Are binary options a scam? Well, sort of. Not really. Maybe. The image problem plaguing binary options is well known by most traders. Brokers will cheat their customers and make winning trades account in the P/L as losers later, and clients have know recourse for these offshore scam artists.
Even though the issue is not widespread amongst brokerages, it doesn’t take many bad apples to give an entire industry a bad name. Look at the US banking industry. This is one of the greatest success stories in the history of worldwide enterprises, one of the most regulated industries ever created, and a conduit through which the entire world economy flows. However, If you asked most average people after the 2008 financial collapse if US banks were a scam, they would have exclaimed their abhorrence for the entire industry, just because a few people at a couple firms made some very greed decisions.
Binary options brokerages are largely upstanding, regulated, customer service oriented enterprises. These respectable institutions are broadly painted in a bad light however, by a couple of unscrupulous brokers eroding the public’s trust.
Binary options are a legal and regulated security in the United States. Many brokers are registered under European or American regulatory agencies, and client’s never have any complaints of fraud or mistrust.
We use Tradorax because of their sterling reputation. Not only do they deliver an awesome binary trading package, but they do it with top notch service, a reputation for transparency and customer satisfaction, and they are known as one of the fastest brokers to release withdrawn money.
Tradorax has 24 hour customer service, and thousands of satisfied clients. We place our trust in them to deliver for traders, and they always do.
Risk free trading is the holy grail of day trading. While stock traders have been scheming creative ways to mitigate risk for over a century, they are never really able to eliminate all risk.
Even a high tech hedge fund running a high frequency trading algorithm is open to the risk of flash crashes or technology errors disrupting their trading. See the story behind the line of code that almost took down the largest US market maker, Knight Capital.
Binary Options Brokers That Offer Risk Free Trades
For small to medium retail traders, your typical day trader, there finally is actually a risk free trade proposition. Tradorax is letting anyone who funds a binary options account have 2 risk free trades! That means even if you lose, your account will not be negatively impacted. It will be as if the trade never happened.
For an example of how much this can help you, think of a trader who places 4 trades. Now, some traders are better than others, but overall, about 50% of trades will be winners, and 50% will be losers. This means that from 4 trades, a trader who meets the averages can expect to be correct on 2 of them, and lose on the other 2.
This would result in an overall loss for the trader in his account if all trades are the same size.
Now imagine that the same trader has 2 winning trades, and 2 risk free trades that do not lose any money. If each trade returns 80%, The trader will return an astounding 160% on his 2 winning trades, if all trades use the same amount of capital.
He will not lose any money on the incorrect trades, and from 4 trades the trader has made a higher return in a short period of time than most pros make in a year! Even if a trader only makes 4 trades and withdraws all his money, he can net a nice profit.
Risk free trading sounds too good to be true, but 24option and BancDeBinary have made it a reality. Why would they basically give money away? The first reason is they know only about 50% of the trades will be losers. A trader has to choose the trade as his risk free trade before he initiates the order.
So even if the trader has a winning trade, he will still use one of his risk free trades. This still is a huge advantage to traders though. Some traders will end up losing on both of their risk free trades, and the savings will be immense.
The second reason they do this is because it is a great promotion. They know that traders will not usually stop after the two free trades, and that they have an opportunity to generate profits in the long run. The onus is on the traders to be smart and take their profits while they are still on the table.
So while risk free trading has until now been a bit of a myth, Tradorax has created a great new opportunity for new accounts with their brokerage. If you want to take advantage of this offer while they are running the promotion, you must open and fund your account with their low minimum deposit. Remember it always pays to be smart.
Binary Options are tailor made for a scalping strategy. The some of the most popular options expire in a span of only one minute! Other popular options contracts also expire in short time frames, with 5 minute, 30 minute, and 1 hour contracts being popular. This short time frame means scalpers are at a huge advantage.
This is not an instrument for investors, not for a fundamental analysis, and the shortest options are not even made for a real swing type day trade. This is made for traders who spot very short term momentum, or the possibility of a very high probability move in price. This specialty is the realm of a scalpers.
Binary Options, The Scalpers Paradise
Scalping involves capturing small movements in price over a short period of time. The challenge with scalping is to make those small movements add up to enough profit to be worth a trader’s time. With binary options, even the smallest of moves can result in an 80% profit for a trader. This is why binary options have been called the perfect way to trade for scalpers.
To make money scalping, a trader needs to find a spot of likely short term momentum. At How We Trade, we like to find these spots by find breaks in significant levels. Simply take a direction long or short as a security moves through a significant price level, and let the short term momentum carry you in the money. We find these to be the highest probability trades.
How do you spot significant levels? We have two methods we like to use. The first is the whole dollar price level break.
Whole Dollar Price Level Break
The whole dollar price level break is tried and true. This happens when the price of a security moves through a whole dollar price level such as $25.00, or $40.00. This works absolutely the best when the whole dollar level is a multiple of $10.00, but every dollar level works well. The move through these price levels are most often quick surges, so take your short term trade as it breaks, and let the option expire for big profits.
Significant Technical Level Breaks
When a significant technical level breaks, there is also a nice momentum surge as HFT programs all take positions in the same direction. There are many many technical levels a trader can look for, but price levels that work best are a previous long term high or low, such as a 52 week high. It does not need to necessarily be a full year’s time frame though, a 1 week, or even intra-day high or low may work equally as well, the point is the stock needs a significant level to burst through. Remember you do not need a lot of movement, you just need a highly reliable small movement.
Other significant levels may be found with indicators such as a 200 period moving average, a significant Fibonacci retracement, or a level that has a huge amount of volume posted on a stocks order book that is getting taken out. When the books is finally cleared, the price will usually jump quickly in the direction of the cleared volume. So as an example, if the volume on the book is on the offer, when the buyers clear the book the price will usually jump up quickly, and vice versa for high volume on the bid. Take a long position through a large cleared offer and a short position through a large cleared bid.
Choose A Strategy
No matter what your choice of strategy, it is always good to compare various options for each security. Each stock and each security will trade differently, so the wise choice is to watch each security respond to each strategy. Get a feel for the way it trades, and when you are comfortable begin taking positions. Once you have a strategy that works well, stick with it as long as you are making money.
Setting up a binary options account is extremely easy compared to opening a traditional brokerage account. A user simply needs to open an account, set up a username and password after entering their personal information, and fund the account with a credit card, wire transfer, or check to the broker. It’s that simple and easy, and a trader is ready to trade binary options immediately.
Opening account is a fairly simple process. Simply fill in easy to complete form with some basic personal information, enter your email and username, and create a password. This will open your account and allows you to begin trading as soon as you are ready to add funds. Our brokerage is very secure and is trusted by thousands of traders. The account opening process is similar to a traditional brokerage, except it is much more streamlined and does not require a government issued I.D. This saves you time and frustration when you set up your account. Our brokerage also encrypts data and uses Secure Socket Layer protections (SSL) so you know your information is protected.
Funding your account is just as easy. We accept all major credit cards, we accept wire transfers from your bank or brokerage account, and accept other alternative international payment methods. Data encryption ensures that your payment information is kept safe, secure, and confidential. Payments can be made and applied instantly so you are ready to trade immediately.
As you make money we also make withdrawing extremely easy, and payment can be sent back to a debit or credit card, or sent directly to your bank account by wire transfer.
After you have funded your account you are ready to start trading options. Keep in mind that trading hours are only available when the relevant markets are open. The New York Stock exchange is open Monday through Friday from 9:30 A.M. to 4:00 PM EST. Foreign currency exchange markets are open Sunday at 5:00 P.M. until Friday at 4:00 P.M. EST. Commodity trading hours vary by commodity type but generally are similar to stock trading.
Binary options trading can either be the most lucrative undertaking of our life of the quickest way to throw money down the drain. With so many options for securities to trade and different time frames, how is a new trader supposed to profit on binary options? Below are the surefire steps we take at How We Trade to turn profits time after time.
Step 1: Watch 3 Stocks At Once
A human can not pay attention to 15 stocks at once and expect to stay on top of every one of them constantly. We recommend that you pick only 3 stocks that you will watch for a trading session. You don’t need 10 winning trades every time you trade. Remember you only need 1 good trade to make a huge return. Watch 3 stocks extremely closely and you give yourself a chance to spot the best entries. Look for stocks near significant levels with a chance to break through, or that are in the news.
Step 2: Only Take High Probability Trades
Take only trades that are close to a “sure bet”. But how are you supposed to know what a sure bet is?
Remember when you are trading binary options you only have to be in the money by 1 penny! Look for things like news that will move a stock fast. Jump in before the stock finishes the move in a short 1 minute or 5 minute option, and a high percentage of the time you will be in the money fast and stay there.
Bank of America blasting through a significant round number. This happens consistently with all stocks.
Other trades we love are when stocks go through a round number, or significant number. Look at a chart of Bank of America (BAC) on the day it broke $10. You can see this pattern again and again through significant digits with stocks, and often through any whole dollar level.
The best ways to get news before its too late? If you don’t want to fork over the money for expensive news sites, then you can monitor social media, especially Stocktwits. Users of Stocktwits who pay for expensive news services often will start posting immediately, so you can stay on top of what is happening at nearly the same speed as the pros, for free! They will also alert you of significant numbers based on technical indicators, and it is a great source of information for new traders.
For a more in depth view of our scalping strategy for binary options, read about our strategy here.
Step 3: Stay Away From Trading Lulls
During the course of a trading day, most of the day (90% +) nothing significant is happening. There are a bunch of computer programs trading against each other based purely on other computer’s order flow. If you don’t know what that means don’t worry you don’t have to. Just don’t trade without a good reason. No one who takes 20 trades a day is going to make money, because chances are most of those trades will be based on a very weak idea of thesis of why the trade will work. Stick to the good stuff when the market is moving and stay away from the lulls.
Step 4: Withdraw Money As You Make It
Never give yourself a chance to do something stupid. As you make money consistently remove it from your account. This ensures that even if you do something really stupid like bet your entire account on one trade, you are still profiting over time. Take your money out and pay yourself as you go.
Remember not everyone has the discipline to make money. Be better than the others and follow our steps. This will be your edge in the market over others.
Binary options trading is often done by beginners, but can a beginner really make money doing it? The easy answer that many want to hear, of course, is that sure they can.
But wait! First we have to see if binary option trading is legal in your country.
Binary options trading is not available in all countries. Check the table below for alternatives.
Binary Options Trading in your Country
Depending on your country, here are the brokers available to you in March, 2023:
Australian Traders have a great choice available: Highlow.
All other traders (if you are not from the US, EU and AU) can sign up with IQ Option.
Beginners think that all a trader needs to do is go on one hot streak!
New traders often say to themselves: “just ten wins in a row and all of a sudden I will be a new trading mogul”. People looking for quick money think, that they can quit while they are ahead on a hot streak and go home richer than they could possibly imagine.
The truth is that you need a strategy and discipline to make successful trades on the long term. You should start by picking a legit broker first.
If you are just starting out with trading, then this is the perfect guide for you to start making money with binary options trading.
IQ Option is a trading platfrom that is regulated by CYSEC. It is the best trading binary options broker on our website. It’s a perfect pick for new traders.
Unfortunately binary options trading was banned in most countries but there are many more assets that you can trade: stocks, commodities, bitcoin, indices and more. There are many safe and regulated brokers.
You can start with a trading signals provider, especially if you are a beginner. FX Atom Pro looks really promissing.
Alternatively you can choose a reliable broker like IQ Option that offers free demo accounts.
IQ Option is the most trusted trading platform at the moment. They are regulated by CYSEC and they have a stellar reputation in the industry. The minimum deposit is only $10 which is perfect for beginners.
Forex Trading – The Best Alternative To Binary Trading
Binary options trading may be too risky for you. Or maybe you heard too many horror stories about binary trading? We recommend you to try out Forex trading instead.
Forex brokers offer CFD and even Cryptocurrency trading. Most Forex brokers are regulated and have been around for many years. Here is the best Forex brokers:
When a beginner goes in unprepared trading binary options, the broker will feast on them. New traders often make mistakes such as taking way to big a position for one trade, taking a bad loss, and then staying way to small the next 5 times.
They may even experience winning easily on small trades, but they never make back the big loss. New traders take way too many trades, let emotions control their trading, and don’t have the self control to stay out of low percentage trades that they know have small chance of making them money.
After knowing all the pitfalls, why would a new trader ever decide to open a binary options account and become a trader? Well, they do it because they have the power to win systematically if they have some intelligence and a plan on their side.
A new trader needs to understand the most common pitfalls, otherwise they may not even know that they are making a mistake while they do it! With that in mind, here are the most common mistakes new traders make, with what they should do instead.
Not taking every trade with a purpose. Beginners often find themselves taking trades based on a feeling, or out of boredom. This is a surefire way to make a broker rich. Never enter into a trade without a defined thesis as to why you are doing it. Think the trade over rationally before entering. Is your thesis really valid? Is it strong? What do you estimate the probability of winning given your experience? Are you hoping for the best outcome or considering the most likely outcome? Make every trade count.
Letting emotion influence – when a trade is entered into, or how big the size of the trade becomes. Never let emotion influence your trading. Good or bad it will never help you. Trading is for cool rational thought, striving to systematically take profits.
Taking way too big sized trades: Understand that you are going to have losses along the way. Even the best professionals do. Never let one trade significantly affect your account balance in a way that would affect your future trading. A good rule of thumb is never to take on a trade bigger than 1/15 of your total account value. With binary options I would recommend 1/20.
Not learning from mistakes and repeating them over and over: Keep a trading journal as we have recommended before. Jot down a quick sentence or two whenever you learn something new. Do whatever you need to do to prevent yourself from repeating mistakes.
Becoming frustrated and quitting right before you get good: The difference between making a lot of money systematically and losing money can be very narrow. Don’t let frustration keep you from realizing your ultimate goal. Understand that there will be lumps along the way, but there will also be victories, and the lumps make the victories feel so much sweeter.
How Beginners Can Make Money
Even with so many ways to mess up, beginners to binary option trading can make money if they work hard and follow a system. The key to binary options trading is to control risk. As a result, a trader can never lose too much money on any particular trade. Hypothetically, a trader has a 50% chance of being correct on any trade whether they buy a call or a put option. To make money, a trader only needs to be correct on about 60% of trades of the trades that they take. This means that of the trades that a beginner with absolutely no edge (an edge is something giving a trader a better than random chance to make money) would take, they need to figure out how to turn about 20% of them into winning trades.
Binary Options – How Much Can You Make?: This is not a simple question. There are certainly traders who make a living with binary options. You could make thousands of dollars every month. However the best is if you start with lower expectations. Making hundreds of dollars steadily is a good way to start.
Here are possible ways that any beginner can easily do this:
Use a signalling service. While most are not are not going to give a trader a significantly better than random chance of making money, they still should tilt the odds into the trader’s favor. This is all any trader can ask for. There are paid services out there such as elite trader, but even a free service from a site like barchart can give you the edge you need.
Learn to use technical indicators. Technical trading involves using strictly price action (price charts) to predict future movements. There are a lot of indicators out there, but some of the most common ones involve using moving averages. Examples of popular indicators are MACD, relative strength index, and bollinger bands. If you can find an indicator that works well for the security you are trading you can gain the edge you need in order to turn some of your would be losing trades into winners.
Trade stocks before trading binary options. Stock trading is less volatile for a trader’s account than binary option trading as long as the trader does not use leverage and sticks to securities priced over $5. If you can figure out how to be correct on more than 50% of your stock trades, you can take what you learn and apply it to binary options to multiply your earnings power.
Track your performance in each binary option security. Most people will be better at trading some stocks or commodities or currency pair than they are at others. The simplified reason for this is that each particular symbol will move differently than the others because each one has its own characteristics and traders involved in moving the price. If you find a handful of option trades that you are consistently profitable in, stick with what works and increase your size. You don’t need to waste your time and money on unprofitable trading.
Buy the right option length for your trading style. Some trading styles will work better over very short term trades, and some will work better over trades held for a long time. Know your style and the appropriate length option you should buy. A value investor for instance would not be sensitive to price changes over a 1 minute option, but may be correct on a super high percentage of trades over a 6 month period.
Binary Option Trading Is Not Easy For Beginners
The problem with this dream is, how often does this really happen? Let’s just say a lot of brokers would never be in business if it happened very often that beginners made money.
Above all, beginners have dreams of being smarter, better, and luckier than everyone else who has every done something, but the harsh reality is that trading in any form is not easy.
Especially when it comes to making money from trading, it takes hard work, dedication, and a commitment to learning. And when I say learning I don’t mean just reading a couple articles, I mean actually learning from your wins, from your losses, from hard earned experience. As a result never take a trade and learn nothing from it, especially as a new trader.
What Our Readers Asked
The short answer is yes, you can make a lot of money trading binary options. However it will be very hard to do so if your initial deposit is low. Always keep in mind that binary options is risky and you could also lose money.
A binary options broker makes money when you lose your trade. This is the main reason why there are not fees when trading.
Yes, many traders have success with binary options trading. You can even follow some of these traders. In order to do so, pick a broker that offers social trading. This way you can pick your favorite trader and copy their actions.
Do We Recommend New Traders Even Try Binary Options?
Of course! Every successful trader was new at some point. Just because a lot of traders go into trading without educating themselves or having realistic expectations doesn’t mean you will as a new trader. In fact, since you are reading this article you almost decidedly will not. At How We Trade our job is to prepare new traders for success. So move forward knowing you have a strong ally in us!
IQ Option is a trading platfrom that is regulated by CYSEC. It is the best trading binary options broker on our website. It’s a perfect pick for new traders.
Everyone is familiar with equity securities. These are the stock shares that trade on exchanges like the New York stock exchange, with traders yelling and hustling around the floor to buy low and sell high. Equity securities, more colloquially known as stock, represents ownership in a corporation. When this changes hands, the new owner instantly takes over ownership interest from the seller, and takes ownership at the execution price.
Future contracts are different from stocks, but the underlying security of a futures contract may be equity securities. Futures contracts cover a wider universe of underlying securities than just stocks though, futures contracts may be made on commodities like gold or oil, interest rates, or even the weather!
A futures contract is a contract between two parties, in which the parties agree to sell and buy a set quantity and quality of some asset at an agreed upon later date, for an agreed upon price. Futures prices also trade on exchanges just like equities. Today, just like equities, most futures contract trading now takes place over electronic systems. Both the Chicago Board of Mercantile Exchange and the New York Stock Exchange own futures trading platforms, and very little open outcry trading takes place worldwide anymore.
Futures contracts fluctuate in price just like shares of a stock. The reasons for changes in price are the same principals of stock trading, as market conditions change, the future expected value of an underlying security changes, and the price of contracts adjusts accordingly.
For instance oil future contracts are very popular. A 30 day contract may have a price of $100 per barrel, meaning the buyer is locking in his purchase price in 30 days at $100 per barrel. If the price of oil in 30 days is actually $110, the buyer still only paid $100. He now owns an asset worth more at current market value than the price he paid. As the price of oil is rising, obviously the contract will not continue to trade at the same value, and the owner can either choose to hold the contract until expiration, or sell for a profit on the secondary market.
A key fundamental difference between an equity security and a futures contract is the way in which the market determines prices. An equity security is always priced on what the market believes it is worth today. A futures contract will always be priced based on what the market expects it to be worth in the future, at expiration. If an asset is spot trading at some price, while rare, it is possible that the market will expect a lower price in the future, and the futures contract price will imply a lower future expected value.
Equity securities are much more liquid in large quantities, and very efficiently priced with very low spreads. Futures contracts are not necessarily as liquid, though popularly traded futures contracts are about equally as liquid from a retail trader’s perspective. Spreads may be larger, however, and price may be more volatile.
For many people the benefit of futures contracts is that they can trade assets in a wider spectrum than equities, and for those who are shrewd, there may be more potential to profit from inefficient pricing.
Here is an easy guide to getting started with Binary Options for those of you who are brand new. This will get you set up and put you on the path to trading successfully. For those of you unfamiliar with Binary options, we recommend you read our overview of what they are and how they are traded.
To start trading, follow these steps.
1. Sign up for a Binary Options account with a reputable broker. If you are from the US/Canada or Australia then start trading binary options here.
2.Deposit your funds so you are ready to take advantage of opportunities when they arise, but do not begin trading live yet. We recommend starting with a small deposit, not more than between $200-$500 is needed but this is up to you.
3.Set up a demo account, this should be extremely easy with the broker to trade in a sandbox mode.
5.Place at least 20 trades in demo mode before making one live trade. At this stage your focus is on getting a feel for the trading platform and entering trades correctly, as well as beginning to develop your read on how the market moves and factors that influence movement.
6.Begin placing live trades, not more than $5-$10 dollars per trade. Remember the goal is not to make a million dollars with one trade, it is to systematically make money over time. You need to start small in order to trade with a clear head, and to work on your strategy without taking a huge risk at this point.
7.Contact us if you would like help with your trading or developing your strategy from this point, remember we are here for a resource to help you learn and grow as a trader. Things to keep in mind: what time of the day are you trading? What are you using to indicate a trade setup? Did you write your rules down and are you following them every time? Are you using larger size when you have more conviction on a trade? Let us know what you are doing and we will help.
This is a guide to getting started. For more advanced strategy read our posts and strategy guides, and feel free to contact us. The more you learn the higher the probability of you making a lot of money, so we recommend it.
Binary Options are options that only have two possible values upon expiration. Either the option will pay a predetermined value for being in the money, or will expire valueless in the same way traditional option contracts will. Predetermined payout values normally vary between 60%-85% but may be higher. Binary option times to expiration are typically much shorter than traditional options.
Binary option trading has recently become more popular amongst day traders. Binary options have also have received some bad press lately, mostly for brokerages opening accounts from clients who did not have any risk capital to trade with. Despite some unscrupulous brokerages making a bad name for them, binary options are a legal instrument, and can create extremely nice returns for successful traders.
Compared To Traditional Options
Binary options are not contracts traded over open secondary markets like traditional options. Binary options are a contract between you and the brokerage. The brokerage states a payout if the option expires in the money, at Tradorax usually 80% but the amount varies, and the option will expire worthless if it expires out of the money.
Usually the two options a trader has are to either buy a put or a call option, and the strike price is the exact price of the security at the time the trade is taken. Essentially a trader is simply betting on whether the security will be higher or lower than the current price at the time of expiration. It does not matter how far in the money a trade becomes, or if it is even only 1 cent in the money, the option payout price will be the same. Because of this it is obviously in a traders interest to take low volatility but highly probable trades.
Who Makes Money
A brokerage makes money over time because with a big enough sample size, they will win about 50% of the time and all traders combined will win about 50% of the time. Below is the payout tree to a trader with an 80% return for each winning trade, a typical payout.
Obviously for a binary options trading strategy to be effective for a trader, they must win on at least 56% of trades, given an 80% payout on winning trades. For this reason demo accounts are a necessity for new traders who need to work on developing a strategy. Choosing only the most probably trades are vital for binary option traders, since it does not matter how far in the money a trade becomes.
Short Time Frame
Binary option contracts have very short time to expiration most of the time. Some brokers offer time frames as low as 1 minute, and may offer as long as a couple weeks. Because the time to expiration is extremely short the vast majority of the time, binary options are very convenient for traders who do not have all day to watch trades. Trading can take place during a lunch hour, or whenever someone has a few minutes. The short time frame also makes it very enticing for traders to trade more often than they should, and traders must remember to maintain a disciplined approach.
Funding and Withdrawing
After the option expires a traders account is immediately credited with the payout amount or loss, and there are no restrictions on when a trader can withdraw money like traditional brokerage accounts. There are also no restrictions on funding accounts, and this means day traders must be cognizant of the amount of money they are putting at risk, as they must with any strategy.
To open your own binary options account, click below to use our preferred broker.
Trading software is the most important tool that a trader can possess (other than his mind). You need confidence that your software will be reliable, have low latency (information is as current as possible), and will be easy enough to navigate that it doesn’t cause unnecessary user errors.
Binary Options Software Is Online
Downloading a software program is not required to trade binary options, the trading software is entirely within the online platform. This makes it easier for the trader because there are not separate programs to load to enter trades. Simply sign into your account online, and you can begin trading live immediately. The best binary options trading software is a platform system that is clean, efficient, and simple for the user to learn. At How We Trade we use Tradorax, because their straight-forward platform really limits any trade entry mistakes a trader may be inclined to make.
Prevent User Errors
Binary options are not necessarily easy to master, but mechanics of trading them are simple, and entering trades needs to be just as straightforward. Our trading software leaves no excuse for making order entry mistakes. Order entry mistakes are a trader’s worst nightmare because of how quickly profits increase as a traders winning percentage increases, there is a very thin margin for a trader to make mistakes if they wish to maintain their profitability. One order entry mistake can cost a trader a fortune if the mistake is large enough. Using the best software is the easiest way to reduce the probability of making this type of mistake.
We know that Tradorax trading software makes choosing to buy a call or a put extremely easy and clear. They make it very difficult to accidentally buy a call if you really wanted a put, or vice versa. There is even an order verification options before the trade is actually final (we recommend you keep this option on) so the user always can be confident that they are placing the trade they intend to place before it is final.
Real Time Information (Low Latency)
With their binary options software platform (as with any good software platform) the trader can then track the current price of the underlying asset or security in real time, and easily tell if the trade is in the money. Multiple trades can be entered and tracked at the same time, and they provide the updated expected payout value as prices move. Having the lowest latency possible is crucial to a trader’s ability to read a stock and to predict the future outcome with the highest chances of success. We always recommend that you use low latency software.
Adding And Withdrawing Funds Are Easy And Straightforward
They also allow the trader the ability to withdraw their earnings and balance very quickly, and fund their account very easily. Using a straightforward system leaves this process relatively stress free for traders, so they can focus on what matters the most, their trading! There are no hoops to jump through for a trader to add or withdraw money from their account, and a trader has complete control within the online platform. Always make sure that any broker you use makes accessing funds very easy. We know that noo one wants to fight to retrieve their own money from their account.
A Reliable Platform
Many software platforms offer very similar functionality, but perhaps the most important feature is the reliability. Make sure that any binary options trading software you use offers extremely high reliability for their traders. You do not want the software to crash when you are in the middle of a trade. We want you to be able to watch all of your trades with the highest precision possible, to free you to make the best decisions that you can make.
Great Client Support
Also make sure the broker you trade with offers a high quality customer support service, who will answer any questions about the software system or trading. It is paramount that a trader completely understands every feature of the platform before trading, and any reputable broker will be happy to walk a trader through their software.
For these reasons we use Tradorax, but ultimately a trader needs to be comfortable with the software and trust the brokers systems.
Binary options are one of the best ways to make money as a day trader, offering returns of up to 80% on one minute option contracts. Just like more traditional forms of trading however, a trader is only going to make money in the long run if they have a good strategy and stick to it at all times. With that in mind, here are the top binary option trading tips from How We Trade.
1. Keep in mind that the only thing that matters is having your contract expire in the money. You don’t need big volatile moves, focus on the highest probability, most predictable trades. You only need to be correct by 1 penny, there are no bonus points for winning big here.
2. Develop a strategy with small trades first, and then ramp up your trade size when you can prove your strategy is effective over time.
3. Never risk more than 10% of your account value on any one trade. Binary options contracts have huge returns for traders on winning trades, but just like regular option contracts traders lose 100% when a contract expires out of the money. Never let one trade destroy your account.
4. Always trade with a reputable broker. Binary options are not under the same regulation as equity trading. Tradorax is our chosen broker. They are the biggest and most reputable brokerage. Trade with them or a similar broker always.
5.Use the S&P500 (ticker SPY) as an indicator for direction for other stocks, especially after 9:45 AM Eastern Standard Time. Just like we do when we trade traditional equities, we watch the SPY closely because individual stocks move in a very high correlation with the S&P500 index during trading hours.
6. Look for times of low volatility. Binary Options do not have spreads a trader must make up to have a trade “in the money”. Just pick the correct direction and you will make a lot of money.
7.The most popular trade is not always the best, look for stocks that you have a good read on direction with, don’t just trade what everyone else is.
8.Concentrate on the securities that works for you, and what you know best. You don’t need to trade every security being offered. Learn something well and profit from what you learn.
9.Don’t trade between 9:30 a.m. and 9:45 a.m. unless you are experienced, the direction of movement often changes very rapidly during this volatile time.
10.Take advantage of the convenience of binary options. The short duration of contracts allow you to trade them during a lunch hour, or a free time during the day. You don’t need to watch a position all day to begin trading.
If you would like to begin trading binary options start by opening an account below with our broker. You do not need to fund your account immediately to open.
Volume weighted average price (also abbreviated VWAP) is a formula used to calculate the average price a stock trades at, weighted by volume transacted at each price level. Normally traders are concerned with the volume weighted average price over a 1 day trading period, but some may be interested in longer or shorter term periods.
Day traders may track VWAP because this calculation is very significant to the trading of many mutual funds and most pension funds. When the current intra-day price varies significantly from the VWAP, there may be pressure for the price to move towards the VWAP.
This calculation is important to large passive institutional investors who are simply trying to match their average transaction price to the average price transacted over the course of a trading period. By matching the VWAP as closely as possible, they may reduce their market impact costs, which are the costs incurred by large traders whose trades are so large they move prices. They also reduce the risk that incorrect market timing will result in their average transaction value being significantly worse than what the market as a whole received.
How Volume Weighted Average Price is Calculated
Volume weighted average price is very simple to calculate. One takes the total value traded over the time period being analyzed, and divides by the total quantity traded.
VWAP = Quantity of Shares Bought at Each Price * Price of Each Transaction / Total Volume
Or more simply
VWAP= Total Value of All Transaction / Total Volume
Here is a simple example.
Transaction 1 = 100 shares at $10
Transaction 2 = 300 shares at $10.20
Total Value = (100* $10) + (300*$10.20) = $1000 + $3060 = $4060
Total Quantity = 100 + 300 = 400
VWAP = $4060 / 400 = $10.15
Practically speaking a trader could not keep track of VWAP in real time without computer calculating assistance. Many charting software packages do include VWAP tracking capabilities.
An exchange traded fund, abbreviated ETF, is a fund that trades like a stock, and tracks an index, an asset class, a commodity, or basket of commodities. Like a stock, an exchange traded fund will transact throughout the day, and does not necessarily trade at it’s intrinsic value, or net asset value (NAV). This is unlike a mutual fund, which only trades on market close exactly at the net asset value.
Unlike a mutual fund an ETF is not actively managed, meaning its performance is meant to mimic the underlying asset(s) tracked as closely as possible, either on an intra-day or long term period, depending on the ETF. Exchange traded funds typically have much lower expense charges than mutual funds, making them attractive to some investors. ETFs are also attractive to day traders, who can trade an index or commodity with an equities trading account, rather than a futures or commodities account.
Some exchange traded funds are meant to trade double or even triple the volatility of the underlying index or asset tracked. These funds are solely for the purpose of day trading, and never should be held long term as they have considerable decay in their net asset value. The reason for the decay is the use of leveraged products to create the extra volatility. Recently these funds have come under more regulatory scrutiny because by design, they will all eventually be worth $0. They also create extra volatility in the market as a whole as the funds must rebalance their own assets during the trading day.
While an exchange traded fund is not necessarily required to trade at a share value which would correspond exactly with the true NAV, any significant deviate would qualify as an arbitrage opportunity, and any inefficiencies in pricing are typically rooted out very quickly by high frequency traders.
ETF volume accounts for hundreds of millions of shares of market volume daily, and these products have become very popular amongst both investors and traders. The most popular ETFs include: SPY (S&P 500), EEM (emerging markets), GDX (gold miners), VXX (S&P 500 VIX), and XLF (Financials).
Sometimes an ETF may be useful to a trader acting on sector specific news, when the trader is unsure how one particular asset within the sector will be affected. An example is when the US Government decided to increase capital holding requirements of banking institutions. Without a full analysis of each bank, a trader would not know how significantly each would be affected. Instead knowing that the industry as a whole would likely decline in price on the news, the trader may have decided to short the XLF (Financial Sector)
Traders and investors alike should educate themselves on exchange traded funds as they provide a useful alternative to other assets.
Market Order
A market order is an order that a trader enters that does not specify a specific price to execute. A market order will seek liquidity at progressively further prices from the current bid and offer until the order is completely filled. The purpose of the market order is to ensure that the transaction is completed instantly. This can be very useful to traders in a fast moving market because they are assured of the order executing. A market order is the opposite of a limit order, which is an order that must execute at a certain price or better.
A market order can be a buy or a sell order. If the order is a buy order, it will first remove liquidity from the offer. If this does not completely fill the order, the market order will continue to seek liquidity at progressively higher prices until the fill is complete. Conversely, if the order is a market sell order, it will remove liquidity from the bid and progressively lower prices until the order is completely filled.
The obvious benefit of the market order is the speed and surety of execution. A market order will always fill, and it will always fill almost instantly. If a stock is very quickly changing prices and it would be difficult to take the time to enter a specific price a market order can be extremely useful.
This works very well for traders if the order is small, or if there is a lot of liquidity posted in the stock. This type of order can potentially be very dangerous for traders as well. Because price is not specified, the order can legally transact at whatever price is necessary to complete the order. If a trader enters a very large market order relative to the liquidity available in the stock, he risks moving the price significantly away from the current bid and offer. Because high frequency trading programs can remove posted liquidity so quickly, there is always a risk that the programs will remove liquidity before the market order is even able to access it, resulting in an even worse execution for the trader. Traders should always be aware of how large their order size is in relation to the available posted liquidity for a particular stock. All stocks are different in this regard, and the same stock can be different during different days or even during different times of the day. This is yet another reason why traders must always watch the book of a stock while trading.
It should be noted that using a market order in the dark pools can access more liquidity than can be seen on the books. Sometimes this can result in a much better fill for a trader, other times the light pools will pull orders when a large market order is entered into the dark pools. If you have access to a sweep order that will seek both light and dark liquidity it is most beneficial to trader entering the market order.
A market order is simply one more tool in a traders toolbox. It is useful in fast moving markets with ample liquidity. Used at the right time it can be tremendously useful, used at the wrong time it can cost a trader a lot of money. Traders must always be aware of the circumstances when deciding between using a market order or a limit order.
What Is A Stocks Volume
Volume is the total quantity of shares which have transacted in a given time frame. Traders use volume as a measure of a stock’s volatility or potential volatility. Higher volume will generally signify that a lot of parties are interesting in trading the stock, and the stock is likely to move as a result. Volume measurements are also used as a signal of liquidity of a security, so a trader can judge his ability to enter or exit a position at current market values.
Higher volumes are generally favorable to traders, but may only be beneficial to a point, or may not be beneficial depending on the exact strategy. A trader may also look at average volume at a daily level, or may even break this down in smaller increments of the day to judge when he may best employ a strategy.
Volume does not double count transactions, meaning if a trader purchases 100 shares from another seller it results in 100 shares of volume, not 200.
Typically in charting software volume is displayed below the price chart. Volume is normally displayed for every price bar, so that if a chart is displaying 1 minute price bars volume will display for each minute. The chart and volume together typically will look something like this:
Daily Price Bar and Volume
This is a daily chart of GE, with the volume displaying for each price bar directly below the bar. In general it can be noted that days with lower volume also have a smaller range in price.
Volume is NOT an indication of price direction by itself, it simply is a signal that traders use to judge if a stock is likely to move. Often times traders will watch screens displaying the stocks with the highest volumes, or displaying sudden spikes in volume, which is can be a sign that news was released, or at least that the stock will be moving.
Traders who are relatively new and are working on refining their strategy will be well served to watch how volume impacts trading.
What are the Stock Market’s Trading Hours
The stock market’s regular trading hours are from 9:30 a.m. to 4:00 p.m. Eastern Standard Time. There are is also a pre-market session every day from 4:00 a.m. to 9:30 a.m. EST and a post-market session from 4:00 p.m. to 8:00 p.m. EST Check the NY Stock exchange’s website for hours and holidays.
The regular trading session from 9:30 a.m. to 4:00 p.m. is the typical market session that most people refer to as the “day’s trading session”. This is when the vast majority of the day’s volume transacts and when most market participants are active. Because there is more volume posted to stock’s books during the regular session it is arguably more predictable and a safer time for day traders to be involved due to the higher likelihood of having liquidity available to execute orders. Some day traders prefer pre-market or post-market sessions however and only trade these times. Generally it is recommended that only experienced traders participate in the extended hour’s sessions however due to the possibility of extreme volatility.
Some stocks are very active in the pre-market and post-market sessions, and some have no activity at all. The spread will often widen significantly at non regular session hours and it can be very difficult to enter and exit large positions.
It is very important for a trader to understand the stock they are trading and the likelihood of liquidity being available after the closing bell. If a trader accidentally does not exit a position by 4:00 p.m. it can be very tough to exit after the close, and with a wider spread significant price slippage can occur. This can needlessly cost a trader a lot of money.
Only experience can give a trader a feel for the differences; but it is crucial to understand the differences between sessions and the differences between how particular securities trade during these times. Always trade a light position until you understand the risks and movements of the hours you are trading.
What is A Share of a Stock?
A share of a stock represents ownership in the company that the share is issued for. Share ownership entitles the investor to share in the profitability of the company (or lack thereof) as well as a say in company matters put to a vote of investors. Stock investors purchase shares issued by corporations in hopes that the company will become more valuable through increased profits and business prospects.
One share of a corporation may represent different percentages of total company ownership based on the number of shares outstanding for each particular corporation. For instance, if there are 10,000 shares outstanding for a given corporation, one share represents ownership of 1/10,000 of the company, and the shareholder has 1/10,000 of the total vote in shareholder votes on company matters. If a shareholder owns 5,000 out of 10,000 total shares, they would own 50% of the company and have 50% voting rights.
Shares bought and sold on the stock market represent true ownership of a corporation, and entitles owners to the benefits and pitfalls of ownership. A nice perk for investors of publicly traded corporations is that while they are entitled to share in the upside if company profits soar, an investor can not lose more than his or her investment if the company goes bankrupt. In other words, owners of shares are not required to pay back company debts personally if the corporation can not meet its debt obligations.
Some people think of a share as something intangible that goes up and down in price almost randomly. The reality is this is far from the truth. The price of shares is based on buying and selling, most of which is is performed by large institutions like hedge funds and mutual funds. They decide to buy and sell based on exhaustive research and financial modeling of all available information on a corporation’s current profitability, current and project future asset values, and future profitability estimates and potential. The price of a share, and the value represented by the share is no arbitrary matter.
The ability to break a corporation into many shares which can be sold to many investors has allowed owners of large companies to sell their companies, which would otherwise be too large to purchase for any single investor. It has allowed average citizens to partake in the benefits of company ownership when they otherwise would not be able to, and this investment propagates economic growth, allowing companies to use investor money to expand operations and hire additional workers. When a company first breaks itself into publicly traded shares, it is said to have an IPO or initial public offering. When a company issues additional equity to the public after an IPO this is known as a secondary offering.
A trader should never lose sight of the fact that while their ownership may be short term, the instruments they are trading represent real tangible value, often in some of the world’s largest corporations.
What Is A Stock Trade
A stock trade is actually a transfer of ownership in a publicly traded corporation. The trade refers to the exchange of money for ownership rights, which are denoted in shares of stock. In common parlance, the term trade has come to mean a shortly held position taken with the intent of capitalizing on near term volatility. Those who do this for a living are known as day traders, but many people will buy or sell stock in shortly held positions with the hopes of making a lot of money.
An example of how this is done:
A trader buys 1000 shares of stock ABC at $50. The stock price moves up to $54 dollars after a positive earnings announcement creates buying interest. The trader sells his 1000 shares at $54 and makes $4 of gain per share on the position. Total earnings are 1000 x $4 = $4000. The trader made $4000 in a short time period, or an 8% gain on his investment of $50,000. Traders will also use some tools such as margin buying power and options to create leverage, and magnify the extent of their gains. Caution must always be taken by the trader however as losses are also magnified by leveraged positions.
Generally speaking short term trading is discouraged by the government, both for the safety of the trader’s capital as well for general healthy functioning of capital markets, since trading increases volatility. Let’s not forget that the purpose of capital markets are for corporations to access public wealth so they may make investments in their businesses, and for the public to invest in corporations that they believe will make money for them, so that their personal wealth will grow. This relationship is beneficial to both parties and it is why capital markets are such positive drivers of economic growth. The value of having short term traders involved in these markets is always up for hot debate, especially with the explosion of high frequency algorithmic trading.
No matter which side of the issue you are on, you should always understand what you are doing when you place a trade. Always understand what exactly you are trading, the maximum amount of money you can lose, and how you can be most effective in placing your orders. This includes understanding how your broker works, how much you pay for commissions, the types of orders you are placing, and how you are determining that a particular moment is the best time to place the trade.
What Is A Day Trader
A day trader is someone who buys and sells securities, usually equities but possibly bonds, derivatives, futures, currencies or options, with the intent of taking advantage of short term price movements to create profits for their account. Day traders may occasionally hold securities overnight, but normally close all positions by the end of the day, hence the term “day trader”.
A day trader works to establish a trading strategy that will result in the trader either only taking trades with a higher probability of being profitable than not, or with the probability of a winning trade creating profits such that over time the profits will be greater than the losses, even if there is a higher probability of the trade ending in a loss. Once developed a trader’s goal is to adhere to the strategy as strictly as possible, gradually using greater and greater trade sizes in order to increase their profits over time.
Strategies for equity traders may including reading a stock’s tape and order book to spot large buyers or sellers, going with price momentum during times of high volume or rapid price movement, or reacting to technical or algorithmic signals. Some day traders work exclusively by writing algorithms, often times ones that operate on extremely short time frames, taking advantage of small inefficiencies in the market. The trader will then let their algorithm work throughout the day, usually monitoring it constantly and adjusting it in response to changes in market conditions. If you have the ideas but don’t have the computer skills to program your own algorithm, Cyborg Trading offers traders a fantastic resource by taking the need to know programming languages out of the equation for the trader.
Day traders may work for a proprietary trading firm, such as WTS, T3 Trading, or Bright Trading, or they may trade their own accounts with a retail brokerage such as TD Ameritrade or Interactive Brokers. A trader will work with a proprietary trading firm to get increased leverage and more professional trading tools, or a retail brokerage in order to keep 100% of their profits. A proprietary trading firm may have lower commission charges than a retail brokerage, but may require the trader to pay for some monthly costs such as software and ECN access, and will generally keep a percentage of the trader’s profits. A proprietary firm will provide a trader with firm capital, however, and may increase a trader’s total profits significantly. The right choice is an individual decision for each individual.
A day trader is a participant in the markets, always working on their strategy to predict short term price movements in order to create profits for their account.
What Is Trading On Margin
Trading on margin is the ability to buy or sell more of a security than you would normally be able to with your account equity. It is basically a loan from the brokerage provided as a service to clients. By law you cannot have more margin value loaned to you than you have in equity. Put another way, you can borrow up to 50% of the value of your purchase. You are also free to borrow less if you wish. Some brokers will require a higher percentage of account equity of the total margin purchase.
This applies to retail accounts, and accounts must be specifically given privileges as margin eligible accounts. A broker will require an affidavit from the account owner stating that they understand all risks associated with trading on margin, and are in a strong enough financial position to assume those risks. Margin accounts require a minimum deposit of $2,000, and some brokers will require a higher deposit.
Traders use margin in hopes of magnifying their gains. If they are buying a position that is twice as big as the equity in their account, the hope is that they will make twice as much money from it. This is sometimes the case, but unfortunately there are no guarantees.
Buying on margin is risky by nature. When you have twice as much equity invested in the position than equity in your account, every price increase or decrease will have double the effect on your account equity. This is very good if the position goes in your favor, and will at least double the damage if the position moves against you. A trader should only use margin if they fully appreciate the risks and rewards.
Margin is also not free. It can be thought of as a loan from the brokerage, and like all loans there is an interest rate attached. The interest rate will vary amongst brokerages but will often be indexed to an established rate, for example the rate may be libor+ standard markup, or the rate could just be a flat rate. Either way every day you are using margin, you are obligated to pay interest. The interest is deducted from your account, and it usually behooves the trader to only hold positions on margin for short time periods.
If a trader is holding a security on margin, and the value of the position declines substantially, a trader may be subject to a margin call. A margin call is a call made by the broker to add more funds to an account when the equity declines to a certain percentage of the total position value. This happens to help assure the brokerage that they will not lose their own money on the position. Different brokerages may have different standards for when a margin call is placed, but if funds are not added in time the brokerage will liquidate the position to a point where the account equity is an acceptable percentage of the position value.
Trading on margin can be beneficial for day traders as long as they have controlled risk parameters, but essential to understand the full consequences of using it.
A common term amongst traders is capitulation. This term has meaning outside of the trading world, which is basically giving up or surrendering completely. Applied to trading, this is a common observation during a period of selling, both in long and in short moves. Simply defined, capitulation occurs when a significant amount of long positions are abandoned, creating a sharp period of selling and price decline. Capitulation is actually a very intuitive concept, especially when one considers the emotional aspects of capital market trading. Periods of capitulation also offer one of the most excellent inefficiencies in the market which can be exploited by savvy traders.
Capitulation can mean two ways to make money to a trader who successfully can identify the moments it is taking place. The shortest term traders understand that taking a short during this period of time is about as close as trading gets to “free money”. The selling is often so rapid and so fast, that a trader only needs the courage to take a position short, and often the position will quickly be in the money, and remain in the money until the end of the selling. These traders must understand the moment the selling is over though, because to longer term traders this moment signals an excellent opportunity to buy at an “inefficiently cheap” price. Capitulation most often marks the bottom, or very close to the bottom of a decline in price.
Here is an excellent example of capitulation in GE. Capitulation occurred on March 4th of 2009.
Capitulation in GE
True capitulation is marked by an extreme increase in volume as sellers are scrambling to exit positions, and not enough buyers are present to control the pace of selling. Notice the massive spike in selling volume on March 4th, 2009. Notice as well how this marked the exact bottom of the decline in price. From this point GE went on to more than double in price in only 2 months! This is obviously not a “day trade” but imagine how much money was made by some traders who identified this final push down as the capitulation point. The volume uptick coupled with the sharp decline provided a very clear signal that many long positions were selling out.
As more sellers paniced out of their positions, it created more downward pressure on price. This had the effect of both forcing other long positions to realize their loss before it got even bigger, and making potential buyers step out of the way as the downward pressure was so hard. The lack of buying meant sellers had an even greater effect on price than they would have during other periods.
At some point the panic selling stops, and buyers realize that the price has moved far from its rational value. Timed correctly, buyers often have large gains when rational behavior returns and prices move back to more efficient levels.
While this is an example on a very large scale, capitulation can be seen intra-day at points when many traders and trading algorithms are forced out of their positions at the same time by a large seller, and the price falls quickly accompanied by sharp volume to inefficient levels. For those who identify the move as capitulation it can provide excellent trading opportunities.
The relative strength index of a stock is a technical indicator that is used to calculate whether a security is currently in an overbought or oversold state. This is a very important and fundamental indicator that has been used by traders since it was developed in 1978 by J. Welles Wilder, Jr., an American mechanical engineer who is known for his groundbreaking work in technical indicator development.
Calculation
Relative strength index, or RSI for short, is calculated as follows:
RSI = 100 – 100/(1+RS)
RS= the average of x up days closes (AU)/the average of x down day closes (AD).
AU= sum of previous x days up closes value (SU)/x
AD= sum of previous x days down closes value (SD)/x
X normally is set to a 14 period but users can most often edit this is charting software.
An up day value is calculated as follows:
Current close – previous close= up day value
down day value is assigned as 0 on an up day
A down day value is calculated as follows:
previous close – current close = down day value
up day value is assigned as 0 on a down day.
Example
Over the previous 14 trading days, stock ABC has a sum of up day values of 20. During the same 14 day time period the sum of down day values is 10.
AU = 20/14 = 1.4
AD = 10/14 = .7
RS = 1.4/.7 = 2
RSI = 100 – 100/(1+2) = 100- 33 = 77
As you can see a higher relative up day average results in a higher RSI value, while the opposite is true of greater relative down day averages.
A longer time period will result in a calculation that is less sensitive to moves and is more likely to result in RSI values closer to 50, while a shorter time period will result in a more volatile indicator which is more likely to show extreme values.
* It should be noted that current calculations of RSI often use exponential moving averages for AU and AD values. The math for this is even more complex but essentially results in higher weighting being placed on more recent values. If you understand this framework the logic behind using exponential moving averages is not hard to grasp, even if the actual calculations are. It is rare that a trader would actually have to calculate a relative strength index by hand since it is included on almost any charting software.
Application as an Indicator
After obtaining a value from the relative strength index calculation, normally the value is plotted on a graph which is either superimposed over a price chart or placed underneath. Due to the construct of the RSI formula, values are bound between 0 and 100. Normally a value of 30 or lower is considered oversold, while a value of greater than 70 is considered overbought. Sometimes the thresh hold level is adjusted to 25-75 or even 20-80 to increase the rarity of the indicator threshold being met. A trader may use the meeting of the indicator with a top threshold to mean a short or sell signal, while the meeting of a bottom threshold may be used as a buy indicator. Let’s take a look at how an RSI appears on charting software.
RSI under a recent chart of the S&P 500 .
The S&P 500 has been trending steadily up over this time period, but you can see that even in this strong uptrend oftentimes when the upper 70 level threshold is met short term selling has followed the majority of the time.
While it may not be the only technical indicator a trader uses for entries and exits, every good trader is aware of RSI levels as they are a tried and true method of identifying overbought and oversold conditions.
