Binary options are an excellent way to earn money of you are able to use charts and TA to predict trends in the market. This is due to the fact that binary options can give you a very high return on investment in a short amount of time. If you correctly predict a trend in the market you can earn more than 100% an hour. To do this you have to use super short binary options and be able to predict a micro trend during that days trading. It is usually easier to predict macro trends and use binary options with a longer maturity to earn a lower but still very good return.
With a traditional option, there is a sliding scale for how much you can gain if your option expires in the money. You can not know in advance how much profit you will make if you make a profit. A binary option is different. With a binary option, the amount gained if you “win” is predetermined. Because of this, binary options are also known as fixed-return options and all-or-nothing options. You either lose completely or win 100% of the predetermined amount.
Trader interest in binary options have grown steadily during recent years, especially among retail-level traders. Today, there are plenty of trading platforms available online where you can trade in binary options without having to make a huge deposit. You can start out with a reasonably sized bankroll and then work your way up. Binary options with a short lifespan are available, so you can quickly grow a small capital into a big one doing many small trades instead of risking it all on just a few investments.
How can I make money from binary options?
In their most basic form, binary options work according to the steps outlined below. Of course, there are platforms that offer more complex binary options, so it is important to always check the terms and conditions before you make a purchase.
- You look at the available binary options and select one that you think will make your money. Let’s for instance assume that you believe that NYSE: AAPL will drop down and be below 100 USD at market close on Friday this week. Because of this, you select a binary option that costs €5 to purchase and will pay out €100 if your prediction comes true.
- You pay €5 to purchase the binary option. You can not lose more than €5 on this investment, no matter what happens to the NYSE: AAPL price.
- The binary option expires at NYSE market close on Friday. If your prediction have come true (the AAPL price is below 100 USD at market close) you are paid €100 and have made a €95 profit. If your prediction did not come true, you are not paid anything and you have made a €5 loss.
- Read as much as you can about different trading strategies and learn from the experience of other traders who share their experiences with binary options.
Gaining something else than cash
There are binary options that will pay you something else than cash when you win, e.g. a company share or a gold certificate.
Binary options where the underlying instrument is the reward are quite popular. A binary option based on the NYSE: AAPL price can for instance award you 1 Apple Inc share if your prediction comes true.
Are binary options always based on share prices?
No, binary options can be based on almost anything. The selection of binary options available to your will depend on which trading platform you are trading at.
Examples of popular underlying instruments for binary options:
- Share price
- Commodity price
- Currency pair
One-Touch Binary Options
One-Touch binary options is a type of binary options where the whole lifetime of the option is important – not just the condition of the underlying when the option expires.
Traditional binary option: This option costs €5 and you will get paid €100 if the NYSE: AAPL is below $90 when the option expires. The option expires one week from now.
One-Touch binary option: This option costs €5 and you will get paid €100 if the NYSE: AAPL ever goes below $90 during the lifetime of the option. The option expires one week from now.
With the one-touch binary option, you will get paid even if the NYSE: AAPL is at $250 when the option expires, as long as the price dipped below $90 at some point during the lifetime of the option. One touch is all it takes!
Binary options that aren’t really binary
A recent addition to the binary option market are the binary options that aren’t really binary. Instead of just having two possible outcomes (win the full amount or lose the purchase price) these options have at least three possible outcomes.
Example: This binary option costs €5 and you will get paid €100 if the NYSE: AAPL is below $90 when the option expires. If the NYSE: AAPL is within the $90 – $92 span when the option expires, you get a €2 consolation price for being close.
In this example, you have three possible outcomes:
- Make a €95 profit.
- Lose €5.
- Lose €3.
There are also “binary options” that employ a sliding scale for profits, making them much more similar to traditional options.
Example: This binary option costs €5 and you will get paid €100 if the NYSE: AAPL is below $90 when the option expires. If the NYSE: AAPL is not below $90 but still below $95 when the option expires, you get paid depending on how close to $90 the price is.
Below $91 = you get paid €30
Below $92 = you get paid €28
Below $93 = you get paid €26
Below $94 = you get paid €24
Below $95 = you get paid €22
With this binary option, you can make a profit even if you don’t get paid the full €100.