Investing in Binary Options

As an upcoming or beginning investor you have probably come across the term “binary options” at one time or another. The trade in binary options has been growing in popularity in recent years. This popularity is mainly due to the simple way in which this form of investment works. Because anyone who wants to immerse himself a little bit in the investment world, can already make a profit with binary options. Add to that the high returns and you’ll understand why more and more people choose this variant. Are you one of those many investors who wants to know more about trading binary options? We explains the most important things.

Binary options: what are they?

Investors often invest money in gold, oil, stocks or foreign currencies. The skill is to buy these investment products at a low price and sell them again at a higher price. With binary options it works a little bit different. First of all, you don’t become the owner of those gold bars or Tesla shares. Binary options are in fact derivatives. This means that you can only speculate on the price development of the gold or the shares (or the underlying products). So you never get the investment product itself.

A second difference is that with binary options it doesn’t matter if the prices go down or up. This is because you are not going to sell the options. Instead, the goal is to predict whether the price of the underlying asset at the end of the term will be higher or lower than the starting amount. If you think the prices are going to rise then you choose a call option. And if you expect a fall then you buy a number of put options. In the end it does not matter how big the difference is between the start price and the end price. Even one tenth of a point can make the difference between profit and loss.

It’s all or nothing

Will a product go up in value or will it go down? This is the question at the heart of binary options trading. At the end of the term, there are only two possible outcomes:

• Your prediction has come true. You will now be paid the deposit as well as a predetermined amount of profit.
• Your prediction did not come true. In that case, you will lose the entire deposit.

Because of this construction, binary options are also called ‘all or nothing options’. Although professional traders often prefer to use the term ‘digital options’. After all, these options are only traded virtually.

The term

When you start trading in binary options, you’ll automatically get involved with the term. From the moment this term starts, you can only wait and see. Are the prices going to rise or are they going to fall? Intermediate rates are not important because the balance is drawn up only at the end of the term. Let’s clarify this with an example:

Suppose you are interested in binary options on Tesla. The price of Tesla stock is $980 and you expect this price to rise in the next few hours. Therefore, you choose call options with a maturity of one day. The price goes up and down all day, and in the middle of the afternoon, it even drops below $960. This does not matter to you. It is the final price that matters. At the end of the agreed term, the Tesla binary options price is $984. This slight increase is enough to make a profit.

The term in binary options is variable. This means that you may determine the time of expiration (or the end of the term) yourself. Most online brokers work with relatively short durations. For instance, you can buy binary options with a duration of a day, an hour or even a few minutes. Of course, the expiration time is set in advance. Once you have made a decision, you cannot go back.

How much is the profit?

When you buy a binary option, some things are fixed. For example:

• The exact time when the option expires.
• The starting price
• Whether you are betting your money on a price increase or a price decrease
• The amount you paid for the binary options

One element is missing from this list. And that is the percentage that will be paid to you in case of a win. In binary options, the profit is always a certain percentage of the deposit. On average, this profit percentage is between 80 and 90%. So, with an investment of 200 euros and a fixed percentage of 85%, you will make a profit of 170 euros. In the world of investments, this is a considerable return.

Of course, you hope that your binary options will make a profit. But if you are wrong, you will lose the entire deposit. Therefore, it is important that you carefully consider the size of this amount. Do you dare to take risks and aim for a high profit? Or are you a bit more cautious and keep the deposit rather low? When you enter into binary options, you decide how much money you want to risk. In any case, make sure that it is never more than you can afford.

Verschiedene Arten von binären Optionen

If you want to invest with a binary options broker, you have more choices than you think. Of course, you will first take a look at the different underlying products. Do you want to invest in gold or are you more interested in shares of Tesla or Apple? But that’s not the only decision you’ll have to make. There are also different types of binary options. The high/low options (as described above) are the most well-known ones. These are options where the final price must be higher or lower than the starting price.

Another popular option is the one-touch/no-touch options. These are only available on weekends when the investment market is closed. With one-touch/no-touch options, you choose a specific value that you believe will be reached during the term. Let’s assume that you want to trade foreign currencies. The EUR/USD rate closed at 1.1236 on Friday, and you expect it to rise above 1.1300 in the coming week. In this case, you buy a one-touch option with a maturity of one week. Will the predicted price be reached or exceeded during the week? Then you make a profit, even if the price falls again afterwards. The no-touch options work exactly the same way. Only now you choose a price that cannot be reached.

Finally, we would like to draw your attention to the binary limits (or the in/out options). With these options, you set an upper and a lower limit in advance. An investor who wants to buy binary options on Apple could set the limit at $110 and $120. In this example, we will use a duration of one day. This means that the price must be between $110 and $120 for 24 hours. If this is successful, the option is “in the money” and you will receive the agreed return.

Specialized online brokers often have even more binary options to choose from. Double-One-Touch, Above/Below, High-Yield or Short-Term options: All of these exist on the options market. These variants are especially suitable for experienced traders. Beginners can best start with the regular high/low options.

What are the advantages of binary options?

Beginners like to choose binary options. This is because it is a relatively simple form of investment. With binary options, you need little knowledge about commodities, stocks or other underlying products. You only determine whether the value will increase within the term or not. To do this, you simply look at the price trend of the last few days or hours. Often you can discover a certain trend, but this is no guarantee for success. The market is constantly moving, so there can always be sudden price changes.

Binary options trading has another great advantage: the high returns. The profit can be even up to 90% of the total investment. This makes binary options one of the most lucrative products in the investment world. By the way, you do not need a large capital to trade binary options. With many online brokers, there is a minimum purchase amount of only 25 euros. With a few hundred euros you can achieve a lot.

Popular binary options brokers

There are many brokers operating on the Internet. This sometimes makes it difficult for beginners to make a good choice. We advise you to choose an online broker that really specializes in binary options. Pocket Option and IQ Option are some of the biggest names.

With most binary options brokers you can open a free demo account. This is because although binary options trading is quite simple, it is nice to practice for a while. This way you will get a better insight into the price action and have the opportunity to get to know the investment platform. Such a practice account is also very useful for investors who want to try different brokers. Because one platform may be more suitable for you than the other.

Benefit from an attractive welcome bonus

Online brokers want you to come and invest with them. That is why they offer you various attractive bonuses. For example, Pocket Option offers you weekend bonuses. However, please note that these bonuses are often subject to strict conditions. Therefore, please familiarize yourself with the rules before claiming the bonus.

Note the risks

Trading binary options can make you a lot of money quickly. Online brokers are happy to point this out to you. However, binary options are also considered very risky products. In the past, the AFM (Netherlands Authority for Financial Markets) even drew a comparison between binary options and gambling. However, not everyone agrees with this statement. The decision to go up or down in price is not an easy one for most investors to make. If you follow the prices a bit, you can often make a pretty good guess. Of course, there are always risks with online investing. So don’t be blinded by the high profits, but invest wisely. In addition, we recommend that you follow the latest investment news closely. This can make the difference between profit and loss.

Some final tips for binary options

After reading this article you have decided: you want to start investing in binary options. For this you need a trading account. Fortunately, most online brokers allow you to easily convert your existing practice account into a real account. Next, of course, you need to make sure you have enough funds. You can deposit funds via iDEAL, credit card or e-wallet (Skrill, Neteller), among others. Once the administrative part is done, you can start trading right away. Here are a few more useful tips for you:

• Choose the stocks, commodities, currencies or indices that interest you the most. This will make it easier for you to keep an eye on the market.
• Never bet too much money at once. A maximum of 5% of your trading capital gives you enough room to absorb any losses.
• Take a break when you are losing. Otherwise, there is a risk that you will make your decisions based on your feelings. And these are usually
• Usually not the best decisions.
• Is Apple introducing a new kind of iPhone? Or is there some other important
  news? Then take action immediately. The faster you react, the greater the chance that you will profit from a radical rise or fall in the share price.
• Download the mobile app of your online broker. This way you can be sure that you won’t miss anything.