Binary options are options that offer only two possible outcomes. In the United States they come with a capped risk and gain and can be bought over-the-counter in various special brokerages, as well as on a few regular exchanges.

The maximum (and the only) gain that can be obtained with each binary option is $100. In case of other possible scenarios, the trader loses all of his/hers invested funds. Each binary option contains a ‘Yes’ or ‘No’ proposition, and the answer decides its outcome. For example:

Will the price of crude oil be above $29 on February 1st at 1:00 pm?

If the answer is ‘yes’, the binary option’s owner will receive $100. If the answer is ‘no’ he/she will lose all the money invested in buying this option. Prices of binary options vary depending on the possibility for a positive answer, which means that a binary option that costs $93 has very good chances to be a winning one, while one that costs $8 is hardly going to bring its owner a $100 prize.

The important thing to know when trading binary options is concerned with the probability of their outcomes and its relation to the option’s price. Since binary options’ prices are determined by the traders themselves, a high price doesn’t necessarily indicate a wining option and the same goes the other way around.

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Traders can also choose binary options by their expiration time. In most brokerages and exchanges there are options with hourly, daily and weekly expiration. Binary options with hourly and daily expiration are great for day-traders, while options that expire within a week are mostly bought by swing traders.

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Dos and Don’ts of the binary options trade

Since binary option trade requires minimum funds to enter, many people without any kind of trading or investing experience try their luck on this market. These are a few things to avoid on a binary options’ market:

  • Emotions– Emotions shouldn’t be mixed with any kind of trade, they make people irrational, which leads to bad decisions and great loses;
  • Seeing binary options trade as gambling– Many people do this and it is one of the biggest mistakes a trader can make. Each option should be closely evaluated, with using all available information about the subject. This will help traders understand the ways of the market. Relying only on luck leads to big loses;
  • Get-rich-quick schemes– Like with all other types of trading, people can’t get rich overnight. All brokers and fellow traders who say otherwise are trying to scam you, or they are the victims of an ongoing scam without knowing it.

There are also ways traders can increase their performance, and earn more money on the binary options market. When trading binary options, traders should:

  • Practice– Before starting real binary option trade, beginners should learn and practice a lot. They should read eBooks to understand how binary option’s trade works and use various demo trading applications to sense what real trade looks like;
  • Research– They should do elaborate analysis (both financial and mathematical) about each binary option premise and price, even if the option is expiring in minutes. Buying options for which you can’t find any data online, and can’t do this type of research, is not advisable;
  • Follow Trends– the market is always moving and prices of many different assets often move in opposite directions. When the price of the dollar jumps, the price of gold dumps. Many other assets work in the same correlation. That’s why it is very important for traders to follow all price trends.

Like any other type of trading, the binary options trade can bring both winnings and loses, and only traders who thoroughly investigate all options they want to buy can earn money this way. Gamblers may have one or a few lucky streaks, but after that their unaccountable trading will only create loses.

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