What are Binary Options? Example, advantages and risks
What are binary options ?
We are sure that you are also an online trading enthusiast and, for this reason, you are curious to understand what binary options, that everyone talks about, really are.
If you have doubts and you want the best answers, then all you have to do is to read what we are going to tell you.
This will help you understand, in a clear and simple way, what binary options are.
Let’s explain immediately the meaning of this kind of online trading.
Binary options, or binary operations ,as others define them, are financial derivative products, used by investors, commonly called traders, to speculate thanks to trading on the financial markets.
Speculation is aimed at making a profit on the rise or fall of prices, regardless of the value of an asset (share, bond, currency, index, commodity).
This activity has been hugely successful in recent years, especially since markets have opened their doors to the general public.
Until recently, only insiders could invest and earn in the financial markets.
Today it’s not like that anymore!
Everyone can access information regarding the progress of any goods exchanged, using real-time data that allow them to be able to operate directly on the markets.
Is it worth investing in binary options?
In this period of speculation and economic crisis, the market itself is the master.
The market, in fact, does not know the crisis.
Therefore the trader, taking advantage of the high volatility, can profit both if the price moves upwards, and if the price takes the path of the fall.
By trading with binary options, a single investment will yield more than 80% of the invested capital.
Before listing the merits of binary options let’s try to understand what they are and how to best use them.
What are Binary Options?
We have already said that binary options are derivative financial instruments, that is, their value derives from another financed instrument which is called the underlying asset.
The underlying instrument may be a share, currency, index or commodity.
Binary options have 2 fundamental characteristics to consider:
- Expiration of the binary options
- Underlying asset
Expiration of the binary option
Binary options have an expiration date and the trader’s forecast must occur within a certain time limit, obviously chosen by the trader himself.
For example, if a certain asset, such as Apple shares, is expected to increase in value, a deadline is set first, that is, a date by which the price can actually rise compared to the current value.
If the trader expects that the price of Apple shares will rise in 4 hours, then he will buy a binary “call” option (binary purchase option) with underlying Apple shares and with an expiration of 4 hours.
BINARY OPTIONS MAIN EXPIRATIONS
The trader can choose his preferred expiration thanks to the binary options “builder”.
Nevertheless, he can also choose the classic expirations, which are:
- Binary Options 60 seconds;
- Binary Options 5 minutes;
- Binary Options 15 minutes;
- Binary Options 30 minutes;
- Binary Options 1 hour;
- Binary Options 24 hours.
There are also particular types of binary options called one touch binary options, which can be purchased over the weekend and which offer earnings higher than 500% of the capital invested.
The one touch binary options have a weekly maturity, but their performance is more difficult to predict than the classic binary options.
The underlying asset can be a share, a currency, an index or a commodity.
The option purchased exactly replicates the value of the underlying instrument, which means that if you buy a binary call option on the euro dollar with a 5 minutes expiration, and the euro / dollar exchange rate rises, you will gain.
An important premise to make is that investing in binary options generates profits even if the value of the underlying instrument rises by only one cent.
So, it doesn’t matter how much it rises, the thing that really matters is that the value of the underlying increases within the set deadline.
Before going any further, we wanted to clarify a detail.
There are no easy binary option as many want you to believe!
They are serious, as well as the risk of losing or even the possibility of making a lot of money.
Careful, because you can’t always win! Afterall, it is almost impossible!
Actually, if brokers did not have their earnings, they would not invest millions of euros to open online trading platforms
BINARY OPTIONS: PURCHASE AND SALE
The binary purchase options, properly called binary Call options, allow you to earn when the value of the underlying instrument chosen rises no later than the established expiry date.
No matter how much the value goes up, what matters is that this value actually, at the moment of the expiry, is higher than that of the moment of the purchase.
Binary sales options, properly called binary Put options, allow you to earn if the value of the underlying decreases.
If, at the expiry date of the binary put option, the value of the underlying has decreased, the gain is proportional to the invested capital.
HOW MUCH YOU CAN EARN WITH BINARY OPTIONS
Earnings from binary options are very high when compared to any other financial investment activity.
Not all binary options provide the same gains; in fact, these depend on the asset chosen, on the expiry of the binary option and also on the time when it is purchased.
Obviously the earnings are clearly visible to all investors, and range between 75% and 85% of the invested capital.
This means that you can immediately have a very high economic return in a very short time.
Earnings made with binary options can be reinvested or withdrawn according to your needs.
However, we can say that, if you have reduced capital, it is more convenient to reinvest again in order to increase your investment capital and consequently your earnings.
HOW MUCH YOU CAN INVEST IN BINARY OPTIONS
There are maximum investment caps, but they are very high, and reach around € 10,000.
Obviously, the maximum cap is the maximum capital that can be invested in a single transaction and not the total capital that can be deposited in your trading account, which can also be unlimited.
In addition to the maximum capital there is also a minimum capital, that is a minimum necessary amount of money to buy a binary option.
Usually, the minimum amount, properly called minimum trade, ranges from € 5 to € 25, and essentially depends on the binary options broker chosen to trade.
MINIMUM DEPOSIT BINARY OPTIONS
In addition to the minimum trade, a very important requirement, there is also the minimum deposit, that is, the minimum amount of capital that you can put into your trading account.
Usually the minimum deposit does not go below € 200, but nevertheless there are binary options brokers offering minimum deposits of € 50 or € 100.
ATTENTION: you must pay particular attention to the relationship between the minimum deposit and the minimum trade, in fact, you should stick to a relationship that puts at risk only 5% of the deposited capital with each purchase of binary option. Let’s make an example:
If the broker offers a minimum deposit of € 100 and a minimum trade of € 20, then 20% of the trading capital would be invested in each binary option, which is obviously not advisable, as it would put at risk a very large part of the capital.
The maximum advisable risk, according to the most modern money management theories, equals to 5% of the total investment capital.
EXAMPLE OF INVESTMENT IN BINARY OPTIONS
After this general “coaching” on binary options, let’s see how to invest in binary options in practice.
Trading with binary options is extremely simple, with a click you enter the market and you can immediately start earning. Let’s see together the steps to take to start operating.
Step 1 choosing the kind of binary option.
Binary Options 60 seconds: they allow you to earn in just 60 seconds a percentage of capital ranging from 70% to 75% of what you have invested.
For further details: binary options 60 seconds.
Classic options: they are the traditional binary options with a variable expiration.
The most used expirations are:
- Expiration 5 minutes.
- Expiration 10 minutes.
- Expiration 15 minutes.
- Expiration 30 minutes.
- Hourly expiration.
One touch binary options: these are very special binary options that can be used on the weekend and have a 7 day deadline.
The earnings from one touch binary options are very high and reach 550% of the invested capital.
Obviously, the forecast to do requires much more experience than a novice can have.
Builder Binary Options: these are a particular kind of binary options, which allow to highly customize the investment.
Thanks to this kind of binary options, many parameters can be chosen, including risk / return.
The risk/return is a very interesting parameter because it allows you to have a refund on losses against a decrease in the percentage of gain.
Step 2: choosing the asset.
Once the type of binary option to invest in has been chosen, you choose the asset, that is, the underlying instrument on which you actually want to operate.
Binary options brokers offer different assets, belonging to the following markets:
- Currency market (forex).
- Stock market.
- Commodities market.
With the choice of the asset you can also choose the expiration of the binary option if you have not chosen the binary options 60 seconds or binary options one touch.
Step 3: forecast.
This is by far the most important step, because it will be what will determine the success of the investment.
The forecast to be made is a binary forecast, which means that it is necessary to choose whether the price, within and not beyond the expiry date, can rise or fall compared to the initial value.
If the price of the underlying instrument is expected to rise, click on the “call” button; vice versa, if the value of the underlying instrument is expected to fall, click on the “put” button.
ADVICE n.1: we recommend to follow always the trend of the price of the asset.
For example, if the price goes up and shows an upward trend, that is, a succession of rising highs and lows like this:
then it is better to follow this trend by purchasing a binary Call option.
If, on the other hand, the trend of the underlying instrument begins to draw decreasing maximums and increasing minimums, as in this case:
then it’s better to purchase a binary Put option.
Once the forecast is made, simply set the amount of capital to be dedicated to the investment; then the platform, based on the percentage of profit offered by the binary option you have purchased, will automatically calculate the profit you get if your forecast is correct.
ADVICE n.2: remember to put at risk a maximum percentage of 5% of your capital, for each single trade.
The secret of investing in binary options lies in the odds in favor of a given investment strategy being successful.
The advice 1 is one of the best strategies for investing and earning with binary options.
By trading with binary options you can have losses, but in the final balance they will not be relevant thanks to the greater number of successful investments.
By exposing yourself with an excessive percentage of capital in a single investment, you take a decidedly excessive risk that, in the long term, will bring more disadvantages than advantages.
If you invest a maximum percentage of 5% for each binary option, the losses will not be significant and will constitute a negligible number compared to that of profits.
HOW TO INVEST IN BINARY OPTIONS
To invest in binary options you must register and open an account with an investment platform, commonly called binary options broker.
The broker offers the possibility to make the investment, providing multiple financial instruments in real time.
The binary options broker, therefore, is the subject that makes the trading platform available, the tool that actually allows you to trade online.
How to register on IQ Option broker: trading platform for binary options
The first step is to connect to the broker and from the home page enter in the form:
The second step is to choose whether to activate a demo account or a real account.
Example of trading with binary options and IQ Option
Choice of the asset
Here you have to select, among the various assets and currencies, the one which best suits to your strategies. For example, let’s choose Gold.
Choice of the time
At this point, you have to choose at what time the operation will be closed; you can choose between different options.
Choice of the amount
Now you choose the amount that you want to invest; the amount must be between 1 $ and 100 $.
Profit in case of correct forecast
If your forecast is correct, upon expiry of the option, you will get a percentage of the amount to be credited to the balance in case of a favorable forecast, in the example the profit is 75%.
Now, you have to make your forecast:
- “Call” if you expect that the price will go up;
- “Put” if you expect that the price will go down.
Analysis of the price
You must focus on the current price of the chosen asset.
Closing time of the operations
At this point, you must focus on the closing time of the transactions, because it indicates when the operation will be closed.
Outcome of the transaction
At this point, at the end of the established time, you just have to analyze the outcome of the transaction.
If the forecasts prove to be a success or the operations close “in the money”, then the asset price closed at a higher price than the starting price.
Note that binary trading is a system suitable for everyone, even if it’s very dangerous.
It’s not necessary to be an expert, but we always recommend practicing with low investments.
For example, you can choose to invest with the free demo account of IQ Option or the real account of only € 10.00!
Click on the below button and sign up with IQ Option broker!
BINARY TRADING PLATFORMS
The binary options trading platforms are all online, so you don’t need to download any software on your computer to start investing.
In order to access the trading platform of the binary options broker on which you have registered, just enter your username and password chosen during registration.
The use of the binary options trading platform is absolutely free and allows you to:
- Invest in binary options.
- Deposit and withdraw money.
- Get a report of your investments.
- Access information pertaining trading strategies.
- Receive assistance from broker analysts.
- View information material.
BINARY OPTIONS BROKERS
There are several binary options brokers that offer very convenient services for users.
However, it is necessary to pay close attention to the choice, because not all binary options brokers are the same and some of them are even illegal.
For this reason it is necessary to invest using brokers who have the regular European license, which is conceived to protect investors and the transactions that take place within the platform.
Regulated binary options brokers must be registered with CySec and possess a regular license.
CySec is a supervisory body, based in Cyprus, that has been designated by the European Union to regulate binary options brokers, which all or almost all have their registered office on the island.
BROKERS WITH EUROPEAN LICENSE (CySec)
We at MeteoFinanza.com only sponsor brokers who have already obtained the regular European license and who can therefore be used by European investors.
All CySec regulated binary options brokers offer € 20,000 insurance on all deposits.
One of these brokers is IQ Options, the leader for binary options, which allows to open a free and unlimited demo account, that you can use before switching to the real account.