times are within few hours and the payout is around 70%~80%.
Will the value of EUR/USD at 15:15 be between 1.33499 and 1.33555?
Binary Options type High Yield Boundary
It is the Boundary option for which the Broker offers the highest payout, over 200%.
Usually the high yield is given for the option OUT of the range as the chances of success are more difficult.
The convenience here really depends on the conditions offered by the Broker and the volatility of the market.
How do you access the Binary Options market?
To trade Binary Options you need to operate on a Trading Platform (Broker) that offers a certain financial instrument (asset).
There are a dozen of qualified reliable Binary Options Brokers and hundreds of brokers that suck, among which few of them a real scams.
Nowadays it’s easier to avoid scams than in the past, since CySEC (Cyprus Securities and Exchange Commission) has officially included Binary Options among the regulated financial instruments, allowing the serious and professional Brokers to become regulated and receive an official license to operate in Europe (including Italy).
A CySEC regulated Broker with Consob license is considered absolutely reliable and controlled.
The regulation itself and anti-laundering laws, require to identify clients so it is normal to be asked for verification documents (usually a copy of a government issued ID and a proof of address) to authorize your first withdrawal.
Wait before trading with real money! Best to practice with a Demo Account
Some Brokers offer traders the opportunity to use a Demo platform (with virtual money), besides the real platform, and beginners should take advantage of this chance.
On a Demo Account you don’t risk your money and you have the possibility to:
- Understand better the financial instrument of the binary option and learn the features if the trading platform the Broker provides.
- Practice the different Binary Options types and expiry times the Broker offers, and understand the ones you can manage best.
- Practice, correct and improve your investing strategies.
How do you get a Demo Account?
Many Brokers allow you to activate a Demo Account with virtual money. In some cases the activation should be specifically requested to your Account Manager (he or she is your personal tutor with the Broker), in other cases you can selected yourself from the Broker’s dashboard.
To know more about how to get your Demo Account please read the following article:
How to Open a Binary Option Demo Account
Best Broker for Beginners?
There is no such thing as the best absolute, each one has its own peculiarities and offers.
If you are beginner we recommend you to start with the Broker IqOption since it’s the only one that offers a free Demo Account, minimum deposits starting from $10 and allows to open trades from $1. ECOMMENDED BROKERS FOR BEGINNERS 2014
Does a Demo Account with NO Deposit, exist? YES, here is how to get it.
There is only one Consob licensed Broker that allows you to open a Demo Account before making a deposit, and that is IqOption.
IqOption is fully regulated. Today IqOption is probably the best Broker in Europe, especially for its unique features:
- Free Demo Account, also without a deposit
- Minimum deposit starting from $10
- Minimum trade starting from $1
- Highest payouts
- User-friendly interface, recommended for beginners
- Rapid withdrawals