How binary options work – Can you make money with binary options? [Video]
Binary options are one of the most controversial trading instruments – for a reason:
On the one hand, they are super easy to trade and therefore perfect for beginners.
And they are perfect for traders with small accounts because you can open a binary options account with as little as $250.
But on the other hand, there are some binary options brokers out there that are simply a scam. Most of them are overseas, and when you wire money to them, you’ll never see it again.
So let’s take a closer look at Binary Options and see if they are legit and if you can really make money with binary options.
In this article, you’ll learn…
How binary options work Can you really make money with binary options What are the best binary options brokers that are NOT a scam? Are binary options legit? Is binary options trading safe? And what is the best strategy for binary options?
How Binary Options Work.
Binary options are super easy to understand.
You just need to make a decision if a certain market is above or below a certain price by a certain time.
Let me give you an example:
Let’s say you believe that Gold will close above $1,700 by the end of the day.
So you can place a Binary Options trade: The price of a binary option will be between $0 and $100. And that’s the amount that you need to put on the table to place this bet.
Let’s say the price of the binary option to bet on Gold being above $1,700 by the end of the day, is $40.
When placing the trade, the broker takes $40 out of your account.
If by the end of the day Gold closes above $1,700, you get $100 back. So you put $40 in and you get $100, i.e. your profit is $60.
If Gold closes below $1,700, then you get nothing back. And since the broker took $40 out of your account, and you get $0 back, your loss is $40.
Here’s the cool thing:
Binary options are available for a wide variety of underlying markets:
Major indices like the Dow Jones, S&P 500, Nasdaq, … Major commodities like Crude Oil, Gold, Silver, … Major currencies like EUR/USD, USD/JPY, GBP/USD, …
… AND they expire daily or even hourly!
So if you don’t want to wait until the end of the day, you can trade a binary option that expires in the next hour.
All you need to do is decide whether a certain market is closing above or below a certain price within the next hour!
As you can see, the possibilities are (almost) endless.
So the next question is…
Can You Really Make Money with Binary Options?
IF you trade with a reputable broker: YES.
We will talk about the best binary options brokers that are NOT a scam in a few moments, but let’s talk about how to make money with Binary Options first:
Here are the 3 things you need to know:
Is the market more likely to go up or down? Will a market close above or below a certain level? What’s the maximum price you’re willing to bet?
I will show you a simple trading strategy for Binary Options in the next article.
But before I show you the strategy, let’s first talk about…
Are Binary Options Legit?
As stated earlier, there are many unregulated brokers who just take the customer’s money and never return it. Most of these brokers are operating offshore in countries that have very few or no regulations.
In the US, brokers and exchanges are VERY regulated. As of the moment, NADEX is one of the few licensed companies in the U.S. that is allowed to offer Binary Options Trading.
Binary options are legal and available to trade in the US, but only on a CFTC-regulated United States exchange, which – again – is NADEX.
In a nutshell: As long as you trade Binary Options on NADEX, it’s legit and legal.
This leads us to the next question:
Is Binary Options Trading Safe?
We already talked about the regulations, so we don’t need to cover this again.
As a trading vehicle, Binary Options are very safe since they are not leveraged.
This means that you can not lose more money than you have in your account.
Here’s an example of how binary options work:
If you have $500 in your account, and you want to put on a trade in which you risk $50, NADEX will automatically reserve $50 from your funds.
When the order is filled, these $50 will automatically be deducted from your account. So your balance is now $450.
If you were right, NADEX will give you $100 back as soon as the markets close. In this case, your account balance will jump to $550, i.e. you made $50.
Because of this mechanism, it’s impossible for you to lose more money than you have in your account.
As you can see, trading Binary Options is safe.
What Is The Best Strategy For Binary Options?
The best strategy for Binary Options is a strategy that makes it easy for you to pick the direction of the market.
After all, in order to make money with Binary Options, you need to know…
Is the market more likely to go up or down? Will a market close above or below a certain level? What’s the maximum price you’re willing to bet?
Actually, since this article is getting pretty long, I’ll stop right here and will write another article on a trading strategy for Binary Options.
Trading Futures, options on futures and retail off-exchange foreign currency transactions involves substantial risk of loss and is not suitable for all investors. You should carefully consider whether trading is suitable for you in light of your circumstances, knowledge, and financial resources. You may lose all or more of your initial investment. The lower the day trade margin, the higher the leverage and riskier the trade. Leverage can work for you as well as against you; it magnifies gains as well as losses. Past performance is not necessarily indicative of future results.
Editors’ Picks.
EUR/USD retreats from monthly top near 1.1450 but bulls stay hopeful.
EUR/USD consolidates the biggest daily gains in five weeks around one-month high. Clear break of descending trend line from May, bullish MACD signals favor buyers. 100-DMA lures bulls ahead of the three-month-old horizontal hurdle.
GBP/USD defends 1.3700 amid dour mood, ahead of key Brexit talks.
GBP/USD is defending 1.3700, having hit three-month highs at 1.3720. The US dollar licks its wound amid a risk-off mood. Britain prints record covid infections, UK PM Johnson rejects resignation demands, as political uncertainty creeps in. US PPI and Brexit talks eyed.
USD/JPY: Bulls move in and eye the 115 area.
USD/JPY bulls are stepping in to correct the price drop from overnight. The 115 area is in focus for the sessions ahead. For the bulls, there is little prospect of an upside opportunity until the daily structure is broken once again. This falls in at around 115.40.
Editors’ Picks.
EUR/USD retreats from monthly top near 1.1450 but bulls stay hopeful.
EUR/USD consolidates the biggest daily gains in five weeks around one-month high. Clear break of descending trend line from May, bullish MACD signals favor buyers. 100-DMA lures bulls ahead of the three-month-old horizontal hurdle.
GBP/USD defends 1.3700 amid dour mood, ahead of key Brexit talks.
GBP/USD is defending 1.3700, having hit three-month highs at 1.3720. The US dollar licks its wound amid a risk-off mood. Britain prints record covid infections, UK PM Johnson rejects resignation demands, as political uncertainty creeps in. US PPI and Brexit talks eyed.
Gold bulls remain poised to test $1,831 and $1,837.
Gold price is consolidating near weekly highs, as the US dollar attempts a bounce in tandem with the Treasury yields this Thursday. Despite the pullback in gold price, the upside bias remains intact, courtesy of a bullish technical setup on the daily chart.
Ripple upside potential capped at 22%
XRP price has witnessed a quick rally as it bounced off a crucial support level. Although the crypto market, in general, shows a bullish outlook, Ripple’s upside potential seems to be capped due to a barrage of resistance barriers.
US Consumer Inflation Soars: Federal Reserve March rate hike looms Premium.
Annual consumer prices rise 7% in December, core prices gain 5.5%. The numbers are daunting. Consumer prices in December raced higher at the fastest pace in four decades. Markets pricing the first fed funds hike in March.
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Trading foreign exchange on margin carries a high level of risk and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to trade foreign exchange you should carefully consider your investment objectives, level of experience and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with foreign exchange trading and seek advice from an independent financial advisor if you have any doubts.