Binary Options (BO) trading is another way of making a few quid. It’s far simpler than spreadbetting in that you don’t need to set stop-losses or work out risk to reward ratios etc. [Please note our SYP.]
The basics of one type of BO trading is this:
1. You decide if you’re going to bet if price on whatever instrument will end higher or lower than your entry point.
2. You place your bet.
3. You either win or lose.
In advance of placing your bet you know what your maximum loss will be and your possible profit, should you win. As this is not a tutorial I do not go into all the different kinds of Binary Options trades that are out there.
Let’s say you wagered £10 that price on GBPAUD will end higher than 2.15069 in 3 hours. What happens next is that you either lose £10 if price ends lower, or you gain a predetermined profit (which could be between 65% and 70%) if price ends higher than your chosen level. So £10 could become £17. It’s really that simple. What’s not easy is deciding the right entry point.
Success in Binary Options depends on interpreting the market direction correctly in relation to your entry point – and of course getting your money/risk management right.
Interestingly, I’ve discovered that harmonic pattern trading and Williams Vix Fix systems are pretty good at estimating what may happen with price direction. I did not know about these two methods when I first flirted with Binary Options. In addition understanding price action and determining sound levels of support and resistance are fundamental to picking entry points. The latter is a skill that can only be acquired through much practice and live experience. All of this skill can be had on demo trading platforms for free.
An important difference with Binary Options that may not be at first obvious, is that magnitude of shift in price is not very important, so long as price just exceeds your target (in either direction). So – if your target going short was to be less than 2.15607, once price ends at 2.15606 you will have won. In spreadbetting your size of win depends on the magnitude of exceeding your target. This is an important difference with Binary Options because, using harmonic pattern trading one may better predict probability of direction of price movement. So far I have noticed difference between Bats and Gartleys may not matter that much in terms of winning the direction, which seems more important in this type of trading.
Some Binary Options traders rely on other indicators such as Parabolic SAR, MACD, RSI and crossover of various moving averages. It matters not what indicators a trader uses. The important thing is that the trader works them for a demonstrable advantage. There may be several different tools that can do a job efficiently but different workmen may choose their own favourite tools. It’s not about indicators. It’s about the brain that uses them.
There are tons of Binary Options trading sites and lots of scams out there!!
We favour Traderworld and 24Option. We do not favour Banc de Binary – though BDB will allow bets as small as £1. Many Binary Options providers will allow a demo account only, but some ask for a small deposit to start a live account.
Avoid starting a live account with a bonus offer. Why? Most of these offers require in the fine print that you complete a certain volume of trades which can be 50 to 100 times your deposit, before you can withdraw any money. This can be problematic.
Totally avoid signals services associated with these platforms.
Please note our SYP.