Binary Options are becoming more and more popular. In this article you will learn what binary options are and how to trade binary options.
Have you ever analyzed the markets and decided that the markets were going to move higher. You place a trade, and you're RIGHT about the direction of the market, but an early move against you stops you out of the trade before you are profitable?
Have you ever expected a report like jobless claims or nonfarm payrolls to come out worse than expected. You then discover that you are right about the report, but the market moves in the opposite direction for some crazy reason?
If you've found yourself frustrated in either of these situations, then binary options trading could be perfect for you.
A Bit Skeptical At First...
When we first heard about binary options, we must admit we were a bit skeptical. Traders searching for the “holy grail of trading” are always asking us about “hot new markets”. And quite honestly, most new ideas are duds.
But more and more questions about binary options kept coming in every day, and we just simply couldn't ignore them any more. With a little research and the more we learned about binary options, the more appealing they became.
This is what we discovered...
- Binary options in the US are traded through NADEX, the North American Derivatives Exchange, which is based in Chicago.
- All products listed have limited risk, so you know EXACTLY how much you can lose before you place a trade.
- NADEX is regulated by the CFTC and all funds are held in a segregated account to help protect the trader.
- Accounts can be opened with as little as $100.
- Traders can trade popular markets like stock indices, currencies, commodities, and even events!
So What Exactly Is A Binary Option?
Similar to equity options, binary options have an expiration and relate to an underlying market. You can buy a binary option and you will either make money or lose money at expiration.
The big difference between equity options and binary options, is that a binary option is considered an all or nothing “yes/no proposition”.
For example, do you think the S&P 500 is going to be trading above 1900 at the end of the week? If the answer is yes, you could buy a binary option. If you are right, your profit is $100 - the price you paid for the option, REGARDLESS of how much above 1900 the index is trading. The purchase price of the option is the amount that you risk on the trade. And the potential profit on the trade is always known when you enter the market.
Why Trade Binary Options?
Binary options trading can be a great compliment to the trading strategy that you already do. They can be traded by both the day trader and swing trader.
These are the best reasons to trade binary options:
- You can't be stopped out.
How frustrating is it to be right on the direction of the market, but stopped out before you make money on the trade. Sometimes it feels like traders are there just trying to take out your stops. Whether or not this is actually true, this will never be a concern of yours when trading binary options.
- You can manage risk easier with market volatility.
Have you ever been trading when market volatility changes? What was the perfect setup can seem almost impossible to trade with bigger surges in volatility. Many times the strategy and your indicators are still working nicely, but the amount that is necessary to risk on the trade is just too much. In these scenarios binary options can be a great alternative to your traditional online day trading.
- You can get started with just $250.
This is actually both a pro and a con. It's nice to get started with a small investment, but many times small initial investments attract gamblers who are looking to strike it big. It's important to understand that ALL trading involves risk and you should always trade with money you can afford to lose. But if you're unable to fund an account with $5,000 - $10,000 to give day trading futures a serious shot, binary options might be a nice alternative.
How To Trade Binary Options?
We recorded a short video that explains how to trade binary options.
Take a look: