Swing Trading Binary Options
Binary options are derivative products that can be traded on any market. This form of financial betting is popular with beginners, in particular, as they know exactly how much money they stand to win or lose before placing a trade.
This 101 guide to binary options trading will explain how contracts work, including timelines, payouts, fees and more. We also cover how to compare the top binary options brokers and platforms in 2024.
Binary Options Brokers for United States
Best Binary Options Brokers
There are many leading brands in Europe, the US, UK, Australia and beyond. The top 5 or 10 platforms for you will ultimately depend on your needs, but some of our top picks include Pocket Option, IQ Option, Nadex and Quotex.
Follow the individual links for our 2024 reviews and ratings. We also explain how to compare the best providers further below.
What is Binary Options Trading?
Binary options are straightforward contracts that can be traded on any market. Since they are a derivative, the investor never owns the underlying asset. The name indicates the key characteristic of this type of trading: the result is binary. There is a clear indication of the risk and reward before a trade is made. An investor knows exactly how much money is at risk and exactly how much profit they could make before they place a trade.
Binary options trading is a high-risk/high-reward form of investment. The trader predicts the price movement of a particular asset. If their prediction comes true, they win the predefined amount of money. If their prediction is wrong, they lose all the money they invested.
Contract Types
There are several main types of binary options contracts offered at the top brokers:
- High/Low (Up/Down) – This is the most popular option. You predict whether the market will trade above or below the current market price when your option expires.
- Touch/No Touch (One Touch) – You predict whether the market will reach a set target price. If it hits that price (or misses it) within the expiry time, you win the option. The market does not have to remain at that target price—you win (or lose) if it touches it even for a split second.
- In/Out (Boundary or Range) – You define a price channel around the current market price and predict whether the market will stay in or out of this. If the market price leaves this channel at any point before expiry, you win (or lose) the option. This is the only contract type where two target prices of equal distance are set and you don’t have to predict the direction of movement.
- Ladder – These options define five or six target prices. You predict whether the market will be trading above or below each of these prices when the option expires. This type allows you to combine risky high-payout predictions with safer ones. Each rung behaves like a high/low option . . . the target price just gets further away each time you go up the ladder.
Examples
Let’s take a look at how binary options contracts work in practice…
Imagine Netflix is currently trading at $500. A binary option has a strike price of $505 and expires in three days. The trader can buy the option for $50. If the value of the stock is more than $505 in three days, the option will expire in the money and is worth $100.
As a result, the investor would make a $50 profit ($100-$50). If their prediction is wrong and the stock is worth less than $505 at expiry, they lose their $50 deposit.
Let’s also look at a touch/no-touch example…
Say the current market price of the FTSE 100 Index is 7010.45 GBX (pence sterling). An investor believes that at some point within the next week, the price will hit 7015.50. The broker offers a payout of 70% for this trade. The trader places a $50 one-touch options trade on exactly that to happen.
Within just three days, the market price of the FTSE 100 hits 7015.50, and the investor is paid his $50 investment as well as $35 profit straight away. Even if the value has dropped back down to 7014.35 after a week, the trader still wins the option as the price was touched within the expiry time of one week.
The appeal of binary options trading is that it is straightforward and follows a simple format. Traders do not need extensive study guides, books and PDFs to find out the secrets of this form of financial speculation.
History
The history of binary options trading dates back to 1973 when the Chicago Board Options Exchange (CBOE) was formed, though they were not traded publicly on the CBOE until 2008.
The 2008 financial crisis essentially led groups of investors to realize they needed a low-risk investment system, leading to the emergence of betting products. In May 2008, binary options were made available as tradable assets on the American Stock Exchange (AMEX), now known as the NYSE. Within a few months, retail brokers began introducing binary options products.
This form of financial gambling has become popular due to its simplicity and accessibility in the digital age. They require little training and can be traded on different markets at all times of the day. There are forums filled with quotes and tools, and traders can always find a course online to help them.
Markets
Binary options trading is available on all major financial markets. Binaries can be traded on forex currency pairs, such as the GBP/USD and USD/CAD. They can also be traded on commodities and stocks, like Facebook and Amazon. Today, binary options can even be traded on cryptocurrency, including Bitcoin, Litecoin and Ethereum.
Simply check which markets your broker offers exposure to before opening a live account.
Expiry Times
Expiry times are an important aspect of binary options trading. This represents the time at which the trade will end and determines whether you have won or lost. If you are swing trading, expiry times are likely to range from one or two days to a few weeks.
Selecting the Right Time Frame
Several factors affect the expiry that a binary options trader chooses. Longer time frames imply longer expiries. Similarly, shorter time frames mean shorter expiries.
You need to use the most appropriate charts to generate signals to help you choose the right time frame. For instance, a trading binary options 60 seconds strategy requires traders to use and examine 1-minute charts or 5-minute signals. This way, you can make informed decisions regarding your proposition on contract prices. This is because you used the latest information and trading signals.
Here are other factors that influence your timeframe and expiry:
Trading News
News that influences market expectations are worth your attention. This is because they help you anticipate a potential move in asset price, enhancing your ability to make potentially profitable trading decisions. Major news on politics, earnings, and economic events, can help you identify opportunities.
Support and Resistance Levels
These indicators provide crucial insight into potential areas where the financial markets may be reversed or temporarily halted. Suppose an asset’s price is trading near one of the two levels. In that case, it may significantly affect the dependability of a given signal from another technical analysis indicator.
Trading Indicators
Each swing trader relies on specific trading indicators. As a result, the patterns generated by these indicators significantly influence the expiry you select. Divergences and convergences may occur within a timeframe or between multiple timeframes.
A divergence is where the asset price action does not agree with your indicators. On the other hand, a convergence is where various indicators and the price action produces a similar signal. In that case, the signal produced is stronger than when binary options signals from different indicators disagree.
The Legalities Explained
Binary options trading is often viewed in a negative light, with many investors left unsure whether they are legal or not. In truth, binary options are completely legal in many countries—their reputation has just been tarnished due to some online scams.
Trading Scams
Binary options trading has been riddled with scams and frauds from unregulated brokers. These firms tend to offer quick cash and instant money, much like a get-rich-quick scheme. The world’s regulatory bodies are trying to deal with these issues, so caution still needs to be taken.
It’s worth highlighting that binary options trading can be a perfectly legitimate practice. The dangers and risks come from dealing with unregulated providers who claim you can make quick money.
To distinguish whether a broker is real or fake, check whether they hold a license with a top-tier regulatory body. Also, check reviews and ratings from reputable websites and platforms.
Where Are Binary Options Legal?
Rules vary across the world, with different regulatory bodies setting different requirements and limitations for brokers and investors.
EU
In Europe, ESMA has withdrawn binary options trading for retail traders. However, this does not mean EU-based investors are unable to access products. Brokers not regulated in Europe can still offer binaries to residents in Germany and other EU countries. Additionally, EU traders can nominate themselves as professional traders (foregoing any regulatory protection) in order to trade binaries freely.
UK
Despite some confusion, binary options trading is legal in the United Kingdom. Of course, there is still the risk of scams and fraud even though they are legal, so make sure you trade with a broker licensed by the Financial Conduct Authority (FCA) for added security.
US
Binary options trading is legal in the United States (USA). However, residents are limited to just two licensed options: Nadex and CBOE. Fortunately, both brokerages offer competitive payouts and a range of assets.
Rest of the World
Binary options trading platforms are legal in many other countries around the world. Customers are free to start swing trading binary options today in India, Bangladesh, Canada, Australia, New Zealand, Kenya, Uganda, Japan, the United Arab Emirates (UAE.), and Nigeria.
Rules and regulations differ between each country, so make sure you check online before you start trading.
Strategies
The key to success is developing a winning strategy. There are a lot of strategies available online, like the 90% Accuracy and Signals strategy, as well as the Big Ben strategy and Bandit strategy, which are available to download for free on sites like FreeCourseSite. All of these strategies, along with the Heikin-Ashi False Breakout Strategy and the Binary Millionaire Method Manual, can also be found on the Udemy academy.
Here, we will show you how to build an expert trading strategy in two simple steps.
Step 1 – Create a Signal
The signal tells you which way the price will move, helping you to make a prediction. There are two ways to create a signal. The first is to use technical analysis. Study real-time charts and sites like TradingView to identify patterns. Once you have spotted a pattern, use technical indicators to signal when they are repeating and when you should invest.
The other way to create a binary options trading signal is simply by following the news. Look for investment company announcements, events in the economic calendar, and global headlines that could impact entire markets.
Step 2 – Money Management
Once your signal is created, you need to know how much to trade. The best advice is to keep it simple. Below are two popular risk management strategies:
- Percentage Strategy: This is a popular technique amongst beginner traders. It is very simple: Specify a percentage you are willing to risk, say 2%. So if you have $1,000 in your account, you could invest a maximum of $20 in a single trade. This ensures big losses don’t wipe out all your capital.
- Martingale Strategy: This is a slightly riskier approach. The aim is to recover losses quickly by increasing the amount you invest after each loss. So, if you lost a $100 option, you would invest $200 on the next one, and so on. If the trade wins, you instantly recover your losses. The problem here is that a losing streak can cause large losses.
Tax Implications
Some countries, like the UK, consider binary options trading to be a form of gambling. This means that you will not be charged taxes on any profits. It may not stay this way, though. In the future, binary options could come under the same umbrella as other financial derivatives like futures. And in the US for example, binaries are already subject to the same taxes as other forms of trading.
Consult a local tax advisor if you are unsure about your obligations.
Pros
Benefits of binary options trading include:
- Potential profit and loss are known before each trade
- Available on any market
- Simple learning curve
- High payouts
- Fixed risk
Cons
Disadvantages of binaries include:
- A trade will lose more than it wins
- Derivatives can be volatile
- Limited trading tools
How to Choose a Binary Options Trading Broker
The number of brokers online can make selecting the right provider daunting. Here are some things to consider when comparing potential platforms:
- Average payouts: Compare the average payouts at each broker. Higher average payouts will mean more profit each time you win an option.
- Minimum deposit: Ideally, you want to choose a binary options trading broker with a low minimum deposit. Many brokers offer no minimum deposit, while others are around the $100 mark.
- Fees: Deposit and withdrawal fees plus overnight charges can quickly rack up. Find a broker that allows you to maximize your profits with low costs and a transparent pricing schedule.
- Assets: Certain brokers will specialize in certain assets. If you have an idea of what you want to trade, make sure to choose a broker that offers those markets. Otherwise, have a look and see which markets each broker offers and pick one that interests you.
- Demo account: Binary options trading can be costly when you first start. A demo account provides a great way to get used to the trading system. It acts as a simulator, allowing you to trade live markets with virtual funds. Here, mistakes will not be punished, and you can spend time learning about the various markets.
- Bonus schemes: Upon registration, some trading brokers may offer a no deposit bonus or some sort of deposit promo. These can boost your funds as you begin trading. Just always check withdrawal terms and conditions before signing up.
- Mobile apps: If you want to trade on the move, you will need to download an app. Make sure your binary options trading broker offers a suitable trading application for your iOS or Android device.
- Customer support: Ideally, your binary options trading broker should offer 24/7 customer support. If you forget your login details or encounter withdrawal problems, you need a provider that offers effective customer support to solve the issue quickly.
- Regulation: With so many scams out there, check that your chosen broker is regulated by a top-tier body like the FCA, CySEC or ASIC.
Tips
Education
One of the best pieces of advice to improve your binary options trading skills is to keep learning. There are a host of books, newsletters, forums, Discord servers and PDFs available to teach you everything you need to know about binaries.
YouTube is another great source. There are videos that go through terminology, strategy, and even videos on creating signals. Another great source is Udemy, which provides courses related to binary options. They even offer a certificate when you complete certain training materials.
Bots
Once you have created a binary options trading strategy and proven that it works, you can consider automating it through trading robots. These API bots use signals and algorithms to implement trades. The bot does all the hard work, placing trades on your behalf.
Journal
Binary options trading can be confusing, especially if you can’t remember each trade you placed or which ones won or lost. Keeping a journal of all your results can help solve this issue. You can use Excel or other bespoke planning software. This will help you avoid any mistakes you have made in the past. Moreover, it will make it much easier to keep track of your profits, which could be vital at the end of the tax year.
Bottom Line
As this tutorial has shown, binary options are an exciting and simple form of trading. They are also transparent by nature; the trader knows exactly how much they stand to make or lose before they place any trade. Follow our 101 guide for beginners to find the right broker and start trading today.
FAQ
What Is A Binary Options Trading Account?
A binary options trading account is simply an account that lets you trade binaries. At some brokers, this will be separate from the standard trading account. Check fees, investing tools and any bonuses before registering.
Can Binary Options Make You Rich?
Binary options trading has the potential to create millionaires. However, as with any form of trading, this is unlikely, and this form of financial speculation is risky. As a result, it’s key you take a careful approach to risk management.
Is Binary Options Trading Gambling?
While very similar, binary options trading is not gambling in the traditional sense. Most governments do not view it in this way, although the UK government does view it as gambling when it comes to taxes.
Is Binary Options Trading Halal Or Haram?
Binary options trading may be considered haram as once you deposit money into the account, it belongs to the company and not you. However, this is open to interpretation so speak to your local religious leader for further guidance.
Is Binary Options Trading Worth It?
Binary options trading has the potential to make large profits, but it also carries substantial risk. Whether it is worth it will ultimately depend on your risk appetite.
Are There Any Risks Associated with Trading Binary Options?
As lucrative as they may sound, binary options pose various risks:
- Insufficient trading tools
- High losses, particularly when the trade ends out of money. You lose all your invested amount if your prediction is wrong.
- Regulatory issues. Binary options are new concepts, and regulatory agencies are yet to establish clear-cut procedures to regulate brokers. This results in unregulated brokers who can potentially take advantage of traders.
Where Can You Trade Binary Options?
Several brokerage platforms offer binary trading. For instance, you can swing trade binary options on the North American Derivatives Exchange (NADEX) in the US. However, regardless of which platform you select, always choose a regulated broker to avoid losing your hard-earned investment to scammers. Also, it’s worth noting that not all brokers offer binary options trading. Therefore, you should examine a broker to determine whether or not they support binary options trading.
Are Binary Options Trading Scams?
No, binary options are not a scam as long as you deal with a registered broker. However, unregistered brokers emerged, targeting unaware and vulnerable traders. Therefore, you need to scrutinize your broker before investing in binary options with them. Doing so ensures that you deal with only regulated brokers.
Are Binary Options Legal?
Yes, binary options are available and legal in many countries, including the US. However, traders must trade them on regulated exchange platforms.
Does Binary Options Really Work?
Binary options work, and one can make money from trading them. See our example on how binary options work.
Should You Trade Binary options?
Binary options are simple to trade and do not require an in-depth understanding of trading terminologies and concepts. Also, there is a fixed risk since traders know what they can lose even before they enter a position. Therefore, they have better control of their trades. Another reason why you should consider binary options is that you can trade in nearly all markets. You’re not limited to a particular trading instrument or market.