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Binary Options Trading as a Financial Tool

Updated on April 29, 2015

What is Binary Options Trading

Considering binary trading? Read the following to learn if it is a good fit for your financial future. Many fortunes have been won and lost using this particular form of trading.

Binary options trading is a relatively new kid to the block when it comes to trading in general. It came into existence around 2008, and has since evolved into the financial instrument it is today. It has other names including all-or-nothings, digital trading, and Fixed Return Options (FRO's).

Instead of your usual stocks and bond trades where you purchase a stock or bond and hope it performs well over time, binary trading offers a quick return on an investment.

The following are the types of trades that you can use with binary options trading:

High/Low - the most basic of binary options trading. You either place a Call (Up) or Put (Down) order on the option you want to trade.

One-Touch - a type of binary options trading used on the weekend. They offer the highest return on your investment, in some cases up to 500 percent on the investment. It is important that you know a LOT about this particular option that you are trading, as the markets are closed when you place your order.

30/60/120 Seconds - As the name implies, this type of trading is done in record time. You choose the amount to invest, choose Call or Put, and then choose the time of expiration in seconds.

Long-Term - these types of trades can take several days to a month to expire, meaning you can be on pins and needles waiting to learn if you have won or lost. They are an option for a trader who isn't in a rush, and has a good knowledge of the option they are trading.

Pairs - in this type of trade, the investor chooses which option will outperform the other. This type of trading is difficult for the novice as it is hard to predict the outcome without a knowledge of the performance of the given options.


What Can You Trade with Binary Options Trading?

There is a variety of options that you can trade with Binary Options Trading. They include the following:

Currencies - there is a variety of currency options for traders, though availability of certain currencies depends upon current open markets.

Commodities - the most common commodities are gold, silver, and oil, but other options are available as well including wheat, corn and coffee.

Indices - an interesting option to trade, and probably more predictable as well for trading veterans. Trade from among the indices including NASDAQ, S&P, DOW, and others.

Stocks - includes some of the most notable stocks on the market from Apple to Google, Coca-Cola, and more.


What Does it Cost to Trade Binary Options?

Manual Trading

Most binary options brokers require an initial small deposit to open an account. As of this writing it is in the range of $250-$350, depending upon the brokerage. Some well-known brokerages, such as ShareBuilder, already offer this to their stock traders. Check out your current stock brokerage to see if options trading is available because you may not need to make a large deposit to get started.

In my own personal opinion, I would urge new investors to start out with the least amount of money, as the first withdrawal is usually tied to your investment amount. For example, a $300 deposit usually means you have to trade 10 times that amount before you can make a withdrawal - that is $3,000.00. This isn't difficult for a typical day trader to achieve, but for a novice who may need some of their investment back quickly, it can take a week or more.

Investing less may also help you keep your money, so to speak. The less you have to start with, the less chance you may make reckless trading decisions. This is especially true of novice investors who may get caught up in the excitement of binary trading.

Automated Investing

Most binary options brokers require $1,000.00 or more to set up an autotrading account. This may include an individual broker assigned to your account of which you can discuss what your long-term objective is. It can also mean they simply put your money into an account, and you choose a setting based on your objectives (i.e. conservative, aggressive, 1-100 percent investing on the deposited amount, etc.). Be wary of the set-and-forget autotrading account, as you can end up broke by the end of your first day of trading.

I personally am not a fan of autotrading as it can end in disaster for a novice investor. Some unscrupulous brokerages will trade your money until you have nothing left in your account. They're getting a percentage of each trade, so they don't really care if they leave you bankrupt. This is why it is important to have an actual person to discuss your goals with instead of a set-and-forget-it autotrade account.

Would you turn the keys of your car over to a complete stranger and hope they bring it back? Probably not. Do your research on brokerages, and then choose a broker who has a variety of ways for you to get in contact with him/her to handle your money. Don't choose a brokerage who promises you a broker, then never gets in touch with you, and then doesn't give you a way to get in touch with him or her. Be wary of brokers who only offer you Skype as a way to contact them or an email address that ends in a free email server like - they probably aren't reliable brokers!

Binary Options Trading Poll

Have you been successful trading binary options?

See results

A High-Risk Investment Tool - Trader's Opinions and Reality

Binary options can be used as PART of an investment strategy, and only if used by a knowledgeable trader or broker. It is a VERY RISKY investment strategy and is not suitable for the majority of investors.

On one of the trading forums I visited, I noted some of the following sentiments from traders around the globe. The following are some of those statements:

The negative responses:

"I deposited $5,000 with a broker who set up an autotrade account for me. I lost that, and then deposited another $5,000 because I thought it was a fluke that I lost that much money. In short order, I lost all of it with the exception of .59 cents, and my broker wouldn't return my calls."

"I wouldn't recommend binary trading to anyone. You'd have the same kind of luck playing craps."

"If you have money to lose, than this is the form of trading for you."

As well as a few positive responses:

"I was able to pay off my college debt with the help of my broker."

"While I'm not a millionaire, I make a modest return on my investment - probably $1,500 - $3,000 a month."

If anyone tells you that they can make you a millionaire in short order using binary trading options, they're probably after your money and could care less about your future. Run away from any brokerage that promises you this! A more realistic view is that you will win 50-70 percent of your trades, though a 50/50 chance of a win is all that you can really hope for.

Discover Reputable Brokers

Binary options trading is essentially the 'Wild West', though in recent years the Cypress Securities and Exchange Commission (CySEC) have begun to regulate binary options brokers. If you are looking for a legitimate, binary options broker, the CySEC website is a good place to start looking as they list most of the brokerages that are licensed and regulated.

Another place to do some research is Forex Peace Army,a non profit organization that helps out investors. Visit their forums and search brokerage houses. They provide information on various topics regarding trading, where to find good brokers, as well as information on who NOT to do business with. They also have their own dispute registry, which can come in handy should you find you've fallen prey to a scam brokerage.

A Word of Caution for Novice Investors

A final word of caution for would-be binary traders.

I will give you an example of an experience I recently had while doing research on a brokerage and autotrade robot. My initial investment - starting on a Monday - was $300, and I was using an autotrader robot, along with my own manual trades. By Monday evening I had $2400 in my account. Overnight, the autotrader robot invested $2360 in two trades (one of which made zero statistical sense), and lost almost all of my money. $40 was still in long-term investments though, which I will use to regain my lost profit.

Needless to say, this is a warning to anyone out there who doesn't have $300 to lose - you can reap huge rewards, as well as huge losses, when trading binary options - especially if you use autotrading!

While I understood the risks prior to investing, I still don't like losing money. I, however, have a slight advantage as I'm not a novice investor and am pretty sure I can recover my initial investment manually trading.

Personally, I prefer to use MANUAL trading for investments because I like to maintain control of my own money. I would recommend that novice investors should do their own research on options they wish to trade. Don't rely on binary signal "robots" to make decisions for you; instead, use binary signal bots to supplement your current knowledge base. I also recommend researching binary options signal bots before using them, as many have been shown to be inaccurate in their statistical predictions.

Binary Investor Poll

If You Have Traded Binary Options, Would You Recommend it to Other Investors?

See results


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