How to Trade Binary Options


While Binary options are a form of CFD, they have been specifically designed to be easy for traders of all levels to understand. Though there are different types of binary options, the essential format is always the same, in that traders can select one of two different choices regarding a specific product or products. Depending on whether that decision is right or wrong, they will either be successful, in which case they will make a pre-specified level of profit, or they will lose, leading to the loss of all the money that they put down on the option. However, even this is not necessarily always the case; exiting a trade early is a potential choice when trading binary options, with traders accepting either a lower level of profit or a smaller amount of loss in order to close the position before the set expiration point.

Binary Options: How Much?

Binary Options: How Much?

Binary_Options_How_Much

Binary Options: How Much?

The first step is to decide the amount you want to place in the trade. Since payouts are calculated as a percentage of the amount put into the trade, if you win then the larger your trade amount the more substantial your profit will be, unless you chose to sell your position early in which case your profit may be reduced.


So, for example, if you put £10 into a binary trade which is offering a 70% return, if you win you would receive £17. However, if you had put £100 into the same trade then your payout would have been £170. However, it’s worth remembering that if the trade didn’t go as you’d hoped, then the more you’d put into the trade, the more you’d lose. So, carrying on our previous example, if you had put in £10 you would lose just the £10, but if you’d put in £100 you would lose the whole £100.


Alternatively, up until a certain point within the trade you’d be able to end it early. So if you’d put that £10 into the trade as described above, and you were currently in a winning position, then you could decide to close the trade at this point instead of risking it turning against you. If you’d stayed in the trade and it had closed in your favour at the pre-set expiry time, then at that 70% level of return you would have received £17. By closing the trade early, you would only receive let’s say £13.50, but that £13.50 would be guaranteed were you to close the trade right now, whereas the £17 at the end of the trade carries a risk, since if the trade actually ends up going against you then you’d receive £0.


The opposite also holds true; if you were in the middle of your £10 trade and it wasn’t going in your favour, then you’d be on track to receive nothing back, losing your £10 in the process. However, if you instead decided to close the trade at this point instead of waiting it out and hoping for a turn in your favour, you could receive some of that (let’s say £5) back. You’d still make a loss of £5, but it’s better than staying in the trade, see it go against you, and losing £10. However, you should bear in mind that had you won you would have received £17, your original 10 plus a further 7. You would have to decide whether carrying on with the trade is a worthwhile risk at this point or not.

Binary Trading: Which Way?

Binary_Options_Which_Way

Binary Trading: Which Way?

Now that you’ve decided on a trading amount, you need to choose which side of the trade you’re going to take. With High/Low options, you need to choose whether a product will go up or down within a set time period, with currencies, indices, equities and commodities all available to trade on. So, for example, you could take a position on whether Gold – or Apple, the FTSE, EUR/USD and many more - will be higher or lower an hour from now. If you’re right you’ll win, if you’re wrong you’ll lose.


Alternatively, paired options allow traders to speculate on which one of two options will do better over a specific period of time. So, for example, which will do better over a set period – USD or Yen, Sterling or Euro? Like the High/Low format, a correct result equals profit, an incorrect outcome equals loss.

 

Binary Trading: How Long?

Binary_Options_How_Long

Binary Trading: How Long?

Once you’ve chosen your product, the next step is to decide on how much time you want the trade to run for. Some products will come with pre-set time limits – for example, if it’s 15:20 you might have a choice of three different trades for the same product, ending at 15:30, 15:45 and 16:00 respectively. However, long-term and short-term options are also available for many products, allowing you to select a specific length of time for yourself. So, you could open a trade of up to a month in length, or one that was just 60 seconds long – the choice is yours. Remember to take into account that some binary option types can be closed out early at the trader’s discretion, netting a smaller profit or loss depending on the current position of that option. These three steps – how much, which way and how long – are the main themes to take into account when considering binary trading. For further details on binary trading, check out the ‘Binary Trading Strategies’ page.


Binary Options are not regulated by the Financial Conduct Authority

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