Forex and Binary option Software

Monthly archives "June 2014"

A Simple Binary Options Strategy That Puts the Odds in Your Favour

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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 […]

What are Binary Options Signals?

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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.

Binary Options vs Forex – Part Two

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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 vs Forex

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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.

Binary options: Gambling vs. investment debate

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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.

In-depth Analysis of Binary Options

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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.).