Trading options is part skill and part science, and the more you know about it, the better prepared you’ll be to succeed. When people talk about a binary option, they’re talking about a type of exchange contract implemented to make a profit on certain assets and their price movements. These assets can include stocks, currencies, or even actual products. Binary options usually involve global financial markets, and the actual income received from these options depends on both the price of a particular financial asset as well as a correct forecast, which is made by the market participant.
In order to increase your odds of making money with binary options, you need to take a look at the selected asset and determine which direction the price is going to move. In other words, you first choose the time interval, and then the price of that asset will either be higher or lower, depending on the interval you choose. If your forecast ends up being correct, you usually earn around 85% from your investment, although that rate can vary depending on the broker. If this doesn’t happen, you lose all of your investment in the option.
To clarify, a binary option lets investors speculate on whether a certain asset’s price will go up or down in the future. It is a fast financial instrument that is also very simple to execute. Think about the price of stocks in a company such as Google or the price of gold; these are excellent examples of assets that you can choose when you participate in a binary option. One of the reasons why this type of trading is so simple is because when you hear “in the future,” it can be as little as 60 seconds in the future if that’s what you want. This is why binary options traders can possibly trade hundreds of times per day within any global market.
So what is this tool good for? It is a convenient tool if you want to hedge the risks of using trades of other types within the financial markets, for example, the Forex market. If you want to participate in binary options Singapore, you’ll need to open up an account, and for that you’ll need a broker. Brokers are legal entities that give you access to the financial market. This market is where you as the trader will conduct all of the operations on your own.
There are two categories of brokers. The first one is a broker that executes each transaction on behalf of their client, and they do this at the expense of that client; or, the broker can operate on their own but still at the expense of the client. The second type of broker is usually a large financial corporation that considers clients to be investors, and therefore, the clients receive a percentage of whatever the company’s total profits are. Binary options, however, almost always involve the first type of broker.
Once you decide which type of broker to use, you need to prepare for your very first trade, which involves first knowing exactly how much money you will make if you make the right prediction. Usually, the percentage is somewhere between 70% and 95%, and since many brokers give you a credit when you invest a certain amount of money, you can indeed make money with this type of trading. For instance, say you choose to invest $150 USD and you get a credit that increases that amount to $200. If you receive 90% for making the right prediction, you’ll make $180 on the trade, which is a profit of $30.
Naturally, you’ll need to find out the exact amount you can potentially earn before you make your trade. Otherwise, your investment will never produce what you’re hoping it will. You can’t just look at the numbers and say, if I invest this much money and I’m correct, I’ll make XYZ amount in return. You have to know for certain what the numbers are; otherwise, you may very well be disappointed in your return on investment, or ROI.
The actual outcome of the trade is a “winner take all” type of arrangement; in other words, you will either win it all or lose it all, making this a “binary” option. Of course, the fact that the reward will be known in advance and you get a structured payoff is one of the many reasons why people choose binary options trading in the first place. These days, you can even choose exchange-traded binaries, which means traders are not trading against the broker.
Once you establish a regulated or licensed broker account, the rest is fairly simple. Most brokers even allow you to open a demo account with them, which allows you to see what it is like to trade before investing real money and possibly making a mistake. So, as you can see, a little preparation is needed before you participate in binary options trading, even though as a general rule, this type of trading is very simple, even for people who have done little to no trading in the past.
Binary Options vs. Cryptocurrencies
if you’re deciding whether to trade binary options or cryptocurrencies, you need to take a few things into consideration. When you trade binary options, you need to consider the transaction fees you’ll have to pay, which are usually taken out of the payout amount before you receive it, making it convenient on your part.
The payout on crypto trading can be a little more difficult to determine. One of the reasons why this is so is because converting money into a Coinbase can cost a lot of money, as can buying crypto in the first place (although trading with crypto isn’t unreasonable). In addition, instead of just a simple transaction fee, crypto trading involves other fees as well. For instance, you could very well pay a $35 fee for both entry and exit with crypto trading, which means a $100 trade will cost you $170 right from the start. Since binary options have much lower transaction fees, it is clearly going to cost more for trading in crypto than it will for binary options.
Choosing a broker that offers to trade in your base currency, however, can help you avoid those types of fees. In addition, when you’re trading in crypto, the supply and demand is the only thing that affects the price. Since it is considered a decentralized currency, it is just a global asset, meaning no authority or government has control over it. These are some of the few advantages of choosing cryptocurrencies over binary options, but of course, the final decision is up to you.
Binary Options vs. Forex Trading
Now let’s take a look at another scenario: comparing binary options trading to Forex trading. As mentioned earlier, binary options trading involves only two outcomes for all practical purposes. You’re going to guess whether a particular asset is going to go up or down over a fixed period of time, and you’ll either be right or wrong. In this sense, there is no variability when it comes to the potential of either the profit or the risk. It is sort of like playing roulette in Vegas – you’re either going to win or you’re going to lose.
With Forex markets, you get a little more risk and much higher variability. Usually called FX or currency markets, in this type of trading, the trader has to decide two main things: which direction the asset will go, and exactly how high or low the asset will go. So in essence, you won’t know the exact risk and profit of the transaction. In Forex, there also isn’t a limit as to how much money you can make or lose unless certain tools are used to control the trading, one of those tools being a stop loss.
Binary options trading involves specific timelines, over which the trader has no control once the trade has started. There is always a start and end time, and the trade automatically closes at that end time, although some brokers allow you to close early. With Forex trading, trades can last from one second to several months, although this flexibility has both pros and cons.
Other differences between binary options trading and Forex trading include the following:
In Forex trading, margins are used, whereas binary options trading has no margins.
In binary options trading, only five types are offered: high/low options, touch/no-touch options, 60-second options, option builder, and boundary options.
Forex trading offers many different types, with buy/sell being the most important. Some of their many advanced types include stop, limit, OCTO (one cancels the other), hedge orders, and trailing stop, to name a few.
To recap, here are some of the similarities between binary options trading and FX trading:
Both have the option of short-term trading.
Both offer the option of starting with a small amount of cash, usually around $100.
With both of these, you make or lose money based on the direction that the asset moves (e.g., currency or otherwise).
You can trade both ways online and usually anytime the underlying asset market is open.
Some of the differences include the following:
Binary options trading involves profit and risk potential that are fixed at the beginning of the trade. Forex trading is more variable.
The FX market allows you to personalize your potential reward as it relates to risk. Binary options trading involves risk that is usually more than your reward. Binary options trading is like placing a bet, in other words.
The time frames of these two trading types are also quite different. Forex trading allows you to make trades that last from one second to several months. With binary options trading, you have to trade on the time frame of the options that are provided to you.
This is not an exhaustive list of the differences between binary options trading and FX trading, so if you’re interested in either of these activities, it’s good to do some research before you get started.
The best part about binary options Singapore is that you can trade in numerous ways, including online, which is extremely convenient in today’s hectic world. There is also a digital option, which combines the power of the binary option with the price increase of the underlying asset. With the digital option, the return isn’t fixed but instead is based on how far away the price moves from the strike price. If the prices move far from the strike price, you get a higher return. What does this mean in practical terms? It means you have the potential to enjoy a 900% ROI whenever you’re using the digital option.
Binary options trading is perfect for both beginners and more experienced traders, and it offers the following advantages and disadvantages:
Of course, the best way to avoid feeling like you’ve been scammed is to do your homework and make sure you’re dealing with a reputable broker. Are most brokers reputable? Of course, they are, but it never hurts to check them out ahead of time to make sure you choose the right one.