Binary options are the new age era of day trading and also for the position trading. It is widely popular among, professional traders due to the lower risk factor and simplicity. Although, the strategy used for binary options are not too simple. Require a bit of understanding the basics of trading.
Here, we have enlisted step by step guide on how to trade binary options.
The ultimate 101 binary options start-up guide.
Binary Options Meaning:
Binary options work with the theory of “all or nothing”. Either you earn some percentage on your investment or you lose the whole of it within a time limit.
Binary Options Terms:
- Strike price: Is the price at which trade will commence. At which binary options holder can place buy or sell betting any security.
- Expiration: The time at which trade will get closed.
- Put options: Sell-side
- Call options: Buy-side
How Binary Options works?
Suppose, stock ABC is currently trading at $56.00. You have analyzed that the market will reach towards $60.00 in the next 3 hours. Therefore you have placed a trade on buy side with call options with a strike price of $60. Your bet will be market will reach $60 in the next 3 hours. 3 hour is the expiration time of the binary options trade.
Suppose you bet on this trade with $100. If your betting won then you will earn $190.
$90 is the profit (90% return)
If you lose on your betting, say ABC share didn’t move to $60 in the next 3 hours. Then you will lose the whole $100 of your investment.
Binary Options Trade Variation:
With some broker, you will be able to trade high low system, which does not have strict rules with the strike price. High low trade only checks, if the market goes above or below from the entry price or not. With the example above, if during binary options expiration, ABC stock reaches to $58 with $56 entry price, the trader will win the trade. Because the ending price is higher than the starting price.
In this method, a trader needs to bet on a certain price level, which market will meet before the binary options trade expiration time. With the example above, a trader might bet that ABC stock price will either touch $60 or does not touch $60 in the next 3 hours.
Higher & Lower:
This is basically the same as the original method of binary options trade execution. The only difference is, in place of the strike price, a trader can bet from a certain entry price level; before the expiration time, how much higher or lower a market will go.
For example, if the entry price is $56, then a trader can bet after 3 hours, the market will go $5 higher than the entry price. Means before the expiration time stock price need to reach $56+$5 = $61.
Stays in or Goes outside:
With this type of binary options trading, a trader can bet ABC stock price will either goes outside of a range or ends inside of a range. That means trader need to set a barrier high & low. For example, a trader can set a range of $50 to $60 for ABC stocks. Before the expiration time of 3 hours, ABC stock will either stays inside $50 to $60 range or goes outside of it.
Below we have shares of different binary options trading strategies, for beginners to advance pro binary options traders.