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What is a binary option
Binary options is one of the ways to earn on the financial markets without participation in exchange trading. The trader's task is to analyze and predict the direction of an asset's movement. Assets are currency pairs, indices, raw materials and metals, cryptocurrency.
The mechanism of earnings on БО is remotely similar to sports betting, only here instead of sports events there are currency and stock quotes. If the trader's forecast turned out to be correct, he will get his investments back and receive an additional income. If the speculator is wrong, he loses the transaction amount.
The fixed returns and simplicity are the main differences between binary trading and retail Forex. But let's break down what a binary option is in simple terms.
The major stock exchanges began to work with this type of trading in 2009. And at first all transactions were made between the major players: banks, global organizations and so on. At the same time all the operations were transferred to stock exchanges.
Now binary options trading is available to all individuals over 18 years old. Everyone can present himself as an investor and expert in financial analysis. All you need to do is register with a broker, fund your account and you are ready to enter the market.
Binary options are a way to trade on the price differences of currencies, commodities, stocks and precious metals. To better understand this we will give you an example. Let's say you invested $100 in an option. If the forecast is successful you will get your investment back + an additional interest - $70-85. In case the price moves in the wrong direction, the trader will lose the full amount of investment.
But this is not enough to fully understand what binary options are. This type of activity has a number of advantages, which will help to decide whether it is worth registering with a broker or not. Let's start with the positive qualities:
Trading options is a complex tool. But not as complicated as forex trading;
Known risks. While making the deal you will know all the data: possible profit percentage and loss amount, expiry time, etc. It will allow a trader to understand clearly the importance of each transaction;
It does not matter how many points the price will pass during the expiration period of the deal. The main thing - as long as the value of the asset closes above the initial mark (when buying Call option) or below (when buying Put option);
The possibility of short-term trading.
In binary trading you can make a profit even in 30 seconds after conclusion of a deal. This is one of the main reasons for the popularity of such a way of earning.
A large amount of knowledge is necessary for successful earning in trading:
One needs to study fundamental and technical analysis.
Know the schedule of trading sessions.
Follow news of stock and currency markets.
Understand market conditions and how they affect currencies of different countries.
Have a high level of discipline and self-control skills.
A trader should have a clear strategy and understand when to buy and when to sell.
Hopefully, we have managed to explain what binary options are in simple terms.
To trade binary options. Traders use different tools. Let's break down what Exotic Options are.
Exotic options, a fairly new direction of financial markets, were invented in the mid-60s in the West, but most actively they began to be used about 30 years ago, we must admit that their emergence was inevitable because of their flexibility, as well as to solve more complex problems and issues that confronted investors at that time.
Nowadays, there are a huge number of different contracts traded in the options market, most of them we know as American and European call and put options (with the standard characteristics given in the contract specifications). But there are also options with quite specific, non-standard characteristics - in practice, they are called exotic options.
Exotic options are non-standard options whose parameters and descriptions can differ greatly from those of standard options. They appeared due to the evolution of risk management. When opening exotic options, new opportunities for risk management appeared.
In order to trade binary options traders choose a convenient platform for trading binary options.
A platform is a trading terminal that allows you to trade binary options anywhere and anytime.
The convenience that you will get when trading depends on the choice of a trading platform.
A good platform is distinguished by the following characteristics:
Asset quotes are presented in a large window on which it is easy enough to analyze quotes;
The quotes charts can be chosen between line and candlestick charts;
It is desirable that the platform has integrated technical indicators through which you can create your own trading strategies;
The profitability of the options should not be lower than 85%;
Price charts can be moved back in history to test strategies and analysis, reduce, zoom in, etc.
The trading terminal is the most important element of binary options trading, as it is through this program that all trades will be executed.
Do not confuse the Broker.
Broker is first of all a legal entity - a company that provides you access to the financial market where the trader, that is you, performs operations independently. A broker of binary options would be more correctly called - a company providing brokerage services. This is a rather significant difference. The fact that brokers can be divided into two categories - the brokers, which carry out operations on behalf of the client and at the expense of the client, and the second - brokers, which carry out operations on their own behalf, but at the expense of clients. The second category is often large financial corporations where clients are investors and receive a percentage of the company's total profits. But the first option is just those companies whose services we use when trading binary options. To get a successful start in binary options trading, it is very important to choose a reliable broker. A broker who will not manipulate the quotes and who will pay out your profits. We recommend you to start with small amounts, make a test deposit, get verified, make a test withdrawal and only then start working on something serious.
People, who are contemplating trading for the first time, often ask themselves whether all these binary options are fraudulent.
Read carefully about how to tell the difference between binary options scams. We will tell you about the 10 main signs that almost all scams have, and I also suggest discussing the key phrases that scammers use to manipulate our minds.
10 main signs of fraud:
1. A one-day website
The very first sign by which you can identify a binary options scam is, of course, the site itself. Since our alleged cheater is located on the Internet, we will evaluate it as an ordinary online resource. To check this is very simple. If you see a hastily made design in the style of "somehow": the letters are missing, the lines "fly", everything is crooked and untidy, you know, you're facing the cheaters who made the platform quickly, just to "cut the money" without any plans for long-term work.
Another important point, look how many pages on the resource in question. If the pages (with text) are less than 10 - then it's not even a site, but a conventional landing page, created in order to buy it users through advertising. This is the so-called one-day sites. The point of them is that when the number of negative feedback on the scam reaches a certain limit, the authors simply rename the project and make a new page.
The second important point in the issue of identifying binary options scams is the abundance of advertising. In our field, the amount of advertising is directly opposite to the quality of the project. But that is not what we want to talk about. If you have found out about this or that way of "earning" by clicking on the banner or advertising ad - you are 99% likely to be on the fraudsters.
And one more important point, not quite on the subject, but still. If someone suddenly got your data (phone number and e-mail) and starts assertively selling you something - define the addressee in spam right away. Good offers do not materialize out of thin air, and they will not chase you.
Be careful if your potential scammer has a suspicious amount of praise reviews. Especially videos. Especially when the reviews tell tearful stories of disabled people, pensioners, single mothers, etc. Especially when all these newly minted millionaires are sitting in communal flats against a backdrop of stripped wallpaper. Especially when they basically do not "move" their eyes, because they read the text on a piece of paper for money. This is a sure sign of binary options scams, yes. Plus, such scams often use other people's stolen photos, so pay attention to the photo as well.
And now about guarantees as an indicator when identifying binary options scams. In short, if you see a guarantee, go straight to the bottom. Because no sane person, working in the financial markets, simply will not give you a guarantee. And the more so 100% (such results do not happen in principle).
In general, this sign of binary options fraud is very, very common. If someone is actively spamming you, like this, with a letter like this in a day: Yes, and with such "enticing" topics like "a sack of cash from the sky" or "thousands a day". Then you should know that you're faced with a classic scammer, who operates according to the classic scheme again with the spam-mails. Pass the party past such scammers, or better yet, put the authors in spam.
Approaching the most "fun" signs of scammers. Do you know the easiest way to spot a binary options scam? Let me tell you right away what is sure to be in such a scam. Obligatorily a millionaire (and necessarily on a cool car or even a helicopter). This millionaire must tell you that he was not always a millionaire, and became one not so long ago (so you can). Next, you can be shown the house, his wife, his mistress. As a rule, nothing more. No real facts like photos from White House meetings, no real Forbes rankings.
Lots of certificates, patents, and other crap like "best project", "approved", etc. from all kinds of organizations. In general, all recommend them, all recommend them. Only VOZ doesn't approve them. Remember, there are no bonuses in binary options. What crooks hand themselves is a problem solely for them and their mental state. So you can use all these certificates as a litmus test for binary options fraud.
8. The Secret Algorithm
All of these binary options scam projects have one thing in common. Do you know what it is? They are all supposedly based on secret developments by programmers, banks or the authors themselves. All of these algorithms always "have" high accuracy, are incredible innovations, based on economic research. Plus, the authors often indicate in their videos, what-program has been developed for 3 years, and sometimes even 10 years (nothing that there were no binary options at that time). And all this mess often needs beta-testers in limited numbers, but about this next point.
So, the penultimate but very important point in our list of signs of how to identify binary options scams. The question of inducements to action, the manipulation of your mind. Throughout the video you will be rushed by the following phrases:
You are missing your chance;
Your life can change dramatically now;
You will regret missing this opportunity,
There are only X number of seats left;
Or there are only X number of seats left;
Just fill out the registration form now;
Click register now and you can make it.
Well, I think the point is clear. You're being rushed. They're rushing you so that you don't have time to think, to wiggle your brains. Otherwise, you'll realize that it's all a scam and fraud. So you have to force yourself to take an impulsive action. This is where the mechanism of repetition comes into play. As the saying goes, tell the man 100 times that he is a pig, and at the 101st he will kneel down and grunt. The zombie effect is very often used in marketing. Throughout the entire video you will be repeated in a circle that it's all true, there are no tricks, having a lot of money is great, you can also start earning and other "howls" in a circle. And the circle of such videos, it must be said, is not small. All this obscurantism rarely lasts less than half an hour. During this time naive people are "rounded up" to the fullest: zombified, manipulated, played on feelings, etc. Also, many people often believe the marketing ploy that there are a limited number of places left or "only three places left in your area. Friends, all who really believe in it, I suggest that you take and check whether the scammers will leave a place for you in an hour, a day, a month. Believe me, they won't let you down. They will always have a place for you and your money.
And the last rule on how to spot a binary options scam. Very often (but not always) scammers lead traders to the same scammers. That is, to brokers that do not withdraw money. This is not always the case, of course. There are cunning scammers.
But can you really win? If you follow all our recommendations, you will definitely succeed. After all, trading binary options is, after all, a financial activity. This is a legal trading tool. It is a trading instrument with transparent rules and the wild level of risk - up to 90%, although brokers cluck bashfully about equal 50/50.
Further in our article we will tell you about some popular instruments, which help traders to earn.
Types of binary options
The two main types of binary options are cash-or-nothing and asset-or-nothing options. In the former, some fixed amount of money is paid if the option turns out to be in the money and in the latter, the value of the underlying asset is paid. These options are sometimes called all-or-nothing options or digital options. This types of options are most common in the Foreign exchange market.
Up/Down and High/Low binary options are as easy to learn in Forex as they sound. An investor makes a guess as to whether an asset's price will be higher or lower than the current price at expiration time.
1. First, the investor chooses an asset to trade (indexes/commodities/shares/currency options).
2. Then the investor decides whether to choose a buy option (when the price goes up) or a sell option (when the price goes down).
3. Once he has chosen the direction in which he thinks the asset will move, he will begin to determine the size of the investment.
4. Once the trade starts, the live price (price at that point in time) is classified as the "strike price" (the price at the moment of entering the market) and the trader waits until the moment of finishing (when the trade is considered completed) to find out if he wins or loses.
Binary options ladder is a fairly new type of trade, somewhat complicated at first glance. However, all you have to do is figure it out.
Let's think of ladder options, where we have to predict that the price will touch a certain level. So, there are several levels in the ladder and you get more and more money when each one is touched.
In this kind of binary options, we make a prediction that the price will touch a certain level in the time of expiration. All we need is exactly "one touch". We don't need more than that. If the price touches a support or resistance line, that's it, we're in the money. And it does not matter where and how the price will go then.
The opposite situation - option "No Touch". Here we need that the price does not reach a certain level. The same cats, but in profile.
The second option, as you understand, is a little more risky. In the first case, if it happens - that's it, we're in the money. What happens after that, during the expiry time, we don't care.
In case of No Touch, we have to wait until the expiry time and in this period the price will not reach the level we have chosen. This kind of option is often used at the end of the week, when the volatility is often very low.
Short Term / Turbo
A turbo option is a binary option with a very short expiry time. They usually include contracts with an expiration time of up to 5 minutes.
How does Binary Options Trading work?
Each trader must realize that trading binary options on the platform of the brokerage company is not connected to the world stock exchanges. In other words, conclusion of a transaction on binary options does not result in the purchase of an underlying investment asset. As we know, on Forex there has always been a buy price: bid and sell ask. Today, when trading goods or services is globally developed market relations, buyers name the price at which they are ready to buy - bid, and sellers in turn set the price at which they are ready to sell - ask.
In this relationship, both parties want to make a deal and each of them is ready to give up only a strictly defined amount, above or below which the transaction will simply not be profitable.
Volatility in binary options is a level of risk. Risk does not mean the usual concept of possible losses, but the potential for both gains and losses. High volatility implies that the price can travel significant distances in both directions in a short period of time.
So, if you have decided to start binary trading, then remember:
Binary options are like betting at an online casino: you can get started easily and make quick money. Behind the apparent simplicity there is a system where players can only count on random winnings.
Binary options are arranged according to the negative expectation principle - for one lost deal you need to win at least two. That is why you need an honest broker and an accurate trading strategy to make money.
How to start trading stock market binary options in South Africa
In order to start trading binary options, you need to do a few steps:
Find a reliable broker and register to trade
The most important thing is of course to choose a worthy broker. Some companies masquerading as brokers may indeed fail to pay out money and do other dishonest things. But if you choose a broker from the top, it's a guarantee that you'll be able to work and get paid if you win without any problems.
You need to learn how to make correct predictions
Many new traders are in too much of a hurry to start trading and forget that they clearly do not have enough experience to make a profit in trading sessions. That is why in most cases they lose their deposit and start blaming it on the broker, bad luck, etc. But 99% of failures are caused by the trader's fault - he lacked knowledge about the specifics of trading, he did not study all the advantages and disadvantages of the chosen trading strategy, or trading was provoked by emotions.
The main function of a demo account is gaining experience in financial markets, while maintaining the integrity of the deposit.
Most brokerage sites offer an opportunity to practice on demo accounts for free. Take advantage of it!
If you are self-confident, then open a real account
You learn to control your emotions, actions and desires. It is very important for traders to keep their minds cool and control their emotions without surrendering to sudden impulses, fears or stress.
Your rates of return and drawdown are satisfactory; you are able to work with long deals.
You skillfully dispose of capital, control risks, correctly use static analysis.
If all is indeed so, you can safely switch to trading on a real account. Fund your account. You're ready to make the switch.
Choose binary options with a minimum deposit of $1 - $10
Minimum deal size - perfect for beginners to try options trading with minimal risk.
Choose Expiry dates
So, first of all, let us briefly define, what in binary options is called an expiry time. Actually, an expiry is when you close your bet. The word came to us from the Latin language (expiratio), it translates as exhalation. Some traders even joke that you can exhale only after the option closes.
In fact, everything is simple. Types of expiry dates in binary options:
1. Short term expirations (or turbo) - from 30 seconds to 300 seconds;
2. Medium term expiry - from 15 minutes to 2 hours;
3. Long-term expirations - till the end of a day, week or month.
Use a CFD
CFD is a contract between two parties - the buyer and the seller. The essence of the contract is that the positive difference between the opening and closing prices of a certain financial instrument is paid by the seller to the buyer and the negative difference by the buyer to the seller. The contract also specifies the time at which the difference is determined.
Use the South African indices
Here are three of the most popular online options brokers to choose from