How Binary Options Work – Can You Make Money With Binary Options?

How Binary Options Work:

Binary options are one of the most controversial trading instruments – for a reason:

On the one hand, they are super easy to trade and therefore perfect for beginners.

And they are perfect for traders with small accounts because you can open a binary options account with as little as $250.

But on the other hand, there are some binary options brokers out there that are simply a scam. Most of them are overseas, and when you wire money to them, you’ll never see it again.

So let’s take a closer look at Binary Options and see if they are legit and if you can really make money with binary options.

In this article, you’ll learn…

  • How binary options work
  • Can you really make money with binary options
  • What are the best binary options brokers that are NOT a scam?
  • Are binary options legit?
  • Is binary options trading safe?
  • And what is the best strategy for binary options?

Let’s get started…

How Binary Options Work

Binary options are super easy to understand.

You just need to make a decision if a certain market is above or below a certain price by a certain time.

Let me give you an example:

Let’s say you believe that Gold will close above $1,700 by the end of the day.

So you can place a Binary Options trade: The price of a binary option will be between $0 and $100. And that’s the amount that you need to put on the table to place this bet.

How Binary Options Work - Example

Let’s say the price of the binary option to bet on Gold being above $1,700 by the end of the day, is $40.

When placing the trade, the broker takes $40 out of your account.

If by the end of the day Gold closes above $1,700, you get $100 back. So you put $40 in and you get $100, i.e. your profit is $60.

If Gold closes below $1,700, then you get nothing back. And since the broker took $40 out of your account, and you get $0 back, your loss is $40.

Here’s the cool thing: 

Binary options are available for a wide variety of underlying markets:

  • Major indices like the Dow Jones, S&P 500, Nasdaq, …
  • Major commodities like Crude Oil, Gold, Silver, …
  • Major currencies like EUR/USD, USD/JPY, GBP/USD, …

… AND they expire daily or even hourly!

So if you don’t want to wait until the end of the day, you can trade a binary option that expires in the next hour.

All you need to do is decide whether a certain market is closing above or below a certain price within the next hour!

As you can see, the possibilities are (almost) endless.

So the next question is…

Can You Really Make Money with Binary Options?

IF you trade with a reputable broker: YES.

We will talk about the best binary options brokers that are NOT a scam in a few moments, but let’s talk about how to make money with Binary Options first:

Here are the 3 things you need to know:

  1. Is the market more likely to go up or down?
  2. Will a market close above or below a certain level?
  3. What’s the maximum price you’re willing to bet?

I will show you a simple trading strategy for Binary Options in the next article.

But before I show you the strategy, let’s first talk about…

What Are The Best Binary Option Brokers?

There are a lot of fraudulent binary options brokers and scammers out there, and you need to be careful.

The only “broker” that I would ever trust is the North American Derivatives Exchange (NADEX).

Nadex is 100% legitimate and is designated by the Commodity Futures Trading Commission (CFTC) as a Designated Contract Market and Derivatives Clearing Organization. 

The CFTC is a U.S. government agency whose mission is “to foster open, transparent, competitive, and financially sound markets,” to “avoid systemic risk” and “to protect market users and their funds from fraud, manipulation, and abusive practices.”

That’s a mouthful for saying: Nadex is a 100% legitimate and regulated exchange.

And the best:

They allow customers to open an account directly with them!

So you’re cutting out the middle man, which means lower commissions for you!

Talking about commission…

I really like Nadex’s commission structure:

It’s only $1 to open a trade, and they ONLY charge you another $1 to close the trade if you make money. If you lose money, they don’t charge you a commission to close the trade. How awesome is that?

Long story short: If you want to trade Binary Options, trade them at Nadex!

Are Binary Options Legit?

As stated earlier, there are many unregulated brokers who just take the customer’s money and never return it. Most of these brokers are operating offshore in countries that have very few or no regulations.

In the US, brokers and exchanges are VERY regulated. As of the moment, NADEX is one of the few licensed companies in the U.S. that is allowed to offer Binary Options Trading. 

Binary options are legal and available to trade in the US, but only on a CFTC-regulated United States exchange, which – again – is NADEX. 

In a nutshell: As long as you trade Binary Options on NADEX, it’s legit and legal.

This leads us to the next question:

Is Binary Options Trading Safe?

We already talked about the regulations, so we don’t need to cover this again.

As a trading vehicle, Binary Options are very safe since they are not leveraged. 

This means that you can not lose more money than you have in your account.

Here’s an example of how binary options work:

If you have $500 in your account, and you want to put on a trade in which you risk $50, NADEX will automatically reserve $50 from your funds.

When the order is filled, these $50 will automatically be deducted from your account. So your balance is now $450.

If you were right, NADEX will give you $100 back as soon as the markets close.  In this case, your account balance will jump to $550, i.e. you made $50.

Because of this mechanism, it’s impossible for you to lose more money than you have in your account.

As you can see, trading Binary Options is safe.

What Is The Best Strategy For Binary Options?

The best strategy for Binary Options is a strategy that makes it easy for you to pick the direction of the market.

After all, in order to make money with Binary Options, you need to know…

  1. Is the market more likely to go up or down?
  2. Will a market close above or below a certain level?
  3. What’s the maximum price you’re willing to bet?

Actually, since this article is getting pretty long, I’ll stop right here and will write another article on a trading strategy for Binary Options.

Related Posts

What Type of Trader Are You?

The Trader’s Journey: 5 Phases of A Successful Trader

Should I Invest In Snowflake?

Why Did The Stock Market Crash?

Leave a Reply

Your email address will not be published. Required fields are marked

{"email":"Email address invalid","url":"Website address invalid","required":"Required field missing"}