Binary options trading depends on a simple question – is the underlying asset above or below a certain price at a given time? If so, you can make big profits with one of the easiest financial instruments to trade. But what exactly are binary options, and what are their benefits and drawbacks? This page will answer those questions, and also detail how to get started day trading binary options, including strategies, tips, and regional differences to watch out for. Use the top list of brokers to compare the best binary brokers for day trading in Malaysia 2020.
What Are Binary Options?
First, let’s see how it all works. Simply put, binary options are derivatives that can be traded on any instrument or market. They appeal because they are direct. You know exactly how much you can win, or lose before you make a trade. No complex math and calculators required. This is why they are also known as ‘all or nothing’ trades. If you anticipate news announcements, quarterly reviews, or global trends, then you may be able to make accurate decisions about whether prices will rise or fall at a certain level in the future, making a profit. There are various derivatives to choose between. You can trade binary options on commodity values, such as aluminum and crude oil. You can opt for stock prices, such as Amazon and Facebook. There is a selection of foreign exchange rates, including all major and minor pairs. Even cryptocurrencies like Bitcoin, Ethereum, and Litecoin are on the menu.
Brief history
If you want to start trading binary options full-time, a detailed understanding of their origins will help. Binary or ‘digital’ options have been around for decades. Originally, it was only a large and rich institution with accessories. However, 2008 saw the US Securities and Exchange Commission open the floodgates by allowing binary options to be traded on exchanges. The Internet and technology since then have given worldwide access to these ‘digital’ options. Given its position, with low barriers to entry for savvy day traders and easy to understand prepositions, the demand for this digital trade will only increase.
Types of Options There are several different types of options to choose from. The most popular types are listed in a brief glossary below.
- Up / Down – The simplest and most common binary option. Will the price be higher or lower than the current price when the expiration time arrives?
- In / Out (Range or Boundary) – The ‘high’ and ‘low’ numbers will be set. You then make a determination as to whether the price will finish inside or outside this boundary.
- Touch / No Touch – The level will be set either higher or lower than the current price. You then enter a position on whether the price will ‘touch’ this level between trade time and expiry. Payment will come as soon as the contact happens.
- Ladder – This is similar to up/down trading. However, instead of using the current price, the ladder will have a pre-determined level that steps up or down. This usually demands a large price move. The flip side of this is the return that will often exceed 100%. Although it is worth noting, both sides of the trade are not always available.
Strategy
Binary trading strategies will vary from trade to trade. What may work for ladder options in forex, may prove useless in multiple options on gold. Having said that, there are two reasons you must have a strategy. First, the strategy prevents emotions from interfering with trading decisions. Fear, greed, and ambition can all lead to mistakes. Strategy allows you to focus on math and data. Second, the strategy allows you to repeat profitable trading decisions. Once you know how and why binary options work, you can replicate them to produce consistent profits. Building A Strategy There are two essential elements to your binary options trading method, creating signals, and determine how much to trade. The second is money management. How did you decide to define these two steps?
Step 1 – Making Signal A
Signals will tell you where the price will go, allowing you to make predictions ahead of time. The two main ways to create signals are using technical analysis and news. Charts, Patterns & Indicators If you can identify patterns in your charts, you may be able to predict future price movements. They hold to the idea that ‘history repeats itself’. You can start trading binary options using Heiken-ashi, other candles, and line charts. Armed with charts and patterns, successful traders will build strategies around their findings. You can then build indicators into your strategy, telling you when to make binary options, and which binary options you should go for. These technical tools can prove invaluable, so make sure your broker offers the features available to conduct thorough market analysis. One of the great things about binary trading is that you can use some common indicators, patterns, and tools to help predict future binary options movements. So, you can start trading with / using:
- Support and resistance levels
- Price action
- Stochastic oscillator
- MACD indicator
- Trends
- Babypips
- Mirror
- Options close to expiration
For more detailed guidance, see our charts and patterns page. News You can trade binary options without technical indicators and rely on news. The benefit of news is that it is relatively easy to understand and use. You should look for company announcements, such as financial report releases. Alternatively, look for more global news that could impact the entire market, such as moving away from fossil fuels. Small announcements can send prices skyrocketing or plummeting. If you can stay in the know you can trade your binary options before the rest of the market catches up. To do that, you need to be attuned to various news sources. You can browse online and have TV or radio in the background.
- Yahoo Finance
- CNBC
- Business Insider
- Bloomberg
- Financial time
Step 2 – How Much You Should Trade
If you’re just starting out it’s often best to keep things simple. Trade the same amount on each trade until you find your footing makes sense. Here are 3 binary options trading strategies for both beginners and experienced traders. Martingale Strategy Binary options use a martingale trading strategy aimed at recovering losses as quickly as possible. To do this, you will trade a larger amount of money in the trade following the loss. So, you will set the amount you trade each time, say $250. However, if you lose on that $250, you will bet $500 on the next trade. If the trade wins, you will already be back in the black, instead of being stuck around the breakout mark. The problem with this strategy is that if you experience a losing streak, you can lose serious capital in a short space of time. So, only use this strategy if you have a fairly accurate way of making trading decisions. If you’re still in the trial-and-error stage, consider a different approach.
Percentage Strategy The percentage-based system is popular among both binary options traders and other traders. The idea is that you state the percentage you are willing to risk. Between 1-2% is normal. So, if you have $10,000 in your account, and your risk value is 2%, you can trade $200 on one trade. If you have a higher risk tolerance and consistent results you may want to increase the risk margin to 5%. The advantage of this system is that you cannot lose more than you can afford. This makes it an ideal approach to take if you are new to trading binary options. Straddle Strategy This example is best used during periods of high volatility and before the breaking of important news announcements. This technique can be used by traders of all experience levels. It gives you the ability to avoid the call and choose the option, and instead allows to put both tools in place. You intend to use when the value of the instrument has increased, but you think it will decrease soon. Once down, place a call option on it, expecting it to bounce back quickly. You can also do it in the opposite direction. Only put calls on low asset prices and puts on rising asset values. This significantly increases the chances of at least one of the trading options producing a profitable outcome. If you are in a volatile market, This simple system allows you to see handsome profits. This works well as a 60 second strategy trading binary options, and will also accommodate expiration times of up to one day.
Bot & Algorithmic Trading
Once you have honed in on a strategy that makes you consistent profits, you may want to consider using an automated system to apply it. These robots usually rely on signals and programmable algorithms. Bots then do all the legwork, trading options on your behalf. The plus side is that they can make more trades than you can manually, increasing your potential profit margin. They can also trade across multiple assets and markets. It is important to investigate your broker’s offers when it comes to auto trading and check robot reviews. Many allow you to build programs easily. You can use your own entry points that depend on Bollinger bands, RSI / MFI patterns, and moving averages. However, even if you’ve got your system up and running, you can’t go into trading binary options on autopilot, you have to keep waiting. If anything goes wrong, you need to be there to fix it. Technical crashes and unpredictable market changes can all cause problems, so stay alert.
Time
Many pdf binary options strategies fail to eliminate the time variable. Certain strategies will do better with certain time options. You might want to look specifically at the 5-minute binary options strategy. Alternatively, trading 15-minute binary options may suit your needs better. Therefore, whichever strategy you choose, make sure you take time into account. Strategy Compilation Trading binary options with success lies in finding a strategy that compliments your trading style. Therefore, consider the instruments you will be trading. Then, use an effective money management system and use charts and patterns to create telling indicators. Also, use news announcements to your advantage. If you try fences, gaps, hedges, or other binary strategies for the first time, why not try a practice trading account first? This will allow you to address any issues before you invest your own money. For more detailed guidance, see our strategy page.
Tips
Education
Binary options trading 101; engage in educational resources. As Benjamin Franklin pointed out, ‘an investment in knowledge pays the best interest’. Top traders never stop learning. The market changes and you have to change with them. To do that, use some of the resources detailed below.
- Books & eBooks – There are many books and ebooks out there that can provide invaluable information on day trading binary options. You can benefit from expert binary options trading knowledge with decades of experience. The good thing about this book is that you can learn at your own pace. One book that has made binary options trading easy is ‘Trading Binary For Dummies’, by Joe Duarte.
- Video tutorials & seminars – Engaging and easy to follow. There are many online video tutorials out there that can guide you through making trades. With seminars, you’ll also get questions answered and the basics of binary options trading explained, plus some brokers offer weekly seminars to keep you up-to-date with market developments.
- PDF guide & instructions – This will give you a clear step-by-step explanation that you can follow and apply. The best part is that you can find many online that are completely free and easy to download, whether you use Android, Windows, or iOS. Binary options trading ‘Abe Cofnas’ pdf is very popular.
- Forum & chat room – This is the perfect place to discuss ideas with binary options experts. You can benefit from recommendations and learn in real-time while investing in your binary options. You can also change the chart of the live chart screen to get a feel for binary methods and other tactics.
- Newsletters & blogs – This is very smart as it keeps up with the latest developments that may affect your market. Furthermore, you can hear about binary options contests (yes, they really exist).
- Copy trade – This is when a social trading network / platform is combined with a binary trading tool. You can follow experienced traders, analyze their strategies, and then imitate their trades. Check out copy trading reviews before you sign up.
All of the above will play a major role in your binary options trading practice. Free videos and trading examples will help give an edge to the rest of the market, so use them as much as possible.
Journal of Commerce
There are currently no binary options universities. Therefore, an explanation of why the option does not work can be difficult to find. Keeping a journal with all your binary options trading results can solve that problem. Detailed records of every trade, date, and price will help you hone your strategy and increase future profits. Whether you save it as an excel document or you use specially designed software, it can help you avoid future dangers. As an added bonus, it can make filing taxes at the end of the year easier. A journal is one of the best kept secrets in binary options, so now you know, use one.
Psychology
Successful trading binary options is not just about the right strategy. If you can’t control your emotions, you will make costly mistakes. As Robert Arnott noted, ‘what is comfortable is rarely profitable’. When the pressure starts, fear and greed can distract you from the numbers. You have to accept that losses are part of trading and stick to your strategy anyway. If it’s based on accurate math and careful technical analysis, you need to keep your faith. Once you start acting inconsistently your profits will suffer.
Regional Differences
Rules
As the popularity of binary options grows worldwide, regulatory bodies are rushing to instill order. That means where you trade and the markets you enter may be governed by different rules and limitations. UK If you day trade binary options in the UK, for example, you will need a license from the UK gambling commission. If you choose a broker regulated by the Financial Conduct Authority (FCA), you will be guaranteed an extra level of protection. Be wary of some brokers who are registered with the FCA, but this is not the same as regulation. Brexit has brought complications to trade regulations. MiFID II guidelines are set to be implemented across Europe enforcing regulations around binaries, however, The UK may no longer implement the guidelines. This means that the UK is no longer under pressure from Europe to reclassify binary as a financial instrument. US Binary options trading for US citizens is limited to the choice of only two brokers. Nadex and CBOE are the only two licensed options. Fortunately, they are both large firms that offer competitive prices and a wide variety of different assets for binary trading. Rest Of World In Australia, the Australian Securities and Investments Commission (ASIC) runs the scheme. If you are interested in brokers based in Cyprus and Israel, please check regulated by CySec. In Dubai and the rest of the UAE, binary options are regulated by the Dubai International Financial Center (DIFC). You can also start day trading binary options in Canada, India, Pakistan, South Africa, Malaysia, Kenya, New Zealand, Nigeria, Vietnam, Indonesia, and the Philippines. Each has its own regulatory body and different requirements. So, if you want protection, make sure you do your research before you sign up for a binary broker on the other side of the world.
Tax
Another important regional difference comes in the form of taxes. Some countries consider binary options a form of gambling, such as the UK. This comes with significant benefits. HMRC will not charge any tax on profits made through binary options. However, in the future binaries may fall under the umbrella of financial derivatives and be taxed. Having said that, if daily binary spending is your only form of income and you consider yourself a full-time trader, then you may be liable to pay income tax. Although you may still be excluded, it is worth seeking clarification. Outside the UK, tax rules are very different. Binary options in Japan and Germany come with significantly different tax obligations, for example. So, before you start trading get advice to make sure whether you will be exempt from tax. If not, will you pay income tax, capital gains tax, business tax, and/or any other form of tax? For more detailed information, see our tax page.
Can Trading Binary Options Make You Rich?
Although interesting and dynamic, to make a living trading binary options you need to use this page and other resources as a guide. Can binary options trading make you rich later? Done right, yes you can. There is no question that binary options are potentially profitable, this is proven by many millionaires. To get there though, you need the right broker, an effective strategy, and you need to invest in your trading education, using the resources outlined above.
Further reading
Frequently asked questions
Are binary options legal?
Can you trade on weekends?
Are binary options banned in Europe?
Do binary options work on MT4 or MT5?
Can you use binary options on cryptocurrency?