Binary options have become very popular lately, therefore we decided to summarize the basic information and give you all the important details you might be interested in. Binary options (or digital options) allow you to trade commodities, stocks, forex (currency pairs) and even virtual currencies such as Bitcoin. With binary options, you can even trade commodities as popular as gold or crude oil.
Binary options offer yet another opportunity to appreciate your capital. Experiences from foreign countries show that practically anyone can trade binary options. There is also a large community of Czech and Slovak traders. Hence, the software and websites for binary brokers are also available in Czech, making the profit through binary options accessible to the general public. The minimum initial deposits start at 100 USD (circa 2000 CZK), depending on the chosen binary options broker.
If you are thinking about creating a stream of passive income, or just making some extra money without investing large sums, the binary options may be the right way to go, as they give you an option to create a stable stream of passive income, or some extra money, with an investment of only a few hundred CZK.
If you are thinking about investing, yet you don’t have the hundreds of thousands to go for shares or real estates, you still don’t need to worry. You can start with binary options, as these are so specific that you only need a capital of a few hundred CZK to buy your first binary option.
You only need to get over the 56 % success ratio = Almost a half of your trades may go wrong and you still profit!
What are binary options?
Binary options **propose a high appreciation of around **80-85 % of the invested sum** per single option. You only decide between two alternatives – whether the particular stock, or commodity, is going to go up (CALL) or down (PUT) at the given time. An example is shown in the picture below – it is so simple that everyone will understand!
- The advantages of binary options compared to the classic stock market.
Binary options are very attractive not only for their high potential appreciation, but also because of the simplicity of the trading - especially due to the fact that the trader only needs to estimate whether the price of the particular Financial instrument is going to drop or grow at the given time (hence the word “binary”). Joining the stock market directly is impossible for 99 % of people, as that requires high initial deposits. On the other hand, you can trade binary options with minimum costs.
- A trading investor knows the maximum gains and losses beforehand.
This is one of the biggest advantages. A binary trader has more accurate information as to how much exactly they are going to make with a particular trade, and they can also choose how much they are willing to risk – be it 100 CZK or even a 1000 CZK, it depends solely on the trader’s own discretion.
- You do not need to limit yourself to the selected kinds of financial instruments
The financial instruments you are able to trade via binary options include gold, crude oil, Bitcoin, or stocks of Google, Apple and tens of others.
- Unlike in classical trading, in binary options you don’t need to wait for dividends, or profit attribution.
Binary options are traded only within the specified time period (minutes, hours, days) – if your investment is successful, the profit is credited to your account immediately at the end of the particular trade!
- You only need a capital of hundreds to thousands of CZK.
Most brokers allow trading one option from 100 CZK – you can thus make good profits without risking large sums.
- You don’t need to download anything
Binary options can be traded online with the individual brokers via WebTrader app (or even on mobile devices as Iphone, Android, Ipad). You are then in constant control of your trades without the necessity of running complicated applications such as Metatrader 4.
Binary options are further divided into several types – UP/CALL, Minute options, etc.
Examples of binary options trades
Let’s look at an example of trades in EUR/USD currency pair - price at 14:00 is 1.2600, we are willing to buy an one hour binary option. A trader who thinks that the EUR/USD currency pair will at 15:00 close at a price around 1.2600 is going to buy a “call” option (speculation on grow). Another trader, who thinks the price of the EUR/USD at 15:00 is going close below 1.2600, may buy a “put” option (speculation on drawdown).
The EUR/USD price at 14:30 is 1.2690. The first trader is convinced it is going to continue growing and so they buy 10 more binary options for 40 USD each. The second trader is either waiting for the trend to reverse, or they may decide to cancel the trade for a partial refund.
Risk vs potential gain in binary options
The risks connected with this kind of trading are well known. The trader’s gross profit/loss is based on the principle “all or nothing”. They can lose all the money invested, which in our model case would be $ 40 x 10 = 400 USD, or they can have a gross profit of $ 100 x 10 = 1000 USD. If EUR/USD was going to close at or above 1.2690 at 15:00, the net profit for the first trader would be the gross profit at the end of the trade – the entry costs for that particular position: in this case the net profit would be $ 1000 – 400 = 600 USD.
Let’s suppose that in our model case the 15:00 price closed at 1.2695. The trader number one has had a gross profit of 1000 USD, which means a net profit of 600 USD, while the trader number two has just lost the entry costs ($ 40 per option).
How to trade binary options?
Each binary option has its expiration time, which is thus the limiting factor for binary options trading. The expiration time may range from one minute to several hours. The trader is not that much interested in the development of the price during the period – what matters is the closing price. As the interval expires, the trader sees the closing price and if their prediction was correct, they collect the profit.
Let’s look at another example: Someone buys a binary option of Microsoft at 31.4, speculating that their value is going to increase within the next 30 minutes. If the price really goes up and closes at 32.5, the trader collects a profit of 80% of the amount invested! The goal of a binary options trader is to correctly estimate the direction in which the option is going to go, or to determine the price level around which the price is going to be at the time of the expiration of the particular trade.
You only need to pick the direction where you think the option is going to close, and the amount you want to invest. Then you simply wait until the option expires. If, at its end, you are “In The Money”, you collect an 80% profit.
- Minimum deposit for trading
We are getting to the first huge advantage of binary options, and that is the minimum deposit for investment. You need only 10 USD (circa 200 CZK) to buy a basic option. Think about it: How much do you spend on cigarettes each month? And such investment certainly does not bring you any profit or good whatsoever.
Hence, if you are thinking about possibilities for passive income, make sure to try binary options. Thanks to low initial investment (starting at 100 CZK) the binary options are suitable for everyone.
As the saying goes, “even a small figurine can play a big performance”. This is also perfectly true about binary options.
- What can I trade through binary options?
Binary options allow you to speculate on the growth of the stocks of your favourite brands such as Apple, Facebook or VisaCard. You can also speculate on the growth or drawdown of the individual currencies such as USD, EUR or JPY. If you prefer commodities, don’t worry, you can also easily speculate on the growth or drawdown of silver, gold, crude oil and other commodities.
Financial instruments in binary options
|Stocks:||Apple, Facebook, Alibaba, Amazon, Baidu, Google, COCA COLA, Tesco|
|Commodities:||Gold, Crude oil, Platinum, Silver, Sugar, Coffee, Wheat|
|Forex (currency pairs):||EUR/USD, GBP/USD, USD/JPY, USD/CAD, EUR/GBP|
Our reader’s experience with binary options
I have begun with binary options about a half a year ago. The first time I’ve heard about binary options was from a friend who has been trying to persuade me into trying them out. My experience with these matters were close to zero, so I first read through the information I could find around the internet and later on I have become using the background of my binary options broker about whom I am going to write more below.
Choice of broker is important
First of all I’ve begun searching for a really good broker, with whom I could trade without any trouble. After reading through reviews, and consulting my above mentioned friend, I decided to judge the individual brokers by their regulations, the quality of their apps and last but not least by their profitability rates for binary options, which, in good brokers, ranges between 70 – 85 %. Using these criteria, I managed to narrow the choice down to TopOption or Stockpair – A broker with excellent ratings (EN).
The first investment of circa 100 USD
Then I placed my first deposit of 100 USD from my bank account. I decided to open a demo account first, and there I began trading the stocks of Facebook or Apple, since I thought I knew these companies well enough to get a profit out of them. Yet I proved myself wrong and I couldn’t get into profit on my demo account, which has lead me to change strategy and focus on commodities and currency pairs, as these are generally more volatile and offer more possibilities.
I stopped doing minute options, as I found those highly speculative and generally not advisable, and I turned my attention to other Types of binary options, especially High & Low options with expiration time from 10 to 60 minutes.
Choosing the right strategy for binary options
And then it suddenly came! I have gradually become successful on my demo account, getting to a success rate of around 60 %. After reading through a couple more strategies on the internet, I have begun trading on the live account. Today I’m trading a rather small number, usually 2 – 5, of trades per day for bulkier sums – currently 20 USD per option.
I prefer this approach over placing 10 orders for 10 USD. Having many trades may look good on the screen, yet it is ineffective both money and time-wise. It is better to think twice, place the orders carefully, and to do fewer trades with higher bets. I trade with the success ratio of circa 65 %, which is more than enough to maintain long-term profit.
A free binary options demo account
A demo account comes in handy to beginners in binary options. Firstly, it helps you to get familiar with the trading app. The demo account operates like a live account for the most part, the main difference being that it does not use real money, any gains or losses thus remain purely fictional.
- A demo account is especially suitable for beginners
However, it is recommended to use a demo account for a maximum of one month! As psyche plays an important role in trading, getting used to the gains and losses being fictional could cause trouble once you decide to proceed to live trading.
- Why use a demo account?
A demo account poses a very important part at the starting point, especially for complete newbies. If you use the demo account to learn the proper trading habits, it will make your prospective live trading much more efficient in the long run. Hence, do not rush it to the live trading! If you count yourself among newbies, and if you are willing to take binary trading seriously, try the trading tools and the financial instruments on your demo account first.
- Getting familiar with binary options, markets, charts, data and diagrams
Another aim of training on the demo account is to get a chance to become thoroughly acquainted with the markets themselves. I would call it “getting to the right wave” of the particular market first before switching to live trading. The advantage of such “tuning” is that it gives one the time to decide which market best suits their style and which, on the other hand, they are going to either completely avoid, or leave for later. Vivid personalities tend to prefer more volatile markets, while discreet people may have different preferences.
Where to trade binary options
We can definitely recommend TopOption, a broker well proven within a narrow group of Czech traders. It is a reliable broker regulated by CNB (ČNB). TopOption, a broker regulated within EU (including a licence of ČNB and SNB – Slovak National Bank), offers a trading platform fully in Czech and also a Czech manager.
- TopOption is the most complex company so far
This has one important implication – your deposits are insured up to 20,000 Eur in case of the company’s insolvency. The web platform is fully in Czech and the representatives communicate in Czech language by email or by phone. TopOption offers demo accounts to test your skills on, and live account from 100 $ with options starting at 10 $. This broker also offers a free training academy.
- Beware of fraudulent binary option systems!
*Binary options surely pose an attractive possibility for subsidiary income, yet precisely because of this attractiveness there is a number of fraudulent platforms that offer paid services such as “100 % accurate signals”, “infallible entry indicators” etc. In other words, these “platforms” offer gains without any work or education. This is surely not the right path for a beginner to take.