Binary options, aka BO, are very popular among traders nowadays. The idea behind those derivatives is to predict the price of the underlying security at a given moment in the future. While it may sound confusing for beginners, binary options are very simple, and they are mostly used by novice traders to familiarize themselves with financial markets. 

Moreover, binary options are very popular among seasoned traders who want to diversify their financial instrument portfolio as well as trade with pre-determined risks and eventual profits per deal. If you want to know all the basics of binary options trading, then you are in the right place. By reading this article, you will discover all the features of those derivatives, and we will even provide you with some basic tips and strategies that you can use. Start trading digital contracts on the Binolla platform.

Binary Options Explained

As was already mentioned, binary options are derivatives that require you to predict the price of the underlying asset at a particular moment in the future. They are also known as fixed contracts for the nature behind them. When you buy a binary options contract, it has a so-called “expiration,” which is a point in the future when the derivative expires. 

Another important thing about binary options that you should know is that you don’t buy an underlying asset directly. You purchase a contract for it. Therefore, one of the key features of those derivatives is that you do not own the asset, which is a great advantage as you don’t have any additional costs that may be related to transactions and other expenses.

Binary options have fixed risks and profits that make them very popular among both novice and seasoned traders. When trading those contracts, you know in advance how much you can earn if your forecasts are right. On the other hand, you see your eventual losses too if something goes wrong, which is a great advantage as your risks do not grow over time before the option expires.

Are Binary Options the Best Financial Instrument for Beginners?

Binary options are considered among the best derivatives for beginners to start trading in the financial markets. They offer a simple and understandable structure, as well as fixed payout conditions that allow you to calculate your eventual profits in advance. Here are some key features of those contracts that make them the best choice for newcomers:

• Low entrance amount. In order to start trading those contracts, you don’t need to invest a lot of money. The minimum investment is $1, which makes fixed-time options the best choice for beginners. Moreover, for each $1 spent, you can receive up to 85% as payout, which is a great opportunity as compared to many other financial instruments, where getting 85% for one single trade is rare;
• Those contracts are accessible to everyone. Traders from anywhere can join Binolla and start placing trades on the platform. You don’t need a specific financial or economic background to begin;
• Simple and straightforward rules. The derivatives of this type have very clear rules that you will understand in a matter of minutes. This makes them the best choice for beginners who are taking their first steps in the financial markets;
• No spreads or other commissions. Unlike Forex, where you buy or sell at a less attractive price due to spread, in binary options you have a strike price only. There is no bid or ask to care about. No hidden commissions will affect your trading outcomes, either.

Binary Options: Examples of Lower and Higher Contracts

With the Binolla trading platform, you have access to the most popular binary options. In particular, you can buy Higher contracts when you think that the underlying asset is going to grow in price and Lower options when you assume that the underlying security is likely to plunge.

Let’s imagine a situation where you think that EUR/USD, which is trading at 1.1100 is going to go upwards. In order to try to make money from this prediction, you should buy a Higher contract. Before doing this, you should also think about the expiration time, which can be 5 minutes in our example. To sum up all the above, you buy a Higher contract for EUR/USD when the underlying asset is trading at 1.1100 with a 5-minute expiration. 

Imagine that the price goes up and reaches 1.1115 in the following five minutes. This means that you can earn up to 85% on this difference in just five minutes. If you have placed $100 in this trade, you will be able to make $85 at the expiration moment.

Now, let’s assume that GBP/USD is trading at 1.2890. You think that it is going to plunge within the next 10 minutes. Therefore, you can buy a Lower contract with those parameters and wait for the expiration to occur. Imagine that GBP/USD went down and hit 1.2875 at the moment of expiration. Then you make money again. If you had invested $100 in this trade, for instance, you would have made $85 again.

As you can see, binary options are very simple contracts that allow you to get into trading and familiarize yourself with financial markets. However, this simplicity is related to the nature of contracts only and has nothing to do with the trading process itself.

Binary Options Trading Guide: How to Place Your First Trade

Traders shouldn’t be confused by the apparent simplicity of binary options trading. There is a big difference between placing random trades and analyzing markets in order to make price predictions and improve the chances of earning money. Therefore, we have prepared a detailed guide on how to trade binary options if you have serious intentions:

• Choose an underlying asset. This is a very important step, and you should be prepared for it in advance. Choosing underlying assets requires some research that includes looking at the macroeconomic background, going through historical price data on the chart, etc.
• Conduct price analysis. Now you need to make your own predictions on the direction of the price movement. You can use various technical analysis strategies that can be based on trendlines, Japanese candlestick charts, trend-following and momentum indicators. You can use those types of technical analysis separately or even combine them in more complex strategies.
• Look at the current macroeconomic news background. Whether you are going to use news trading strategies or rely solely on technical analysis, you should keep an eye on the events that may shake markets. Unexpected data results as well as officials’ comments may break even strong technical patterns or indicators signals. Therefore, sometimes it is better to avoid those moments when key statistics appear. 
• Choose the expiration time. Timing is crucial in binary options. You may be right in your prediction of the direction of the price movement but fail to make money due to wrong timing. Moreover, different expiries may require different strategies to be applied. For instance, if you prefer 5s Scalping, you should be prepared to make quick market decisions. 
• Think about the investment amount. This is another key parameter that you should choose before buying a contract. While it may sound tempting to invest as much as possible in a single trade and receive up to 85% of your investment as a profit, seasoned traders use no more than 1-5% of their total balances. This allows them to grow their profits consistently without putting a lot at risk.
• Check all the parameters again. Before confirming a trade, check all the parameters of the deal to make sure there is no mistake in them. Once you do it, confirm the trade and wait for the expiration to occur.

Binary Options Demo: Busting the Myths

A demo account is an opportunity for traders to test their skills, discover the interface of the platform, and simply trade without risk until they learn the basics of binary options. This is a very powerful tool that should not be ignored by beginners. While the demo account is very useful, it is surrounded by various myths that we are going to bust below:

• Prices on real money and demo accounts are different, and brokers “help” traders earn on demo accounts so that traders believe that they will do the same when they start trading on their real accounts. This is a very common myth that is widely cultivated on the Internet. Actually, the demo account has the very same prices as the real money one, and you can check it at any time by comparing charts from both demo and real money accounts. Moreover, the brokerage company has no impact on the quotes at all. This means that all your performance on the demo account is real and is not rigged in any way;
• Demo accounts are useless because they do not allow you to master trading psychology. When it comes to this exact myth, it is half-true as it depends on how you treat your demo trading activities. If you treat demo trading as a game with a lot of money on your balance that you spend without thinking about money management basics, a demo account will be useless to you. However, if you treat it like your real account, which means that you use the 1-5% rule, stick to your strategy, analyze your trading results, reveal mistakes, and work on them, the demo account will be of great use.

Those were the most popular myths about binary options demo trading. However, to make it useful, we would like to give you some recommendations:

• Use a demo account wisely. The demo account at Binolla allows you to familiarize yourself with the interface of the platform as well as make your first trades without risking your own money. Moreover, this is a great opportunity for traders to test their strategies and trading systems. One of the advantages of a demo at Binolla is that it has unlimited resources. Even if you spend all $10,000, you can always reset the balance and place more trades. However, you should never forget that demo mode’s main goal is to polish your skills before you switch to real money mode;
• Do not overuse a demo account. Trading too much on a demo is another common mistake that binary options traders make. While it is unlimited, you should not trade on a demo for a long time, as it creates a false sense of safety. You don’t put anything at risk, and you don’t lose anything. This led to the appearance of the wrong trading perception. When you start using a demo, you should think in advance about when you will end your training and switch to the real-money account;
• Think about your money management concept. Even if you are currently trading on a demo, tomorrow you will switch to a real money account. Therefore, it is a good idea to apply the strategy that you are going to use when you are going to trade with real funds. For instance, if you are planning to invest $1 per trade, you should stick to this amount during your demo trading training.

Types of Binary Options Underlying Assets

Binary options are derivatives, which means that you are not going to buy an asset directly. You are going to purchase a contract for an underlying asset. This contract can be of two types – Higher or Lower, which means that you can make money on both upside and downside price movements. The range of underlying assets for this type of contract includes:

• Forex. This is the most popular option when it comes to fixed-time contracts. There are plenty of FX currency pairs that you can choose from. Forex is very popular among binary options traders for many reasons, including the fact that currencies mostly depend on macroeconomic news, while when analyzing stocks, you will have to pay more attention to the companies’ data;
• Stocks. When trading binary options, you can buy contracts with stocks as underlying assets. There are plenty of options that you can choose from, but stocks are less popular among traders because they are more complex when it comes to analysis;
• Cryptocurrencies. Bitcoin and altcoins can also be traded via binary options. They boast huge volatility, which is both an advantage and a disadvantage. However, when it comes to binary options, where your risks are limited, the volatility is a plus, as you can be more sure about the price to hit your targets at the expiry;
• Metals and commodities. These types of underlying assets are less popular among binary options traders, but you can try them to diversify your underlying asset portfolio.

Binary Options Best Strategies for Beginners

Professional traders always use strategies to make money in financial markets. Therefore, before placing your first trade with these derivatives, it is recommended to go through some of the simplest strategies for beginners that you can use from the very first day of your trading career.

Follow the Trend Strategy

Skilled traders say that a trend is your friend, and this is completely true regardless of what financial instruments you use for trading. When it comes to binary options, It is crucial to see the direction of price fluctuations, especially when it comes to 5s Scalping as it allows traders to quickly react to any changes and make money.

The easiest strategy ever is to find a moment when the price breaks the previous high and moves higher. You don’t need any additional tools to apply these tactics. You don’t even need to draw the line, as you can simply watch the price, and once it goes above the previous high, you can buy a Higher contract.

The same is relevant for the situation when the price goes down. If you see the underlying asset breaking the previous low, you can buy a Lower contract. Similar to the previous example, you don’t need to apply any tools at all. This strategy is universal, which means that you can use it on most, if not all, timeframes. You can equally apply it to 5s Scalping trading.

The Pinoccio Strategy

This strategy requires you to have a basic knowledge of Japanese candlesticks and the ability to read them. Again, there is nothing difficult here, as this is a single-candlestick pattern that can often be found on most charts, regardless of the underlying asset that you have chosen for trading.

If you have already had some previous experience with Japanese candlestick analysis, you will see that this pattern is nothing but a hammer, and you will be right. The pin bar is a hammer, which predicts the reversal of the downtrend and the beginning of the uptrend (not always, but in most cases).

The idea of the strategy is pretty much simple. You need to find the pin bar on the chart and once it closes, you buy a Higher contract. A pin bar is a special candlestick with a very small body and a long tail down. The proportion of the body and the wick can be different, but in general, the wick should be at least longer than the body. 

Another basic strategy that you can use when trading binary options is a reversed pin bar. This is the same Pinocchio pattern, but this time the body is located below the tail. If you refer to Japanese candlestick analysis, this pattern is also known as Shooting Star. 

As for the idea of the tactics, it is straightforward. Once the reversed pin bar pattern closes, you can buy a Lower contract, expecting the price of the underlying asset to go down. In our example, we have two different reversed pin bar patterns. The first one (two on the left) is followed by a bullish candlestick, which may lead to losses, but the second one will bring you profit. 

To adjust a bit this Pinocchio bar strategy, you can wait until the first candlestick after the pin bar closes or check if the reversed pin bar low is broken by the next candlestick.

Stochastic Overbought/Oversold strategy

A stochastic oscillator is a momentum indicator that predicts price reversals and can show the current price movement direction. To start using it, you need to simply apply it to the chart, and even without making any period adjustments, you will receive a powerful analysis tool.

The basic strategy that you can benefit from when using this indicator is when the price leaves overbought or oversold areas, which are located above 70 and below 30. In the example above, the Stochastic indicator leaves the overbought area, which is above 70, and the price goes down. The idea here is to buy a Lower contract once the indicator breaks 70 down. 

Another strategy with this technical indicator is when the price leaves the oversold area, which is located below 30. Once this happens, you can buy a Higher contract. In the example above, the price of the underlying asset goes upwards once the indicator breaks 30 from below.

Key Recommendations When Trading Binary Options

To succeed in binary options trading, you can use the following recommendations:

• Think about how much you will invest in a particular trade in advance. The golden rule that can be applied to most financial assets is to invest no more than 1-5% of your total balance;
• Choose expiration carefully. In binary options, you have to predict the price at a particular moment. For instance, if you are going to buy a Higher contract for EUR/USD with 1.1030 as the current price, the quotes should be above this level by expiration. Therefore, if you expect the currency pair to grow for the next five minutes, for instance, you shouldn’t choose longer expiration as the price may reverse later, especially when you are dealing with corrections instead of strong trends;
• Use simple strategies. Many beginners learn the hard way by going from simple strategies to complex ones. The best way is to use simple strategies that require a couple of analysis tools. When trading binary options, you don’t have a lot of time in most cases;
• Never stop learning. Even if you have mastered the basics of binary options, you shouldn’t stop learning, as you will discover a lot of interesting and useful things in the future. Trading is about constantly filling your knowledge base. Those who stop are unlikely to succeed.

Conclusion

Binary options trading is a very attractive type of trading where you buy a contract and try to predict the direction of price fluctuations within a particular time interval. This type of derivative is the best way for beginners to learn more about financial markets and start making money. However, even skilled traders often use binary options to diversify their portfolio of financial instruments.

FAQ

How Do Binary Options Work?

When trading this type of contract, you can predict whether the price will be above or below the current price of an asset in a given interval. For instance, if you think that EUR/USD is going to grow from 1.1050 within the next five minutes, you can buy a Higher contract with a five-minute expiration. On the other side, if you suppose that this particular asset is going to plunge within the next five minutes, you need to buy a Lower contract.

Are Binary Options Just Gambling?

No, they aren’t. Binary options are financial instruments that have a lot in common with classic options and other derivatives. Those contracts are provided by brokerage companies and not by online casinos or betting sites.

Can I Make Fortune Trading Binary Options?

Binary options are financial instruments, which means that traders can make money here like with any other financial instrument. The amount of profit you make over time depends on your skills, ability to learn, ability to adapt to changing market conditions, and ability to manage your capital.

How to Learn Binary Trading?

By reading this article, you have learned the basics of trading with these derivatives. Our website provides you with a lot more information about binary options trading, including technical analysis, strategies, news trading, money/risk management, and trading psychology.

Are Binary Options Worth a Try?

Yes, they are. Like any other financial instrument, binary options have their advantages and disadvantages. Beginners can start with those contracts, while skilled traders can use them for their financial instrument portfolio diversification.