Since binary options always have an absolute outcome (you either win or lose – nothing in between) then one of the most important factors in any good binary options strategy should be your money management program. If you use this in conjunction with a simple trend following strategy, you’re putting the odds in your favour […]
Binary options signals are indications, based on formal analysis, of the direction an asset will tend to take in either the short or the long term. The signals allow the trader to assess risk.
Anyone who trades in binary options needs to frequently analyze the assets or markets she/he trades in. Some traders spend hours analyzing their potential trades. For the trader, the end result of analysis is a signal, or signals that tell the trader that the time is right to trade an asset and how to trade the asset.
The signal that tells the trader how to trade is extremely important. The underlying asset may be poised to go up in value or to go down in value. Every day we see screaming headlines that some investment vehicle will now start to go up and other equally screaming headlines that the same investment vehicle will now start to go down!
Binary options traders can profit handsomely no matter how the asset moves! This is where the signals that analysis generates come in.
Most traders don’t have hours to analyze every potential trade. Some do minimal analysis, follow the news, and ultimately rely on their own sense of how an asset is likely to perform as a basis for a trade. Many traders subscribe to companies that do the analysis for them.
Types of Analysis
There are two basic types of analysis: technical and fundamental. They are quite different from each other. The signals they send out are a reflection only of the types of analysis themselves.
Technical Analysis
Technical analysis relies heavily on three types of charts: candlesticks, line charts, and bar charts. These charts use the same data but give different perspectives. Some traders prefer one chart over the others. Bar charts and candlesticks are similar in that they send strong one-day signals.
Candlesticks are considered better at measuring investor sentiment. The candlestick pattern has been recognized for over one hundred years. It emerges when the opening and closing prices are placed on a graph with the “body” of the candlestick connecting them. At the top of the candlestick is a line that indicates the high for the given time period. At the bottom of the candlestick is a line indicating the low for the time period. Technical analysts see significance in every pattern of candlesticks. Some patterns give a strong buy signal, some give a strong sell signal, some are non-committal as to the direction the asset may take, and, finally, some candlestick patterns can be used as either a buy or a sell signal.
Clearly, it requires some expertise to properly read a candlestick pattern.
Many traders prefer the bar chart because they find it easier to read. Bar charts also give strong buy or sell signals.
Line charts show support and resistance levels. Support is the level that investors use as a buy signal. Resistance is the level that investors use as a sell signal. Most assets trade within these two points. When an asset breaks out of either point it is a very strong signal. Breaking out of resistance is a powerful buy signal. Breaking out of support is a powerful sell signal.
Once you develop skill in reading the charts, you can make learned decisions and trade accordingly. The strong buy and sell signals are obvious. The indeterminate signal will tell you to wait before trading that asset. The combination signal is the hardest to read. Many traders who do their own technical analysis simply wait for a strong signal before trading.
Fundamental Analysis
Fundamental analysis is based exclusively on the strength of the company, the asset, the asset class, and the overall economy. It is not directly concerned with investor sentiment. That is an aspect of technical analysis. Fundamental analysis uses real business-related facts to gauge and predict investor sentiment and confidence.
To understand a company or asset through fundamental analysis, you have to be able to read business reports, to understand the implications of breaking events, to anticipate changes or innovations in the asset class, to assess the skill of a company’s managers, to gauge the strength of the company’s competitors among many other elements.
Types of Assets Traded
There are four basic types of assets traded: currencies, which are traded as currency pairs; stocks; commodities; and indices. Within each asset class are numerous assets available for binary options trading. Each asset class and each asset can be analyzed using both the technical and the fundamental methods.
Term Length
The formal analysis of an asset may differ depending on whether the analysis is for the short term or the long term. In both technical and fundamental analysis, the greater the time period being analyzed, the more reliable the analysis will be and the stronger the signals will be.
Sites that Sell Binary Options Signals
Most traders lack the time or skill to make complete analyses of an asset. For them, there is now a proliferation of companies that sell signals. The cost of receiving these signals can be thousands of dollars. We advise traders to be very careful before investing in a signals provider.
The Bottom Line
There are always signals that indicate how an asset may trend in both the near future and long term. It is an invaluable skill for the trader to understanding these signals properly. Learning how to make both technical and fundamental analyses is a never-ending challenge.
Both technical and fundamental analysis have a place in helping you decide your next course of action. No system is infallible and both give important insights as to the direction of markets, asset classes, and assets.
Closing a position
Forex: You choose when to close the position. You can close your position anytime the market is open and the broker has to accept and execute the order.
Binary Options: Before you make your trade you have to select when you want the option to expire (example: 1 hour or 1 week from now) – at the “expiry time” your trade will close automatically. The broker offers you different types of options with predetermined expiry times. Some brokers allow you to close your trade early, but you will exit your option at a percentage of the expected return. The “early closure” option is not offered by all brokers, and might not be available during the whole time the trade is active. Another important point to mention is that some brokers allow traders to delay the expiry time, to the next expiry time. This is called “Rollover” and the traders will need to increase their investment by a certain percentage, sometimes 30% in order to be able to do this.
Orders Types
Forex: There are a variety of order types in Forex. The most important ones are the market (Buy/Sell) orders. Also there are more advanced orders such as: Limit, Stop, OCO (One Cancels the Other), Trailing Stop, Hedge orders, and others.
Binary Options: There are about five Binary Options types which you can trade. They include: High/Low (also referred to as: Call/Put or Up/Down), 60 Seconds Options, Touch/No Touch Options, Boundary Options, and Option Builder.
Trade size
Forex: Some brokers allow you to trade micro lots, which is 1,000 units of the base currency in a Forex trade. The maximum trading amount is determined by each broker, and can be up as high as 100 standard lots or $10,000,000.
Binary Options: Each Binary Options broker determines what is the minimum and maximum trading size for its clients. Sometimes the minimum trading amount can be as low as $5 per trade, and the maximum can be up to $1,000 or $5,000 or more.
Trading costs
Forex: When trading Forex you have to consider what are the spreads and rollover/swap, and if there are any commissions.
Binary Options: There are no spreads, rollover/swap or commissions when trading Binary Options.
Binary Options have become widely popular during the last two years. The main reasons for this, is that they offer high profit returns and they are easy to trade.
In this article I will try to outline the main differences between Binary Options and Forex, so that you can evaluate which is the better trading method for you. A good way to start is to provide definitions of both and look at an example of a trade.
After you read this article, please share your views with us! We encourage you to use the comment box at the bottom of this page.
Forex definition: When trading Forex you are speculating that the value of one currency will increase or decrease compared to another, in an attempt to make a profit. For example: The current price of EUR/USD is 1.30850 and you think the price will increase in the future. You buy 1 lot of EUR/USD and wait for the price to increase to the point where you want to close the trade and realize the profit you want.
Binary Options definition: When trading Binary Options you only have to predict if the price of an asset (for example currency pair or stock) will increase or decrease from its current price over a certain period of time. For example: The current price of EUR/USD is 1.30850 and you think the price will be higher in the next hour. So you place a “Call” option on EUR/USD and wait to see its price 1 hour from now. If your prediction is right you can make a profit of 80% of your investment.
Margin
Forex: You can use margin to trade Forex. The maximum margin is determined by each broker, and sometimes can be up to 1:200 or 1:500. Margin allows you to increase your investment capital so you can make a larger trade and make a larger profit if your trade is a winning one.
Binary Options: Margin is not used when trading Binary Options. You can still make a large return on your investment (up to 80% or sometimes 400%), so Binary Options are still very attractive for traders. The good news is that you can never get a margin call.
Payouts and Losses
Forex: With Forex you never know what is the maximum profit you can make on a trade. You can set a limit or stop order so that you can be guaranteed a certain percentage profit if the limit or stop is executed. The losses in Forex can be managed with limit/stop orders, the same way profits are managed. The maximum loss with Forex may be all of the money in your trading account.
Binary Options: Before you make your trade you will know exactly what is the payout and loss return percentage that you will get for the particular option, when it expires. Some brokers offer payouts up to 80% or sometimes 400% depending on the option traded. This means that if you invest $500 on an option and the payout is 80%, you will make $400 profit if the option is a winning one. Some brokers don’t offer “loss back”, which means that if your option trade is a losing one, you will lose the amount you invested in the trade, but not more.
There are many who consider binary options a form of gambling because of the unpredictability of binary options.
“The sites appeal to the same type of people who play poker online. But they somehow have an aura of being more respectable because they represent themselves as offering a form of investing. Don’t kid yourself.”
-Forbes
However every type of investment has a degree of unpredictability and an inherent risk. Even if you diversify your investment portfolio you can not eliminate the inherent risk of the market.
Yes binary options are unpredictable but so is Forex trading and buying/selling stocks . Are they gambling as well? What is the difference between gambling and investment? What risk is acceptable? How predictable a form of investment needs to be to be considered investment and not gambling?
Some argue, that the main difference between gambling and investment is that you are guaranteed to lose long-term while gambling and guaranteed to gain some money investing.
This logic is wrong on many counts. Every type of investment has risk, therefore it is not guaranteed that you will gain anything long-term.
Not to mention you just have to think of the recent 2007 recession to know how unpredictable the markets are and how quickly you can lose everything.
As for gambling there is no house edge in all of the games (i.e.: poker, tournaments, professional gambling) so it is entirely not true, that you necessarily have to lose long-term.
Also there are the advantage gambling methods, which means if you are patient and have what it takes you can eliminate the house edge entirely and guaranteed to win long-term (just think of card counting, the MIT blackjack team).
So what’s the difference between gambling and investment? Are binary options a form of gambling or investment?
The truth is none knows for sure. This is an open question and you are free to decide for yourself.
Even the government is unsure what to make of binary options: in some countries they are classified as gambling and in many they are governed by the some rules as any other form of investment.
Are there working, reliable binary option strategies to make money trading binary options?
No. Some binary option bloggers/websites claim that their method is guaranteed to work :
“buy our e-book with guaranteed working methods to make $ 1500 per hour with binary options!”
You probably have already seen these ads.
Truth is: there are no strategies guaranteed to work every time and these people only want your money.
Stay away from these scammers!
Binary options trading is unpredictable and risky but you can make a lot of money (or lose a lot of money) you only need to know the basics of binary options trading and you are ready to trade, the rest is only speculation and so called “advanced binary options trading strategies”, “binary options trading secrets” are purely promotional and speculative.
You can be sure they want your money if they throw around words like that.
Are binary options for you?
If you like fast-paced investment, where you don’t have to wait years till you can see some results and you thrive in a high-risk, high-gain environment, then binary options might be for you.
Don’t worry you can learn everything about binary options by playing around with a demo account so you won’t lose any money while learning the basics.
What are binary options?
Binary options are:
“In finance, a binary option is a type of option where the payoff is either some fixed amount of some asset or nothing at all. The two main types of binary options are the cash-or-nothing binary option and the asset-or-nothing binary option.”
-Cantor Fitzgerald
“The cash-or-nothing binary option pays some fixed amount of cash if the option expires in-the-money while the asset-or-nothing pays the value of the underlying security. Thus, the options are binary in nature because there are only two possible outcomes. They are also called all-or-nothing options, digital options.”
-Wikipedia
“A type of option in which the payoff is structured to be either a fixed amount of compensation if the option expires in the money, or nothing at all if the option expires out of the money. The success of a binary option is thus based on a yes/no proposition, hence “binary”. A binary option automatically exercises, meaning the option holder does not have the choice to buy or sell the underlying asset.”
-Investopedia
If after reading these 3 definitions it is still not clear for you what binary options are, fear not. Let me help you with these two examples.
Types of binary options
Call/Up binary option
This type of binary option is called “call” in Europe and “up” in America.
Let me illustrate with an example how a call option looks like in practice:.
Example:
I’m buying a call option on the shares of Simon Co. (Nasdaq: SIM) for $ 500. The call option has a maturity date of 2015 January 1. and if the stock SIM ever trades over $ 899 per share (spot value) before 2015 January 1. I get $ 5000 at 2015 January 1.
If the spot goes over the strike (above $ 899 per share) before the maturity date (2015 January 1) I will get the value of the call option ($ 5000) at the maturity date and if the spot never goes over the strike I get nothing (and lose $ 500 buying this call option).
/spot, spot value: the current value of the share/
/strike: the predetermined limit, which the spot needs to reach for you to recieve the value of the option./
/maturity date: in the world of binary options maturity date means that you will receive the predetermined value of the call or put option at the maturity date if the criteria for the payment( spot goes over the strike) is met before you reach the maturity date. Payment will be sent at maturity date. /
Put/down binary option
This type of binary option is called called “put” in Europe and “down” in America.
Let me illustrate with an example how a put option looks like in practice:
Example:
I’m buying a put option on the shares of Simon Co. (Nasdaq: SIM) for $ 500. The put option has a maturity date of 2015 January 1. and if the stock SIM ever trades under $ 899 per share before 2015 January 1. I get $ 5000 at 2015 January 1.
If it never reaches or goes above $ 899 per share I will get nothing (and lose $ 500 buying this call option).
Sometimes there is no strike value at all and some binary options websites let you buy an option where it is enough to specify the direction of the stock price, whether it will decrease or increase by the time of the maturity date (i.e if the stock worth more/less by the time your binary option expires.).
A variant of a frenzied trading options are the 60 seconds. Here we have indeed the ability to make a very short time many accounts. The 60 seconds options are usually higher than deep options, which will be closed within the next 60 seconds. For this variation is needed not only prompt action but also a sense or feeling. It is important that it be primarily in the run with the chart set apart and observed. In addition, you should have a good idea of the further development, which is completed in the next 60 seconds.
Therefore, you can buy in a downtrend throughout the so-called put option trades for 60 seconds – if one is convinced that the downward trend will continue in the next minute. In addition, you should also be confident that anything starts to move and the 60 seconds not pass quietly. For this reason, one should primarily rely on Forex Trading with 60 seconds, because of the possibility of change is consistently given. One should, however prior to realize that the trade with 60 second options but offers great opportunities, but also brings a very high degree of risk.
The variety of options may bring big profits, but can also be run in large losses – even if the forecast would be right, for example. Therefore, it is throughout possible that the trend chart shows very well that a trend is discernible. However, if within the next minute no movement happened, but only after 2 or 3 minutes, so you have still lost. Thus, the analysis was probably right, but could not done for profit.
In effect, the 60 seconds trades are the ideal platform for “gamblers”. Of course, but you have to recognize the danger that emanates from this variant. It is often the fast pace is the reason why large losses are retracted. Even with identifiable trends options are purchased, of which one is not convinced and thus fishing in unfamiliar territory.
Breakouts than 60 seconds Options Strategy
The 60 seconds option only really makes sense if indeed it can be said that a price trend within this one-minute actually happened. A breakout would be a possibility. This occurs when the resistance or support is broken. For example, if for example, the Dow is in the last four days being bounced from the 7500 mark and just the fifth day of 7501 is, ascending to the 7503rd. Here is a 60 second option would be advisable.
The trader must be careful before so-called false breakouts. This would take place as follows: the Dow reached, as in the previous example, the 7503 mark and then falls immediately back to the. Thus would the 60 seconds option failed and had been lost. These breakouts are ultimately the best examples of why the 60 seconds options should be started.
The traders in the trading of the binary options as with any option trade, offer many different types of options to choose from. We are talking about exotic option types and models of major. There are five main types of options as models and these are double any touch, double one-touch, no-touch, one touch, asset-or-nothing and cash-or-nothing.
The most important terms in the trade for Binary Options
The base value is the financial product for which the binary options can be purchased. Underlying can choose from currently four and these are currency pairs such as EUR / USD, commodities such as copper, silver, and stock indices such as the FTSE 100 stocks like Microsoft. The call option is one of two forms options, which are available in the trade with binary options. There is an option to purchase and the trader must buy a call when he sits at the base value for the price increase.
The base value is the one for which the trader wants to buy Binary Options. Is his prediction to the expiry date, then the trader can make a profit? The put option is also one of the two forms of options and there is a put option. The trader buys a put, when he sits at the base value to the price decline. If the forecast for the expiry time, then make a profit.
A certain expiration date of the option is called the expiry time. This expiration date is determined by contract for the purchase of the binary option. The running time is about an hour, a day, a week or a month. The recoverable profit expiration date is in the money. The opposite of the money is out of the money. The expiration date is the price of the underlying security above the exercise price, and then it means money in the call option. However, this means the put option that the expiry time of the price of the underlying is below the exercise price.
Already in the summer of 2008, binary options on the CBOE were launched. The CBOE is the trading of warrants and other derivatives, the world’s oldest stock exchange. Could be traded binary options originally from institutional investors and major investment banks.
In the meantime and for private operators have one. Binary options or digital options are associated with the binary system, consisting of two digits. On that, the entire digital world is based. Computer programs, as you know has only the two values and these are 0 and 1. A sequence of the options is equal to the normal trade in the binary options trading. A participant in the market buys a call option or put option in the binary options trading, and this is like the normal options trading.
When the put option of the underlying asset, a price decline is expected and the call option is set in the respective underlying security to the price increase. The price of the underlying security will then decide on the profit or loss and this with the expiry time of the option purchased. The dealer may already after only one hour a profit if they are correct.
The basic concept
The popularity in the market for binary options is enjoying an increase. This can be explained easily, because it is based on relatively few principles and works quite simple. In three easy points, the basic concept are described. The dealer put the beginning of each transaction you want to trade what they underlying.
You can choose between currency pairs, commodities, indices and equities. Then, the dealer must agree to a contract term, as this is common in binary options. This contract period is from one hour to one month. In the end, the dealer then select those binary options, for which the price movements of the underlying security meets the expectations. This is s is the put option or the call option.
The three main components of the digital options are forecast, contract and bond of the price change.In the digital option as it comes with the classic option so to acquire a certain price within a certain underlying instrument at a certain time, and not the acquisition of real bonds. If the binary option purchased by a trader, he speculates with the direction of price movements and not the absolute price of the bond.
Currently there is a choice of four categories underlying, where the traders with digital options can take action. These four are currency pairs, commodities, stock indices and stocks.
It’s the 3rd week of 2014 and our team of financial analysts are trying to determine which will be 2014’s rising currency star. 2013’s Forex star was with no doubt the bitcoin, it became the talk of the day and although it has been around for several years, 2013 will be remembered as the year of its acceptance. The virtual currency’s booming value and beginning of approval by major governments including the ability to trade it over various binary options brokers have crowned it the start of 2013.
Well were now in 2014 and its time to look at the upcoming year; will the bitcoin keep its momentum or will some other conservative currency take the lead into this new year’s wall of fame. Just to put things in perspective: the bitcoin began 2013 at a trading value of $10 per bitcoin and reached its peak of just over $1203 per bitcoin in December 2013. Yes my friends, if you were to a bitcoin in January 2013 and have sold it in December you would have made a fortune of 12,000% on your $10 investment! Well the bitcoin is a risky investment, even for binary options trading when you are actually trading in a safer environment and could gain even more profit. 2014 could still create huge profits for bitcoin traders as speculators expect the price to reach thousands of dollars per bitcoin.
Japanese Yen – The Japanese government’s monetary behavior in 2013 was a fruitful ground for Put binary options trading as the government intently led to a weakened Yen. The Japanese government on its way to recover the Japanese economy set its goal to create a weakened Yen in order to help and encourage Japanese export. By printing more bills the government has successfully declined the Yen’s value by almost 18% in the last 12 months, Traded now at 104 Yen’s for $1. The Japanese currency began 2013 at a trading rate of $1=85 Yen’s. Using one of the binary options strategies could have easily produced nice profits on this currency pair.
What to expect in 2014, economists believe that the Japanese government will keep using the same monetary rulings at least until they accomplish their goal of $1=120 Yen. Traders should stay on the Put side while trading this currency in the next few months.
US Dollar – the US government and the Federal Reserve have had an interesting ride through 2013 with some very important decisions including a new chairman Janet Yellen, the first woman to hold this passion. The US$ rate at the of 2013 stayed almost the same as it began it, however during the year the US coin had a rough ride with many ups and downs along the way.
The US federal bank has announced its monetary policy for 2014, the bank will reduce printing new bills and will be buying more dollars, and this should normally cause an increase in the Dollars value. However, previous experience with the US Dollar shows, traders should be very careful as this currency is effected by many external parameters including the awakened global markets which lead investors to choose other financial assets over the US Dollar. The interest rate in the United Sates is still almost 0 which also makes it hard for the Dollar to compete with other currencies.
Turkish Lira – it’s been a very rough year for Turkish currency. While it began 2013 at a rate of to 1.75 TRY per $1 to 2.23 TRY per $1, a decline of 27% in the Turkish Lira’s value. The Turkish Lira was very much influenced by the internal and external political situation in the country. The deterioration in foreign relationship with the European Union including internal corruption and other political affairs led to a decline in the currency trading value.
2014 doesn’t look so promising for the TRY and could also be a good opportunity for traders who trade with a binary options Forex strategy.