What is Binary Option?
A binary option is a fast and extremely simple financial instrument which allows investors to speculate on whether the price of an asset will go up or down in the future.
The time span can be as little as 60 seconds, making it possible to trade hundreds of times per day across any global market.
Before you place a trade you know exactly how much you stand to gain if your prediction is correct, usually 70-96% – if you invest $100 you will receive a credit of $170 – $196 on a successful trade.
This makes risk management and trading decisions much more simple. The outcome is always a Yes or No answer – you either win it all or you lose it all – hence it being a binary option. The risk and reward is known in advance and this structured payoff is one of the attractions.
To get started trading you first need a regulated broker account (or licensed). Pick one from the recommended brokers list, where only brokers that have shown themselves to be trustworthy are included. The top broker has been selected as the best choice for most traders.
If you are completely new to binary options you can open a demo account with most brokers, to try out their platform and see what it’s like to trade before you deposit real money.
How to Trade binary option– Step by Step Guide
- Choose a broker: Use our broker reviews and comparison tools to find “The Best Binary Option Brokers” for you.
- Select the asset or market to trade: Assets lists are huge, and cover Commodities, Stocks, Cryptocurrency, Forex or Indices.
- Select the expiry time: Options can expire anywhere between 30 seconds up to a year.
- Set the size of the trade: Remember 100% of the investment is at risk so consider the trade amount carefully.
- Click Call / Put or Buy / Sell: Will the asset value rise or fall? Some broker label buttons differently.
- Check and confirm the trade: Many brokers give traders a chance to ensure the details are correct before confirming the trade.
Regulation – The major regulators currently include:
- Financial Conduct Authority (FCA) – UK regulator
- Cyprus Securities and Exchange Commission (CySec) – Cyprus Regulator, often ‘passported’ throughout the EU, under MiFID
- Commodity Futures Trading Commission (CFTC) – US regulator
- Australian Securities and Investments Commission (ASIC)
- There are also regulators operating in Malta and the Isle of Man. Many other authorities are now taking a keen a interest in binaries specifically, notably in Europe where domestic regulators are keen to bolster the CySec regulation.
Recently, ESMA (European Securities and Markets Authority) moved to ban the sale and marketing of binary options in the EU. The ban however, only applies to brokers regulated in the EU. This leaves traders two choices to keep trading: Firstly, they can trade with an unregulated firm – this is extremely high risk and not advisable. Some unregulated firms are responsible and honest, but many are not.
The second choice is to use a firm regulated by bodies outside of the EU. ASIC in Australia are a strong regulator – but they will not be implementing a ban. This means ASIC regulated firms can still accept EU traders. See our broker lists for regulated or trusted brokers in your region.
There is also a third option. Traders who register as ‘professional’ are exempt from the new ban. The ban is only designed to protect ‘retail’ investors. A professional trader can continue trading at EU regulated brokers such as IQ Option. To be classed as professional, an account holder must meet two of these three criteria:
- Open 10 or more trades per quarter, of €150 or more.
- Have assets of €500,000 or more
- Have worked for two years in a financial firm and have experience of financial products.
Risk Warning: “Please be advised that certain products and/or multiplier levels may not be available for traders from EEA countries due to legal restrictions.” Trading CFDs carries a high level of risk since leverage can work both to your advantage and disadvantage. As a result, CFDs may not be suitable for all investors because it is possible to lose all of your invested capital. You should never invest money that you cannot afford to lose. Before trading in the complex financial products offered, please ensure to understand the risks involved.