Hey, folks!! Today we are going to reveal something really amazing to earn money with less effort and high profitability in a shorter time.The way we are going to discuss from scratch is “Binary Option”.Many of you have heard a lot about Binary option but do not know how to start trading with this??. If you want to learn binary option concept and mechanism behind this then you are at the right place. Before discussing the way I want you to focus on these points first.
1.You will need to be the dad in patience to trade with this way.I mean a greater degree of patience needs to trade binary option.
2.You will have to accept that losing is a part of trading business not only in binary option but in any way you choose to trade.
3.If the trading does not go well you should stop after the two consecutive losses and believe that the chance is coming to the next day.If you do not stop that day you will have a lot of losses to face and the result will be your account with zero bucks.
4.Always have a plan while trading binary option I suggest 3-4 trades a day with good accuracy if you get three winning trades in a row,stop trading in that session or that day and keep your profit with satisfaction.if you won’t stop and keep trading, your excitement will ruin your expectation resulting loss.
5.Manage you result in a spreadsheet and keep updating your profit/loss end of the day.
6.Very important point, Don’t trade in high and medium impact news hour if you are not aware how to trade news,Even knowing the impact of news need serious practice to trade it.
7.Do not always apply a new strategy every day to trade binary option otherwise you won’t able to manage good accuracy.To maintain your accuracy, it is very important to backtest your new strategy and then apply it in real trading.
Let’s understand what is “Binary option”??
I am going to break it into the practical way.
Option=Your Choice or direction you choose.(PUT/CALL)
It means if your perception in the market is down then you will consider taking the short means PUT Option.
If your perception in the market is up then you will consider taking Long means CALL Option.
Note: There is no relationship between Derivative option and Binary option.If you know Derivative option concept then, please don’t relate.
Let’s understand the winning and losing concept in binary option
Three terms are defined here.
1.ITM (IN THE MONEY) = WINNING
2.ATM (AT THE MONEY) = NO LOSS/NO PROFIT
3.OTM(OUT OF THE MONEY)= LOSING
There are two types of price discussed in Binary option
Spot Price:- The current market price of the instrument( Currency pairs, Energy, Stocks etc)
Strike Price:-The price at which you want to execute your option.It means in the Binary option you can enter in options trade with a price lower than strike price or price higher than the strike price.
How the Binary Option works:-
It works in the time frame or period.It has a particular expiry.For example, if you are trading 15 mins expiry time frame or period means your option will expire in 15 mins after it is successfully executed.As we have discussed earlier the Call option is Long(UP) in direction and put option is SHORT(Down) in direction.
There are so many Brokers available for Binary option.You will get two types of brokers in terms of Time Frame/Period.
1.Many brokers provide you with exact time frame expiry for example if we take in terms of 15 mins it will be like 10.00 GMT, 10.15 GMT, 10.30 GMT,ETC.In these time options, you can take long or short direction any time before expiry.For example, if you want to have your expiry 10.15, you can enter any time before 10.15 (some brokers allow you to enter at least 5 mins before expiry if you choose 15 mins time frame expiry) but your option will expire at 10.15 GMT.
Very same applies with 30 mins time frame expiry as well as 5 mins expiry,1-hour expiry….so on up to weekly expiry, options are available to trade in Binary option.Let’s take an example of 30 mins time frame if there is 10.30 GMT expiry available in 30 mins time frame option.You can enter any time before 10.30 GMT such as 10 GMT,10.10 GMT or 10.12 GMT or 10.15 GMT ETC (Some brokers allow you to enter at least 10 mins before expiry if you choose 30 mins time frame expiry).
2.The second type of broker will provide you the exact time expiry(Recall former was ‘exact time frame’ expiry) in terms of a minute or hour or day(That you choose).If you choose 15 mins expiry means you can enter at any time and your option will expire exactly after 15 mins when your option executed.For example you took 15 mins expiry entered at 10.10 AM GMT then your option will expire at 10.35 AM GMT, If you entered in above broker discussed in the first type then you have to choose the expiry 10.15 AM GMT(if you have entered at 10.10 AM mean your option will expire at 10.15, just after 5 mins your entry time, here it does not matter with the minutes but the time frame),You can choose any Brokers depending on your comfort.As My comfort is in the first type of Broker(I will explain it later in my strategy article)
Note:- GMT is Greenwich Mean Time.You can also choose your country time frame by filtering the time zone in Brokers website.
Above picture shows the screen short of Binary options broker platform which looks like this.There is an investment Amount option where you can choose $5 to the maximum you can invest in a single trade(Some brokers have as minimum as $1 to invest in a single trade).
Green and Red shows the direction you stake on,Somewhere it is written UP and Down and somewhere it is written CALL and PUT option.So, don’t be confused to choose call and put.
Between red and green you can see some numbers keep on changing, that is the market price.
Here the exact time 60 seconds is taken(Most of the brokers give you expiry time as minimum as 60 seconds and as maximum as daily and weekly and sometimes monthly).
You can choose your instrument(As here is a currency pair GBP/USD), where you want to predict the direction and can take a stake on that.
Next thing is the return that is shown here in percentage which is 70% if you will have ITM here.You will get (your investment+70% of your investment) $8.5 (In this case because the investment is $5)
Understanding ITM, ATM, OTM
In Binary Options these three terms are the measure Profit/Loss after Expiry.
For call options: –
ITM(IN THE MONEY)= when the spot price at expiry is greater than the strike price because you predict
the market to go up to take a call option.
Let’s take an example of EUR/USD, you took 15 mins expiry time frame call option at 10.00 AM GMT at a strike price of 1.0520 and your option expired at the spot price of 1.0525 at 10.15 AM GMT.In this example, your spot price at expiry is greater than strike price so this is IN THE MONEY call Option.
ATM(AT THE MONEY)=When the spot price at expiry is equal to strike price.(same for call option and put option).For the above call option example if the spot price at strike price remains 1.0520 means expires at the money(ATM).It is the case of no loss/no gain.
OTM(OUT OF THE MONEY)=When the spot price at expiry is lower than the strike price.For the above example if the spot price at expiry is 1.0519 which is lower than your strike price at entry means the option is OTM.
For Put Options: –
ITM(IN THE MONEY)= When the spot price at expiry is lower than the strike price because you predict the market to do go down to take a put option.
ATM(AT THE MONEY)= When the spot price at expiry is equal to the strike price.Recall that call option ATM has also the same scenario.
OTM(OUT OF THE MONEY)=When the spot price at expiry is greater than the strike price.
Let’s take the same example of EUR/USD for a put option.Time frame 15 mins at 10.00 AM GMT at a strike price of 1.0520.What will happen in this example if the option expires at the spot price of (a)1.0515( b) 1.0525 (c)1.0520
If it expires at (a)1.0515 which is smaller than strike price 1.0520 so, for a put option, this expires ITM. For (b) which is greater than strike price so, the option expires OTM for the put.(c) is equal to strike price so this is ATM.
Let’s make a cheat sheet:
|CALL OPTION||PUT OPTION|
Understanding profit in Binary option
Binary option is a very different platform where you get a constant percentage return of your investment.The money you invest for every option should be a small percentage of your total investment, it works in sample sizes just like a Casino but difference between both is that the Binary option returns and winning have nothing to do with a Casino if you have a solid strategy and plan then you can make it gamble free otherwise you will be doing gambling.
Binary option is gambling for those who does not have a plan, discipline, and solid strategy.First of all, you have to choose the time frame in which you are comfortable to analyse your trade and catch the spike.I recommend for a beginner to at least choose a 5 min time frame to analyse and trade for 15 mins expiry but sometimes you can analyse and trade both on the same time frame.
The profit on a single investment in binary option is from 60% to 90% of your investment depending on the broker as well as the volatility of instrument to trade you choose in that time.
Start with at least $100 in beginning by depositing the money in brokers website. Do not trade more than 5% of your investment.In this case not more than $5 trade in a single option(call/put).Do not double your investment after every loss unless you are very sure for your trade.What I talked about that you have to put money at least more than 95% of your sample size investment.I mean if you want to invest $5 in a single option trade then you have to deposit at least 100$.If you have to take a single option trade of 10$ then you should start with at least 200$ or 250$.
Binary option is like get 70-85% of your single option trade if you are ITM and loss all if OTM, it means if you have taken 5$ call or put and you expire with ITM you get in this case $8.25 to $9.25(including your investment as here $5+$3.5 to $5+$4.25) or loss $5 if OTM at expiry.I hope you understood it well!!
See the profit/loss table below from brokers website which looks like
Learn Binary option advance terms:
Rollover:- In binary option Rollover is a very important action while the volatility kills your position, Sometimes you expect the price to go up in 15 mins time frame expiry but 5 mins before expiry you think it won’t go above my strike price till the expiry if you took call and this fear can be conquered with the help of Rollover.You might think how does it work? For example, you took a call option in EUR/JPY at a strike price of 134.700 in 15 mins expiry and price are somewhere running below 134.700 and you think it won’t give you an ITM in 15 mins and you wish you could extend the time to 15 mins more or 30 mins.Yes!!! you can do it by rollover the position.Simple???
Note:- The rollover facility is not available on every Broker.I will explain some reviews of Brokers in Next article.
Martingale:-Doubling your position after every loss is called Martingale.For example, you have staked $5 and lost it, Next time you double your position to cut loss taking another risk to take a stake on $10 and so on.This is very risky if you have no clue what will happen next.
Fencing:-It is also Known as taking two opposite positions at the different strike price and same expiry time(If fixed time is taken) to get the benefit of Direction change.For example, you took AUD/USD at 0.96050 at 10.00 AM and took a call option for the expiry time 11.00 AM(1 hour) and you see it went to your direction quickly with so many spikes to 0.96100 and you think price will go down from this to somewhere around 0.96070 within your time and only 15 mins left.What will you do? You can take another put option for the 15 mins expiry at 0.96100 and you will have two profits because the price will close between your both strike price.
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