Binary Options Education
What are Binary Options?
Binary Options are a special kind of option in which the payoff depends on only two outcomes, one in which the investor gets a fixed monetary amount as return or the second where he gets nothing at all. They are basically investment instruments that allow investors to trade on the price movement of underlying assets with fixed predetermined returns. In most other forms of investment like forex or stock market trading the investors actually purchase the asset they invest in and the profit or loss is depending on the price variation of the asset. If the investor sells the asset back to the market when the price has increased, a profit is made and if the selling happens when the price decreases their money is lost. In comparison to this Binary Options are simpler because here the investor invests on the market and not in the market.
Binary Options derive their name from the fact that there can be only two possible outcomes i.e. either the prediction is correct or not. So making money using binary options depends on the prediction being correct at the time of expiry for an investor else the entire initial investment would be lost.
Forexins lists the following 3 most important parameters for binary options trading
Choosing an asset to predict the direction of movement
Predicting the direction of movement
Choosing an expiry time for the option
For binary options there is no fixed price for the option, just fixed return. If an investor feels that the price of gold will move up or down with the next minute, hour or week then by investing on the binary option a profit of up to 90% can be made can be made in a minute, hour or week. If an investor predicts the price to rise, then for a profit to be made it is just essential that the price rises only slightly at the expiry time.
While predicting the price movement if an investor thinks that the price will rise then a call option is raised. On the other hand if the investor thinks that the price will fall then a put option is raised.
The biggest advantage of binary options is that the risk and return is fixed. So an investor knows up front how much money can be made and the money lost can be never more than the trade amount.
Binary Options vs Regular Options
Multiple Investment assets- Binary Options can be placed on any financial product or asset. They can be placed on a variety of assets with a huge variety in time frames ranging from 60 seconds to several months.
Ease of Understanding - Binary options is very simple as an investor just needs to predict the direction of price movement of an underlying asset. This does not involve all the complex pricing and valuation process that exists in direct trading of assets.
Controlled Risks - Binary options are very different as compared to other investment methods because the potential risk & return is well known even before a trade is placed. So a potential investor can decide exactly how much to invest and what time period to invest depending on his risk appetite and knowledge of the asset he is investing in. The best part is an investor can never lose more than what he invested in binary options.
Time Bound Investments - Binary Options are trading instruments in which the investment time frame is decided solely by the investor. Once a time frame has been chosen and a prediction has been made, the investor need not worry about the nuances like keeping track of spreads, stop loss strategies, tracking markets to decide the exact time of selling, hedging their positions etc.
Profits in stagnant/range markets - The advantage of binary options is that an investor makes a profit even if the price of the underlying asset changes by a small margin in the direction as predicted by the investor. Thus even in potentially quiet markets an investor can make profits using binary options.
Hedging - Binary Options can be used to hedge on positions in markets without having to buy or sell the underlying asset.
Investment amount- Binary Options give investors access to predict the price movement of underlying assets and make profits even by investing a very small amount. The amount can be as low as $10 with a potential to make 100% profits.
All the educational content and information available at Forexins should be the ideal starting point for any investor interested in binary options trading.
Types of Binary Options
Forexins defines binary options as an activity that mainly involves placing a bet on the price movement of an underlying asset in a fixed expiry time. This underlying asset can be any financial product, however the most widely traded binary options are of the following types
Market Indices Options
Currency and forex options
Commodity market options
Binary Options on specific stocks/shares
Market Indices Options
The most common form of binary options trading is based on predicting the movement of market indices. There are many stock exchanges globally and an investor can choose to predict if the value of the top traded shares/stocks in a particular stock exchange will rise or fall over a fixed expiry time.
The investor can place trades on any of the stock indices, but the most common binary options trades are placed on indices like Nasdaq, Dow Jones, FTSE 100, DAX etc. The main advantage for an investor is the ability to trade without actually purchasing any shares in the particular stock exchange and thus avoiding brokerage fees and commissions.
Currency and forex options
Binary options trading in currencies and forex is gaining increasing popularity because it helps in making quick profits for seasoned traders and also acts as a hedge against any physical currency purchases in the forex/currency market. Trading in currencies involve choosing two different currencies and predicting what would be the value of one against the other after a fixed expiry time.
There are virtually no limits with regards to the pairing of currencies and the investor can choose any pair of major currencies to place a binary options trade. The most commonly traded currencies are US dollars, GBP, Yen, Australian dollars, Chinese Yuan and Canadian dollars.
Also the latest trend in binary options trading of currencies is pairing bitcoins with physical currencies and placing trades on them. For eg an investor can pair US dollars with Bitcoins and place a trade predicting the value of one against the other. At Forexins we see this as an upcoming trend for investors interested in binary currency options.
Commodity Binary Options
Commodity binary options allows investors to trade on the value of commodities like gold,silver, oil etc without actually having to purchase them. So for eg an investor can place a trade that the price of gold will rise or fall after a fixed expiry time. Based on the price of the commodity after expiry the investor would make a profit or lose the money. The advantage of this type of binary options is you need not buy the commodities which can be really expensive but still trade on the expected value of the commodities in a fixed period of time.
The most commonly traded commodities are gold, silver, copper and oil. The freedom to trade freely on commodities without having to buy or sell them is what makes this trading very attractive for prospective investors.
Binary Options on specific stocks/shares
Directly buying and selling stocks/shares is one of the most widely practiced form of trading. However it has a major drawback that all investors cannot afford to buy large number of shares and also in order to make profits an investor needs to constantly track markets and buy/sell at the right moment. In volatile markets direct buying or selling of shares can be risky especially for new investors.
An easier alternative is placing a trade on the actual price of the share after a specified time period and then based on the outcome earn profits. The investors need not track the price movements of the stocks on a regular basis as what they earn or lose depends on the value of the stock at expiry. The options to trade in shares are immense with investors being able to place trades on major stocks like Google, Microsoft, Facebook and Walt Disney without having to actually purchase the shares/stocks.
How to place binary options trades?
Trading in binary options is very popular among investors because of its simplicity and potential of making quick and easy profits. Binary trades are of different types with the basic binary principle of ‘all or nothing’ common among them. The binary options are classified based on a number of elements like payout type and trade conditions.
Binary Options trades are popular because of fixed risk and reward. It allows investors to trade on underlying assets like stocks, indices, commodities and currencies.
The different types of binary options trades are:
Call vs Put (Up or down)- This type of trade is the most basic form of binary options trading which involves predicting the up or down movement for any underlying asset.
Touch or No Touch- This type of trade involves predicting whether the value of an underlying asset will touch a certain predetermined value or not.
Double Touch/ Double No Touch- This type of trade is similar to Touch or No Touch except that there are two value points rather than one.
Range Options- This type of trade needs an investor to predict if the value of any underlying asset will finish in or out of a particular range.
Call vs Put They are also referred to as high-low or up-down options. Forexins finds them as the most widely traded options because of its simplicity. They are also sometimes referred to as ‘cash or nothing’ because at the end of a specified expiry time the investor might receive a fixed payout or lose everything based on the outcome.
An investor who believes that the value of an underlying asset is going to increase will go for a call option. For this call option to be in the money i.e. for the investor to make money it is essential that the value of the asset is more than the value at which a bid was placed. This value at which the investor places an initial bid is sometimes referred to as strike price.
A put option is the exact opposite where an investor feels that the value of an asset will decrease below the strike price at expiry. If the asset value falls below the strike price at expiry the investor buying the put option will receive a fixed predetermined payout.
Touch or No Touch Binary Options
These are a special kind of binary options in which the investor places a trade on whether an asset value will touch a pre-determined value point or not. If the value or price of the asset touches the target price and the investor also placed a bid stating so then the investor will receive the expected payout. If the value doesn’t touch the predetermined point then the trade remains open until the expiry time.
Similarly an investor can place a trade stating that the value of an asset will not touch a certain point and if the value doesn’t touch that point before expiry then the investor can again claim the fixed payout. However if a no-touch option is chosen and the value touches the barrier point even once the trader loses his money and the trade closes immediately.
Double Touch/ Double No Touch options
Trading in these binary options is very similar to touch/no touch binary options. The only difference is that there are two threshold barrier points which are corresponding high and low points in terms of the underlying asset value.
When an investor chooses to place a trade on this type of option then it is essential to know the two touch points and then place a double touch or double no touch trade. If an investor places a double touch trade and if the value of the asset touches or breaches either of the barrier point the investor gets a fixed payout else he loses his money.
On the other hand if an investor places a double no touch trade then he makes money if the value lies in between the two barrier points, touching neither of the two points.
These are also called as Boundary options or tunnel trades. In this an investor needs to predict if the value of an asset will be within a particular range or remain out of it at expiry. Based on this and the final outcome the investor receives a fixed return or loses the invested money. The two possible outcomes in this type of trade are the asset values being in the range or outside it.
The probability of getting the prediction right in this type of option is lesser as compared to call vs put option but placing trades on this type of options generally ensures a higher payout percentage. Forexins doesn’t recommend this as a starting point for beginners.
Binary Options can also be classified based on the final payout conditions as below
In the money/ out of the money options
In the money/ out of the money options with fixed cashback
Early exit options
Roll forward Binary options
In the money/ out of the money options
These are the most commonly traded binary options in which an investor places a trade and if the final outcome is as per the investor’s prediction a fixed payout is received, else the investor loses all his money. These are also called cash or nothing binary options. Generally the payout is a fixed percentage of the initial investment and the investor knows up front how much money can be made or lost.
In the money/ out of the money options with fixed cashback
This is very similar to conventional cash or nothing options except that if an investor places a trade and finishes out of the money at expiry a certain percentage of the initial investment is given back as cashback to the investor. This helps reduce the losses for an investor in case the final outcome is not in his favour. Most online binary brokers offer cashbacks between 5%-10%. So in case a 10% cashback is offered and the investor ends up out of the money then the total loss is only 90% of the initial trade amount and not the complete investment.
Early Exit Options
These are different from the other options because they allow investors to book early profits or limit their losses. For eg if an investor places a bet and is in money he can book his profit and make an early exit before expiry. This is specially useful if the investor is initially in the money but feels that the final outcome at expiry would go against him. This option also helps limit losses in case an investor feels that the final outcome would not be as per his prediction and helps him withdraw his trade prematurely before expiry.
Roll forward binary options
This is another variation of the conventional binary options. In this type of option when an investor places a trade and realizes that the bid is out of the money near expiry time he can carry it forward for a fixed duration until the next expiry time. This is especially useful if the trade is out of the money near expiry but has a chance of coming back in the money thus helping the investor get his fixed payout and avoid losses.
Top 10 reasons to trade in Binary Options
Binary Options trading is a very fast track process with expiry times as low as 60 seconds to predict the price movement of an underlying asset. Since the payout is completely based on the outcome at expiry it can sometimes be a risky proposition and hence the returns offered in binary options trading are as high as 80%-90%. This premium in the payout is because of the high risk proposition of binary options. But with good knowledge of the market and an understanding of the asset on which a trade is being placed, an investor can easily earn high returns by trading on a variety of assets.
2.Fixed Payout & known risk
The biggest advantage of binary options trading is that an investor is well aware of the payout and the maximum amount he stands to lose while placing a trade. The payout is fixed in binary options and the maximum loss for an investor is the initial amount invested. Unlike trading in stocks or forex where the profit/loss made depends on the final value at a particular time, trading in binary options just needs the value to be in the money at expiry for the investor to make money. It doesn’t matter how much is the final value of the asset as long as the trade is in money.
3.Cashbacks on losing trades
The simplest form of binary options is an ‘all or nothing’ proposition. However many binary options brokers offer fixed rebates or cashbacks even on losing trades. So if an investor places a trade and at expiry it is out of the money, the entire traded amount is not lost and only a certain percentage of the original investment amount is lost. The most commonly offered cashbacks are between 10%-20%. So this is an additional incentive for investors to trade in binary options with a mechanism to reduce the losses.
Though binary options are risky trading instruments, we at Forexins recommend trading in them as they are very simple to understand and execute. The final payout depends on only two outcomes which makes thing really easy even for new investors who are looking for ways to earn good returns. Also most binary options trading sites offer lots of educational materials which aids the investor in making an informed move. Other forms of trading like trading in stocks/forex involves the investor keeping track of variations in the market and also buying or selling the asset at the right time to book profits or stop losses. All this trouble is avoided in binary options trading where it is just needed to choose an asset, place a trade and check the outcome at expiry to earn high payouts.
5.Binary Options trading - Quick & easy profits
Binary options is very sought after by investors because of the fact that mostly the trades are executed in very short expiry times which ensures quick turnovers and quick payouts. Most binary options traded on a variety of assets usually have expiry times of one hour or less. So this gives investors an opportunity to place more trades and thus increase the probability of profiting from a trade. Also for real thrill seeking investors certain binary options brokers offer trades with expiry times of 60 seconds which has high volatility but also offers higher payouts.
6.Demo Trading accounts
Demo trading accounts are offered by many binary options brokers to allow the investor gain insights on how to trade and also be assured of no loss while trading. Some brokers offer free demo trading accounts, where as some offer demo trading accounts only on some minimum deposit. In either case this is very useful for new & experienced investors both to get acquainted with the assets and platform before real money trading. For information on demo trading accounts we urge investors to refer the reviews section of Forexins.
7.Ability to hedge positions
Binary Options allows investors to trade in a variety of assets with most widely traded assets being market indices, stocks, currencies & forex and commodities. Because of the variety of assets available the losses incurred in trading of a particular asset can be offset by the payouts obtained in trading some other asset. For eg if an investor trades on stocks & forex simultaneously, the losses incurred in trading of stocks can be offset by profits in trading of forex or vice versa.
8.Access to assets without actual buying or selling
Binary Options trading offers investors access to a variety of assets without actually having to buy or sell them. For eg for any common investor it is very difficult to directly trade in commodities like gold, oil etc and purchase the assets in a market. Instead the investor can place a trade on the direction of price movement of an asset and stand a chance to earn high payouts in a very short duration. Investors with a trade amount of just $10 can participate in trades of assets like gold/oil which would otherwise not be possible.
9.Ideal investment instrument for beginners
Apart from providing access to a large number of assets, binary options also has several variations to suit the need of different kinds of investors from novice to experts. For investors who do not want to get fazed with analysis and interpretation of markets, binary options are the ideal stepping stone because they can easily place a simple up-down trade and earn money at the end of expiry time without having to worry about the dynamic price movements and other factors contributing to the price volatility. For seasoned stock/forex traders there are complex binary options with a high risk proposition but enhanced payouts.
10.Binary Options Bonuses
Many binary options brokers offer bonuses on first deposit or for getting investors to redeposit and trade on their site. Bonuses are a very useful mechanism to reduce the risks & losses as an investor gets more worth for the deposited money. This additional bonus can be used to speculate on risky & volatile asset classes without a fear of losing real money. However most brokers offer bonuses with specific trading requirements attached to it which can be 20-30 times the amount given out as bonus to an investor. Forexins provides investors with bonus information of several brokers to enable them take advantage of the same while placing binary options trades.
How to trade in Binary Options ?
Trading in binary options can be very simple and profitable if an investor is well aware of the asset he/she is placing a trade on & also knows the correct time to place a trade. Shown below is a step by step guide on trading in binary options. This is a useful guide for novice investors and also a useful checklist for seasoned binary options traders.
1.Choosing an asset
The first step for any binary options investor is deciding which asset to place a trade on. It is recommended that investors place trades on assets they are familiar with and feel comfortable speculating on. The most commonly traded assets are stocks, market indices, commodities and currencies.
After an asset has been chosen it is very important to decide the direction of price movement for the chosen asset. If an investor wants to place a bet on the price moving up the a call option needs to be raised else if the guess is that the price will go down then a put option needs to be raised. These are the two fundamental steps for any binary options trader to invest and earn good payouts from their trades.
2.Choosing a good binary options broker
After deciding on an asset and the direction of price movement the next obvious step is to choose a good binary options broker for placing the trades. Certain factors that need to be taken into consideration while choosing a broker are:
Is the broker licensed and regulated ? (By Cysec, FCA or any other reputed regulatory bodies)
What is the min deposit on the site?
The average site payout
Bonus offered (Yes or No)
Min-Max trades on the site
Does the site offer demo trading accounts?
Other incentives & promotions on the site
Based on a thorough research the investor needs to choose a broker for placing the trades. At Forexins we list and review the top binary brokers for the benefit of all kinds of investors. For diversifying the risk it would be good if an investor has accounts with multiple brokers to avail the free welcome bonus and also be able to trade on a better variety of assets.
3.An expiry time for the binary options trades
After choosing an asset and deciding on the broker, the next step is to choose the expiry time for placing a trade. Many options of expiry times are available ranging from 60 secs to one month. Based on the risk appetite and conviction on the chosen asset an investor must choose the expiry time judiciously. Forexins advises beginners to refrain from very short expiry times because of the high risk proposition and choose to place a trade on slightly longer expiry times.
4.Knowledge of final payouts
It is very important that an investor has a thorough knowledge of the final payouts before placing a trade. Different brokers may offer different payouts on trading of the same assets, so it is very essential that an investor is fully aware of the final payouts. It is always wise to choose a broker who offers maximum returns. Getting better payouts justifies the risk involved in binary options trading.
5.Spot the trends before placing a trade
Binary Options trading is simple. But to get the desired returns it is essential that an investor is well informed about the latest market trends and also trends in price movement of the asset he is interested in placing a trade on.
Most of this information is made available to investors by the binary brokers through frequent updated newsfeeds on the site. This gives a fair idea of the global happenings and allows investors to be better informed in their trading decisions. Certain brokers also offer the feature of copying a particular trader or trading activity. For eg if majority of traders are placing a call option on the price of gold, then new investors can simply follow these traders and place their trades without having to analyze or understand the asset class thoroughly. This is a very useful feature especially for beginners in binary options trading.
6. Trading budget increase
Once an investor is accustomed to trading he/she can steadily increase the trading budget to take advantage of the simplicity in trading and the high payouts in binary options trading. Also the investors can take advantage of the additional bonuses offered on several sites to get more of their money’s worth. Certain brokers also offer risk free trades instead of bonuses which can again be used to minimize the risk and practice trading before actually putting in real money.
7.Choose to trade on the move
In binary options trading it is never known when an opportunity might come up for investors to earn high payouts. Therefore it is very important that the investor has access to the broker site all the time. It can just happen that a good opportunity to make money in a short term trade might arise and if an investor has ready access he/she can execute the trade and benefit from the payout.
Most brokers offer mobile trading options through apps which allows investors to trade on the move and make the most of an opportunity to make money.
8. Use Binary Options to hedge other trading positions
Binary Options are very useful to hedge other trading positions in the physical stock/forex market. Another way of hedging is to place a range of trades covering both sides of the trade in two independent trades. Also placing trades through different brokers allows access to a variety of assets and also a possibility of getting the special bonuses offered by the various brokers.
9. Ability to execute a roll forward
This is another innovative form of binary options trading which helps the investor extend the expiry time and thus benefit from a change in the direction of movement of the asset price. This feature is especially useful in volatile markets when the market has been following a falling pattern but the investor feels that the market might pick up and move in the direction of his bid.
In this case an investor can roll forward the trade in which the expiry time is extended to next available expiry time. This gives the investors a second chance to benefit from the price movement after expiry.
10.Ability to take an early exit
Early exit is one more form of binary options trading, in which an investor is given an option to exit from the trade even before expiry. Investors usually exercise this trade when they are convinced that the asset value has moved in their favor and would swing back in the opposite direction at expiry.
Thus an investor can take an early exit and lock their profits before actual expiry time. However this option must be exercised with caution and be used only if an investor is fully convinced that the value of an asset would not be in his favour at expiry.
How to choose the right binary options broker?
Choosing a binary options broker depends on several factors like
Broker company reputation & solvency
Support & Customer Service
Ease of deposit & withdrawal
Security in payment processing & trading
Bonuses & promotions offered
Knowledge capital & educational resources
Demo trading accounts
Trading signals offered
Research by Forexins shows that mostly new investors would go with brokers who offer bonuses, educational resources & demo trading accounts. The more seasoned investors would look for trading signals & multiple trading options. Also new investors would generally like to have an account with multiple brokers to avail the special bonuses and the experienced investors would like to have specialized trading instruments in specific types of trades with a single broker.
Each broker would have their own USP and the best thing for any investor is to take full advantage of the special features of each of the broker. However having mentioned this there are certain basic points which can help an investor make an informed decision while choosing a broker.
Binary options trading involves a lot of monetary transactions hence it is very important that an investor chooses to trade with a regulated and licensed broker. The major licensing bodies are CYSEC, FCA, CFTC, ASIC, FSP & FSA. All these regulatory bodies issue licenses for specific countries and the investor must be aware of the licensing authority in the country he/she wishes to trade.
Although being regulated doesn’t necessarily mean that the broker is 100% scam free it definitely provides a financial regulatory framework. Most brokers in Europe are either regulated & licensed by CYSEC or FCA. At Forexins investors can find the top regulated binary options brokers.
Broker company reputation & solvency
Another important factor while choosing a broker is to do a detailed research on the company operating the binary trading site. A thorough study about its market reputation can be done through several information and blog sites on the worldwide web. In addition to this the company solvency is also very important. If a company is sufficiently solvent, then in event of a large trade, the company would have sufficient funds for payout to the investor. Generally regulated brokers must meet a minimum funds requirement and also need to maintain separate company and investor bank accounts.
The trading platform offered by the broker is another important factor for an investor. Most trading platforms have their own unique features and trading options. The most popular trading platforms are those offered by Spot Option, Techfinancials & Tradologic. The trading platforms can be distinguished by the trading options offered, variety of assets and the different trade expiry times. Other variations in the trading platforms could be:
Web based & non web based- A web based platform has no connection to the local device used for trading and can be accessed directly using the web browser. A non web based platform on the other hand consists of a software that needs to be downloaded in the local device for trading. Most trading platforms are generally web based as it provides easy and instant access to the investors.
Mobile Platforms- Many trading platforms also allow trading through mobile. The investors just need to download an application which allows them to trade on the move. This gives investors instant access to the app allowing them a round the clock opportunity to place trades irrespective of where they are.
The payout refers to the returns offered by a broker on the money invested. These returns depend on the broker, the asset traded and the expiry time of the trade. More volatile and high volume traded assets generally have higher payouts. The return offered by a broker also depends on the mechanism used for calculation. Some brokers use the actual market price of the underlying asset where as some brokers have their own proprietary methods of calculating returns.
Payouts between 70% to 85% for traditional high/low binary options is generally considered a good payout for investors. Investors can find information on payouts of all listed brokers at Forexins.
Another important point of consideration for the investors is if the broker offers any rebate or cashback on out of the money trades. Many brokers offer a fixed percentage cashback even for losing trades. So this helps reduce losses for an investor.
Binary Options involves placing trades on the price movement of the underlying assets. The tradeable assets offered by the brokers are another important factor while choosing a broker. A broker that offers a huge variety of assets is always preferable. Having a variety of assets allows investors to diversify their investments and benefit from price movement of multiple assets. It also acts a hedging instrument when a particular asset goes out of the money then placing a trade on some other asset can help counter this loss.
Also specifically for investors interested in placing trades on the currency market, availability of a large number of currency pairs helps them derive maximum benefits from the trade and also helps reduce losses.
Support & Customer Service
Customer service is a very important aspect in the binary options trading industry. A good broker would offer customer support in multiple languages and would have multiple ways of being contacted. Some of the most common ways of contacting brokers are email, live chat, phone etc. Investors need to choose brokers who give timely response to queries, who can easily be contacted and who give additional information about the latest developments on the site.
A good customer support team not only helps retain traders and increase the trades but also is a useful tool for new trader acquisition.
Security in payment processing & trading
A secure trading environment means how safe it is to carry out the trading transactions on the broker site. A good broker would generally have 128 bit SSL encryption for all money related transactions. Also data integrity of all investor related information should be of top most priority for a broker.
How to make money with Binary Options trading?
The most important thing that separates binary options trading from other gambling activities is the element of skill involved in it. Though this involves speculating on the price movement of specific assets, an investor can still take a calculated risk after a detailed study of the market trends.A little research can help a prospective investor make huge money in binary options trading. Forexins aims to provide investors with all the requisite information and tips to make money with binary options trading.
There are certain useful tips that can help investors get better returns in their trading activity
‘Not placing all the eggs in one basket’ is the golden rule for any investment instrument. The same applies for binary options as well. The best thing to ensure that an investor makes better profits and also reduces the risk is diversify the trading among different assets. The advantage of binary options trading is the different assets available for placing trades. The advantages of diversification can be explained easily using an example. If an investor places smaller amount trades on four different asset classes rather than a single trade on a particular asset, then the probability of getting profits increases and it also helps balance the losses that may arise out of trading in a particular asset. Another useful hack for new investors is to place a bid on both sides of a trade as a sure shot way of getting returns.
Bonuses & demo trading accounts
Many binary options brokers offer bonuses on first deposits and also special promotional bonuses. These are particularly useful for new investors who are unsure about placing a trade and can use this additional bonus as a way of preventing loss of actual money. Also many brokers offer demo trading accounts which is again very useful to get acquainted with the trading platform and use the learning in actual trading.
Trading signals means timely tips given to traders for placing trades on a particular asset. These signals help the new investors earn returns without detailed knowledge of the markets and assets. Some brokers send signals to investors which helps them place a trade instantly and earn profits. Also there are several trading signal software providers which can be integrated with broker sites and help an investor get timely information to place trades. However an investor needs to check on the reputation of the signal provider along with the accuracy of the signals provided. Forexins has a separate section to educate investors about trading signals and signal providers.
Special trading options
Many brokers offer special trading options like early exit and roll forward. All these are very beneficial for an investor to lock profits and stop losses. The early exit option offered by certain brokers helps an investor to place a trade and make an exit before expiry. This is specially useful if an investor feels that his trade is in the money but would be out of it at expiry. Another special option is the roll forward option which allows an investor to extend the expiry time to the next available expiry. In a situation where an investor is out of the money at expiry but feels that the asset price might move in the opposite direction after expiry can still make profits by exercising this option.
A good way of locking profits and making money is timely withdrawals. Once an investor places a trade and gets a good payout it is always advisable to withdraw the money immediately rather than speculating on assets the investor is unsure about. Placing too many trades without adequate knowledge can be high loss proposition for an investor. Timely withdrawals help ensure the money comes back to the investors rather than being lost on failing trades.
A guide to read candlestick charts for Binary Options Trading
A candlestick chart is a tool used in technical analysis of an asset (stock), derivative or currency. This technique was developed in Japan by a person named Homma who was a futures trader in rice. He developed this chart to analyze the price movements in the rice market taking into consideration various factors. These charts are now widely used to analyze the price movements in stock market. Candlestick charts are somewhere between the line charts & bar graphs and they help in exactly depicting the market behavior. Using these charts an investor can very easily get an idea whether the markets are bullish or bearish.
Components of a candlestick
A candlestick basically conveys the following information
Opening price of an asset
Closing price of an asset (say at expiry)
The highest and lowest price points of the asset in a given time period
The candlesticks are arranged on a chart similar to line charts and diagrammatically they have the following
Box Type Bars- The main body of the candlestick is a rectangular bar which can be hollow or filled. This bar indicates if the asset price closed above or below its initial selling price. A long bar indicates that there was intense buying or selling activity of that asset in the market. These bars are generally represented by two colours red & green. A red colour bar indicates that the closing price of the asset was lower than its opening price and a green coloured bar indicates that the asset closed at a higher price than its opening price. These bars capture the price movement of the asset from opening to closing time. Sometimes even black & white colours are used for the bars indicating whether the asset closed at a lower or higher value as compared to its opening value.
The shadows- These are also called wicks of the candle stick. These represent the highest and lowest price attained by an asset during the trading time. The top wick indicates the highest price at which an asset was traded during a particular time period and the bottom wick indicates the lowest price of trading. These wicks capture any shift in the trading behaviour. For eg a long upper wick indicates that the buying activity suddenly shot up increasing the prices and then the trading slowed down to settle at a lower closing price.
Thus candlesticks with an easy pictorial representation act as a very useful guide to understand the market and place trades.
Candlestick Charts & Binary Options trading
Binary Options involves placing trades by predicting the direction of price movement of a particular asset. For most investors it is well known that recurring price trends in the market are a reliable tool to predict future price movements of that asset. So if an investor is able to identify the patterns in a candlestick chart, then he/she can make an informed decision before placing a call/put trade. Forexins suggests candlestick chart analysis as a tool to identify the market sentiment or the psyche of the investors participating in the market. In any market the price of an asset rises if more people buy it, thus this gives a hint for an investor to place a call trade and exactly opposite of this happens when the asset price is falling. Candlestick charts are very reliable as predictive tools and are used extensively in technical analysis.
Most common CandleStick Patterns
Doji- This pattern is due to the fact that the closing price of an asset was either same or almost the same as its opening price. In this case the bar or body of the candle is in the form of a horizontal line and the candle’s wick running vertically creates a cross or inverted cross symbol. A doji pattern indicates some element of uncertainty and indecisiveness among the investors with respect to the price movement in the market.A standalone doji represents a neutral opinion and to make sense it is very important to observe the general price volatility and the patterns of the previous candlesticks.
Morning Star- This is a pattern that generally takes into consideration the price movements of an asset over three days. In the first day the candlestick is a long red bar which indicates that the price of the asset closed at a significantly lower level as compared to its opening price.On the second day the candlestick is a shorter red bar where the price of the asset closes slightly lower than the previous day’s closing price. On the third day a green bar pattern emerges due to rising price of the asset after opening and it generally closes at more half the level of the red bar formed on the first day. This type of pattern generally is an indicator of reversal of the bearish sentiment with respect to that asset and more buying activity in the market.
Hammer- This pattern arises when the selling pressure is more and the price of an asset is continually declining. However just at close of the trading session the buying activity increases and the price of the asset shoots up to close at a value higher than the opening price. In the chart this pattern is represented by a short bar (which resembles a hammer head) with a long wick at the bottom resembling the handle of a hammer. Seeing this pattern should give investors confidence that the market is bullish about the asset price.
Shooting Star - This pattern generally develops immediately a day after the price of an asset has risen considerably. The opening price of the asset is higher than the previous day’s closing and it continues to rise due to strong buying sentiment. However midway the price starts falling and finally it closes at a price near the day’s opening price. This pattern has an appearance of an inverted hammer. This pattern indicates that after having achieved a particular price level, the asset price cannot increase further and it reduces to settle somewhere close to its opening price.
Piercing - This is a pattern that generally develops over a time span of 2 days. On the first day the asset price falls significantly at close as compared to its opening price. This might be due to strong seller sentiments which drives the asset price significantly lower than its opening price. On the second day however the asset price increases because of more demand from the buyers and it closes past the middle of the previous day’s open close range. This pattern indicates that the market sentiments are bullish towards this asset.
Engulfing - This is basically a pattern as the name suggests in which the candlestick of a particular day completely covers the candlestick bar of the previous day. This can happen if there is a sudden bullish or bearish sentiment in the market. This pattern generally has a short bar followed by a long bar completely covering the previous bar at both ends. A bullish engulfing pattern is seen when the price of an asset falls first and then is followed by a significant price rise and vice versa for a bearish engulfing pattern.
Spinning Top - This candlestick pattern is seen when the market is indecisive similar to doji. However this pattern is seen when the price of an asset decreases significantly below and then increases far above the open-close range. This candlestick resembles a top with a short rectangular bar and long wicks at each end of the bar.
Harami- This pattern is again seen over a time period of 2 days. In appearance it is exactly opposite to that of an engulfing pattern in which the bar of the second day completely overshadows the bar of the previous day. In Harami the second day’s open-close range is completely overshadowed by the first day’s open-close range. This pattern indicates a bullish or bearish market sentiment. To study the exact market behaviour one needs to observe the pattern over a 3 day period. Two days of fall in the asset price followed by an increase indicates a bullish sentiment, whereas one or two days of increase in the asset price followed by a fall in price indicates a bearish sentiment.
There are several other patterns which can be used to understand the market.
Basics of Money management for Binary Options trading
Binary Options trading is very simple and attractive because of the high returns and controlled risk. However as any activity of speculating it has its own risks. The most important tip for any investor (new/experienced) from Forexins is to manage their investments in an efficient manner to earn sufficient profits from their trades.
The golden rule for any investment instrument is discipline and the same is applicable for binary options trading. An investor must know when to withdraw or stop trading just as he/she needs to know when to place a trade. Improper money management by the investor can actually cause more loss than the profits made. Trading in any instrument involves analyzing the asset & market to place a trade. Placing a trade has its own risks which can be offset to some extent by a disciplined approach of investing.
Ability to self impose limits is one of the starting points for a disciplined binary options investor. If an investor knows the maximum limit of money to be invested then it makes it easy to plan beforehand and place the trades accordingly. Forexins recommends the below parameters which every investor can focus on to manage the investments without the risk of losing more than what they earn.
Wins vs Losses
% of loss making trades
Amount won vs Amount lost
Number of trades placed
Wins vs Losses
This method of money management is the simplest and can be adopted by any investor. This basically involves imposing limits on the number of winning and losing trades. For eg an investor might decide to place a limit of 20 winning trades and 10 losing trades for a day. So as soon as any of these limits are reached the investor will stop trading for the day. These limits help an investor make decent profits and prevents them from ending up with heavy losses.
% of loss making trades
Instead of choosing absolute numbers, an investor might choose to set a limit in terms of the percentage of loss making trades. This is similar to the above approach except that it takes into consideration the percentage instead of actual numbers. So if an investor decides to have maximum % of loss making trades as 20%, then once this is reached the trading must stop. The advantage of this approach is that it doesn’t impose rigid limits on the number of trades and gives an investor flexibility on the number of trades as long as the percentage requirement is met.
Amount won vs Amount lost
This is again a method of self discipline for an investor, but in this case the limits are on the basis of amount won or amount lost. So an investor might choose to stop trading as soon as he wins $500 or loses $100. In case of any of these events occurring the investor will stop trading for the day.
Number of Trades Placed
An investor can also limit the number of trades in a day irrespective of the outcomes of each trades. In this approach an investor can keep a limit of 10 trades per day irrespective of the number of wins or losses.
Apart from all the above parameters discussed above, another important point during trading is to decide the maximum amount to be placed on a trade. This optimal trade size can be found using a mathematical probability formula which is as below:
F= (bp-q)/ b
F - Fraction of the current bankroll of an investor
b - net odds received on the trade
p - probability of winning
q - probability of losing (1-p)
As per Kelly’s criterion an optimal trade size on any outcome should not be more than 5.7% of the total investor bankroll.
Are Binary Options legal and regulated ?
Binary options as an investment activity is carried out globally in several countries. But only few countries have a regulatory framework and licensing body for the brokers servicing the investors. Regulation of binary options brokers ensures a safe and secure trading environment for the prospective investors. Because of the regulations brokers have to strictly adhere to guidelines and offer safe, fair and legitimate services to the investors.
Regulation of Binary Options
Binary Options trading is a regulated financial activity in many countries of the world. However in countries where binary options are not regulated doesn’t necessarily mean it is illegal. So an unregulated binary broker need not necessarily be a scam broker. The major regulatory authorities for binary options are CFTC in the US, CYSEC in cyprus, FCA in the UK and FSA in Japan.
Brokers in any of these countries need to apply for a proper license to operate and service traders. They would have to adhere to strict online trading practices and also pay taxes to the licensing body.
In countries where binary options is not regulated it doesn’t necessarily mean that the activity is illegal. Anything that is illegal needs to be explicitly mentioned, else it is considered as legal. The same is the case with binary options trading in unregulated countries. The investors interested in binary options trading can still trade with brokers licensed in some other constituency like CYSEC or FCA. Investors can a find a list of regulated reliable brokers on Forexins.
Tips for Binary Options trading in unregulated countries
For investors interested in binary options trading but living in an unregulated country should not act as a deterrent for trading. They can still choose a broker licensed by an authentic and reputed regulatory body like CYSEC or FCA.
These brokers who are regulated and bound by guidelines will treat an investor from other countries in a similar manner as those in the licensing country. Thus even in unregulated markets an investor’s rights are protected in a similar fashion as that of an investor in a regulated market.
Trading with unlicensed brokers offers no protection against potential fraud or abuse. Also brokers who do not have licenses might be because of conducting shady practices for which they were refused a license or they might be intending to run a scam site without proper license. Also apart from the unlicensed brokers, investors also should avoid brokers licensed in jurisdictions such as British Virgin Islands which are supposedly world renowned tax heavens for all illegal activities.
Binary Options- Mainstream Regulation
Forexins finds binary options trading as a financial activity which is gaining acceptance globally and is being considered as a mainstream financial activity. Due to this more countries are opening their local markets for binary options trading. The main reasons countries want to regulate and license the binary trading activity is to protect the interests of the investors and earn tax revenues from the licensed brokers.
What are Binary Options demo accounts ?
Binary options is very simple to understand, but has many varieties in the assets on which a trade can be placed. For any new investor it can sometimes be a little tough to directly deposit money and start placing trades. For this purpose many brokers offer demo trading accounts on signing up. An investor who is new to binary options can take full advantage of the demo account to get acquainted with the system and the trading options available. All major brokers listed on Forexins generally offer demo trading accounts for the benefit of investors who are new to binary options trading.
In a demo trading account, an investor can place any number of trades using the different options available. Since it is a demo account, no real money needs to be deposited and the gain or loss would also not be real. Usually new investors who sign up to a broker get access to a demo trading account with predefined demo credits. Using these credits the investor can experiment and find his way through the broker site.
A demo account after signing up with a broker
Once an investor signs up with a broker offering demo trading accounts, accessing the account is very simple. After registering with a broker the investor needs to access the demo trading account tab and login to it with an unique username and password.
After logging in an investor’s demo account would generally have some predefined credits which would allow an investor to place the dummy trades. Using these credits the investor can choose the asset and place a trade on it.
For eg - If an investor wants to place a trade on the price of gold, the asset to be chosen is gold. The next thing is to decide if the price of gold will go up or come down. Accordingly an investor needs to place a call or put option. The next step is to choose the expiry time and then place a trade using the demo credits.
A demo trading account helps an investor judge the user friendliness of the system and also helps get a grip on binary options trading without the risk of losing actual money. Forexins suggests a good use of the demo trading accounts for investors before placing real money trades.
Binary Options vs Regular Options
Trading with Options
Options is basically a kind of contract that gives an investor the right to buy or sell an asset such as stocks, forex, commodities etc. The regular options are also known as traditional options or vanilla options have some similarities and differences when compared to Binary options. The most important similarities and differences are mentioned below as a part of the educational initiative for investors by Forexins.
Both regular options and binary options derive their value from an underlying asset. So when an investor enters into a contract he/she has the right to buy or sell an underlying asset at a specific price and date. In traditional options and binary options the underlying asset is used as a benchmark to decide if the trade is in the money or out of it.
Greater variety of expiry times
Traditional options generally have fixed expiry times which could be monthly or quarterly expiry times. On the other hand binary options offers a much greater variety in terms of expiry times ranging from 60 seconds trading to hourly, daily and monthly trading. The biggest advantage of short expiry times in binary options trading is it allows investors earn quick profits with greater flexibility as compared to regular options.
This is again an important point of difference between traditional options and binary options. In traditional options the sale of an option can be done at anytime and an investor need not wait till expiry. However for binary options it is must that an investor wait till expiry. There is no mechanism of placing a trade and withdrawing it before expiry (except for a few brokers who offer an early exit option). So in this sense the regular options offer better flexibility as compared to binary options.
This is an important point of distinction between binary and regular options. In binary options the payout is fixed and is know up front to an investor even before placing a trade. However in regular options the payout depends on the value of movement of the asset price from the strike price. Thus this is not a fixed return proposition and depends on the magnitude of change in the asset value.
In binary options trading the payout for the trade being ‘in the money’ is decided before hand. An investor after placing a trade and finishing ‘in the money’ at expiry gets the payout as decided before placing the trade.
Risk/ Return Synopsis
Binary Options are a simple yes/no type of trading with a fixed payout if the trade is in the money at expiry. In binary options trading the maximum risk for an investor is the amount invested and there is no possibility of losing more than what is invested. In traditional options however the returns can be significantly higher as it depends on the magnitude of the asset price change and this can be any value from zero to infinity. However regular options generally have longer expiry times and thus the price of an asset can change dynamically with time. In binary options trading though the returns may be lower than regular options, but that gets compensated by the huge variety in the expiry times available. An investor can place a number of trades in a single day and thus the opportunities to make money are more with binary options.