What You Need To Make A Profit In Binary Options

Yes, you can make money trading binary options.  There are two important elements that must be in place for you to make money first.  Without these, you will certainly lose all of your money given enough time (and it probably won’t take very long).  You need the right brokerage, and you need a system in place that allows you to make money consistently over time.  You also need to take the appropriate steps to track your results systematically so that you can identify when you need to adapt.

The Importance of A Good Brokerage

When trading Binary Options, using a good reputable broker is probably the most important element to your success.  While there are a lot of good brokers out there, a few dishonest brokers have really hurt the binary option reputation.  Some brokers have failed to allow clients to withdraw their money in a timely manner, while others have manipulated prices to make what should be winning trades losing traders.  These type of tactics are not only annoying and harmful to the industry, but illegal.  A broker engaging in these practices will not be registered with any regulatory agency.

A reputable broker will be registered with a regulatory agency such as CYSEC, the Cypress securities and exchange commission.  Make sure that your brokerage allows withdrawals easily and timely, and that they do not engage in any re-pricing schemes.  Our brokerage does not engage in any of these illicit practices.

Make Sure They Use Modern Trading Software

You also want a brokerage that uses a modern platform.  Quotes need to stream seamlessly and instantly.  You don’t want any pricing disparities.  You want to know that your broker is providing the exact correct price to you each and every moment.  You want a website that loads quickly, and is easy to use.

Charting Tools are Useful

Most traders also want trade indicators and tools, and they want the ability to research.  If you use a technical strategy, you will want advanced charting tools that provide the ability to look at indicators such as moving averages.  You may also use more advanced indicators such as stochastic indicators, MACD, or Elliot Wave.  Whatever strategy you use, you want a broker who gives you the option to apply a number of strategies to charts.

So is Mobile Trading

Mobile trading is becoming more and more popular as well.  While we generally don’t encourage traders to trade from their phones, modern technology is reaching a level where this is becoming more feasible to do without sacrificing a trader’s ability to use his tools.  If the ability to trade with a mobile platform is important to you, make sure that your broker has this functionality, and that it works well.

At How We Trade we use Tradorax.  Tradorax has a top flight reputation in the industry.  The allow clients to deposit and withdraw money easily, their pricing is true, and they have a modern platform that traders demand.  We use them because we feel like they are the best.

You Need A Strategy To Make Money

Without a strategy it won’t matter how good your software or brokerage is.   Binary options trades are mostly very short, often times 60 seconds to 5 minutes.  Longer trades are allowed, but most people do not hold binary option positions for over a month.  You need a “scalping strategy” to be effective in short term trades, and you need to stick to it when it works.  You will have to adapt your strategy over time, but the important thing is to do it systematically.

Developing A Strategy

Some people develop a strategy based on trade indicators or charting tools, and other people base their trades on a market “read“.  At the end of the day you need to be consistent.  If you don’t have a consistent strategy, you will never be profitable over the long term.

To develop a trading strategy it is usually easiest to start with an existing strategy, and adapt it to fit your needs and observations.  An example of a good existing tool available is a relative strength indicator.  This indicator is easy to understand, most every chart includes it in its charting tools, and it works a relatively high percentage of the time.  In order to be profitable consistently, you will need to develop additional triggers to open a trade, but an RSI is an excellent starting point for a new trader.

Stick With Your Strategy

Whatever strategy you choose you need to apply is consistently and stick with it.  If you have a way to make money, advance yourself by taking progressively bigger trades.  Discipline is the number one quality that day traders need to stay profitable.  Never switch aimlessly between strategies.  If your isn’t working you can make adjustments, but you should always practice any changes with a demo account before you implement them with real money.

Track Your Effectiveness

If you are not tracking the effectiveness of your trading style and strategy, you will not make money.  Your bottom line is what counts, but if you are changing position sizes often you will not have a very good read on just how effective your strategy really is.

The best way to track your trading style’s effectiveness is to keep track of key pieces of information from every trade.  The important points to track are: the asset that your trading, the time of the day the trade took place, the size of the position that you took, and the money that you made or lost.

With this information you can figure out the best time of the day to trade, the most profitable symbols to trade, the time of the day that works for each symbol, and how everything relates to your bottom line.  You may find the highest efficiency happens in the morning on a particular stock with an 80% payout, and you may choose to take larger positions when these elements are met, rather than trading in the afternoon.

Only by analyzing your trades will you be able to maximize your profits.

How To Make Money In A Declining Market

You don’t need the stock market to go up to make money.  There are a number of ways that you can bet on an individual stock or the stock market as a whole to go down.  While this is a speculative strategy (as opposed to an investment strategy) it can provide a useful hedge if you have other long positions, or it can be a great way to make money when conditions are not favorable for a bull market.

When you are betting on an asset to decline in value, your position is known as a “short position“.  You may also see a trader who has a “short position” referred to as “being short” or “shorting”.  The most common ways to do this are by selling a stock short, by purchasing Put Options, by writing Call options, or by purchasing a Put binary option.

Ways To Profit From Short Positions

Purchasing A Put Binary Option

This is perhaps the easiest way for the average trader to take a short position.  A binary option is extremely simple (it pays out a pre-set amount if the trade is in the money, or expires worthless if the trade is out of the money).  Binary option accounts are easy to open, can be funded with a credit card, and do not require any special “margin privileges” like a traditional brokerage account that is option eligible.

High Risk High Reward

The trader takes a short position by purchasing a Put option contract and entering the dollar amount that they want to risk on the trade.  The “strike price” is determined by the price of the security at the moment the trade is entered.  The trade has a pre-set payout amount (usually between 60% and 90% of the amount risked).  If the option expires in the money, the trader wins their money back plus the payout percentage designated for the trade.  It does not matter how far in the money the option contract expires, the payout is always the same.  If the trade expires out of the money, the trader loses 100% of the amount that they risked.  In this way a trader can potentially make a lot of money from their short position, but they also will lose their entire position if it expires out of the money.

By using binary options, a trader can purchase put options for different time frames to place a bet that will pay if an asset declines in value.  This is a viable way for an average trader to profit from a stock, a market, or other assets falling in price.  There are various lengths of time available for binary option trades, usually ranging from 1 minute up to a period of a month or months.

Selling a Stock Short

This is the most common way that traders and investors, and especially day traders, can profit from a decline in prices.  A short sale involves selling a quantity of an asset (usually a stock) that the trader does not actually own.  The trader will sell at the current market price to the open market, and their brokerage will provide the shares to the purchasing party.  The trader is effectively being loaned the shares from the brokerage.

The trader’s account is credited with the value of the sale.  The trader is usually charged interest from the brokerage daily for the shares that are loaned to the trader.

When the trader decides to close the position, they purchase the shares back from the open market.  If the price of the security has fallen, the trader will purchase the shares back (to payback the loaned shares to the brokerage) for less than what they were sold for.  The trader can then keep the difference between the price it was sold for and the price it was bought back for.

Limitation On Profits And High Potential Risk

The highest amount of money that a trader can make from selling a security short is 100%.  A 100% profit would be realized if a security becomes completely worthless (the trader would not need to pay back the loaned shares to the brokerage because they have no value). Most assets which are shorted do not go to a price of 0 though.  In fact a decline in price of 20% for the most commonly traded securities would be considered significant.

It is important to note that if a position is out of the money when it is closed, the trader does not need to necessarily lose a lot of money.  A position which is closed out for a slightly higher purchase price than the sale price, for instance, will result in a very small percentage loss.

That being said, there is no maximum to the amount of risk that a trader is exposed to.  While their maximum return is 100%, the price of a security may double, triple, quadruple, or even go up higher in price.  While brokerages have risk controls in place in the form of “margin calls”, this is not a perfect system and it does not necessarily limit the risk effectively.  If for instance a security closed one day below a level which would result in a margin call, and opened the next day significantly above the price which would incur a margin call, the trader is responsible for paying the brokerage any losses, without limit.

Selling Short Takes More Capital

Because a short sale of a security typically provides the lowest expected return compared to the other ways discussed here to profit from price declines, it takes the most capital on the trader’s part to make money.  Short selling can also only happen in a margin approved account, which has minimum balance requirements.  While many day traders do engage in short selling, and some are very profitable from it, there are limitations and benefits unique to this form of short position.  It is important for every trader to understand this completely before choosing their method of taking a short position.

Purchasing A Put Option (or Writing a Call Option) Using Traditional Options

A traditional stock option works by giving the owner the right to either buy (a Call option) or sell (a Put option) a security at a future date, for a specified price.  The option has a value because it provides this right to the owner at a future date (and prices may change between the purchase time and that future date), and it may have a value because it is either above or below the strike price when the option contract is purchased.

Purchasing a Put Option

If a trader owns a Put option, it gives that trader the right to sell shares of that particular stock to the option writer for a specific price on a specific date.  If the price is below the strike price, the trader will execute the option.  This means that they will buy shares at the market price, and sell them for the higher agreed upon strike price.  By owning a Put option the trader is making a bet that the price will decline, and that they will be able to purchase the shares on the open market for below the strike price (which the option writer is obligated to pay).

Returns are Potentially High and Risk is Capped

The benefit of a Put stock option is that they rewards are potentially very high, the highest of each of these methods.  A trader has the ability to make multiple times the money that they purchase the option for.  If the option expires out of the money, the option expires worthless, capping the risk to the trader at the amount they spend on the option contract(s).  Some view purchasing traditional stock options as the most beneficial risk/reward profile of any type of position, for trading purposes.  The caveat is that while the risk is capped, an option that expires even slightly out of the money has no value.  An option that expires slightly in the money will have a small value, so while the upside has a lot of potential, the expected return may not be high enough to compensate a trader for the risk of losing the entire trade amount.

Option Decay

Every option has a time value, otherwise known as Theta.  This is the value in the amount of time left between when an option is purchased, and when it will expire.  Time has value because the price of a stock can move over time.  The more time remaining, the more potential a stock has to move further into a profitable position for the option.  Even if the price of a stock or underlying security doesn’t move, the time until the option expires is constantly reducing.  As time passes, the time value of the option lessens.  This reducing time value is known as option decay.

Writing a Call Option

A trader can also profit from a decline in an assets value by writing Call options.  The trader sells the call options that they write on the open market, and if the price drops below the strike price, the trader will keep 100% of the money he earned by selling the options. If the option is executed in the money, the writer will be obligated to sell shares to the option owner at below market value prices, potentially resulting in a loss on the position.

No Cap On Risk

Because the price of a stock hypothetically has no limit to how high it can rise, the potential exists for very large losses when writing Call options.  As an example of how writing a Call option can turn out especially poorly, let’s say a trader writes a Call option (100 shares) for stock XYZ at a strike of $50.  Let’s say that the trader sells this option for $2 (taking in $200 of revenue).  If the price of the stock rises to $60 when the option is exercised, the trader must sell the owner of the option 100 shares at $50.  Because it costs $60 per share to acquire the shares, the trader will lose $8 per share ($10 a share on the price difference minus the $2 a share in revenues from writing the option).  This position loses $800, and it only had a maximum potential gain of $200.  Writing options can result in unfavorable risk/reward profiles in some circumstances, and traders should have extensive option knowledge before writing any options of their own.

The Best Method Depends Upon the Trader

There is no “best” method for profiting on a decline in prices.  There are unique benefits and risks to each style.  We use Binary Options because there is a high payout no matter how far in the money the option contract expires.  This allows us to precisely control our risk/reward profile.  It is also well suited to traders who do not want to put up substantial amounts of capital (as the other methods require).

The highest potential payout is using traditional Put options, but there is option decay, and an option that is executed a little bit in the money will only provide a small return to the owner (who also took a significant risk by purchasing the option and possibly losing 100%).

It is important for every trader to understand the workings of each type of short position, and to thoroughly understand their chosen method.  For simplicity and for the predictable payouts on all winning trades, we use binary options.  If you would like to become a binary options trader and you need to open a binary option account of your own please sign up for an account today.

Do Day Trader’s Make Their Earnings Public?

The earnings of individual day traders are not usually made public.  There is good reason for this, as day trading for oneself does not require any type of public disclosure of earnings.  There is not any incentive for most profitable traders to publish their earnings, and if they do not want anyone else to know how they are making money they do not want to attract unneeded attention to themselves.

Usually when an individual trader makes their earnings public, they do so when they are selling a trading system, educational material, or school.  Anyone considering paying for a trading education from someone who publishes their earnings should be weary about the veracity of the claims.  If, for instance, the trader shows huge gains month after month and year after year without any drops in their account value, it is unlikely that they are being truthful.  Every trader experiences losses at some point (unless they are merely getting paid as an intermediary for an institution).

Many successful traders have the occasional massive trade, when they may make hundreds of thousands or even millions of dollars.  Unless you know them privately, you will probably never hear about it.

Big Bank Trading Revenues

Many people may be dazzled by the trading revenues at big banking institutions, and believe that this is attainable for them.  While this is possible, the revenues generated from trading at large institutions is mostly from providing liquidity to the markets and matching client orders internally and externally (for a profit to the bank.)  Banks have mostly been prevented from taking any sort of speculative trading positions from what is known as the Volker Rule.  To see the SEC page on how the Volker rule restricts banks from proprietary trading as a part of the Dodd Frank Act, view here.

Large banking institutions are mostly restricted to making money with market making activities (which can be quite profitable for a bank using high frequency trading algorithms but less so for an individual trader).

You Should Not Make Your Earnings Public

If you become a profitable day trader, you should keep your earnings private as well.  When you are using a profitable system, there will be many people trying to learn what you do, and how you do it.  The more people who learn, the less money available for you (in most cases).  If you don’t make money, you probably don’t want people to know that either.  Simply put, there is no advantage to telling others how much money you make as a trader.  If you want to publish your earnings, you are free to make whatever information public that you wish, but there is a good reason you will have a hard time finding any real traders who do this.

Use Small Positions When You Trade Binary Options

Binary options are inherently very risky.  The contracts have no intrinsic value per say.  When you lose, you lose 100% of your position, and when you win, you can win big.  To a new trader, binary options can feel a lot like gambling.  Trading binary options is not the same as gambling, but if you don’t know what you are doing it is as least as risky.  Remember, the advantage of using binary options is that you do not need to trade with a lot of capital to earn a high return.  Respect how quickly you can both earn and lose a lot of money trading this instrument.

Think about binary options trades from a broker’s perspective.  Binary options trades are not matched between buyers and sellers on the open market, the broker always takes the opposite side of the position from the trader.  Why is the broker willing to do this?  They know that if a particular trade pays 80% to a winner, and a losing trade loses 100% of its value, with nonprofessional traders about  50% of the trades will pay out and about 50% will not.  This means that the broker earns a spread of 20% on the trade, on average across all traders.

If you start trading with no system, you will probably win on about 50% of your trades and lose on about 50% of your trades.  If every trade is the same size, you will certainly lose your money over time.  Always keep in mind when you trade binary options that you need to win more than you lose to make money.

Controlling Position Size

A common mistake with new traders is taking too large of a position size too quickly.  As any trader will tell you, things change fast in the marketplace.  Even if you have a good system with a perfect trade setup, and you have very high conviction about taking your trade, the news can change the market quickly and turn your trade from a winner to a loser.

Keep in mind that a loss is not the same as a loss when you are trading in the stock market.  If you lose money on an equity position, your position still has value when you exit it.  This is not true of binary options.  If your trade is a loser, you lose the entire amount of your trade.  This is why you need to take positions which are a very small percentage of your total account balance.  The only way to consistently make money is to systematically control your risk, and take enough good trades to win over time.

What is A Small Enough Position?

If the idea is to make money with binary options consistently over time, you need an average position size which equals a very small percentage of your account.  If by chance you have 5 losses in a row, and you are using a position size that is equal to 20% of your initial account balance, you will empty your account in only 5 trades.  As any professional trader can attest to, losing streaks of 5 trades can happen to anyone.

At How We Trade, we recommend using a position size of about 5% of your initial account balance (you can review this if you are profitable and your account has grown).  At this size, you could take 20 consecutive losing trades before your account balance was 0 (its safe to say that if you have 20 losing trades in a row you need a new system).

This position size allows for small losing streaks to occur without serious disruption to your working capital.  By nature the balance in your binary options account will be volatile.  It is the traders job to smooth out the volatility by taking many small sized positioned trades.

When Is a Big Position Justifiable?

Depending on who you are, how much of your money is in your trading account, and how much experience that you have trading, the answer may be never.  There is a particular case when it may be ok to take a large position though.

If you have a lot of experience trading, and if you were to lose the entire amount in your trading account your personal finances would not be seriously impacted, a large position from time to time is ok.  A large position might be a once a year or less type trade for many people.

To take a very large position you must have extremely high conviction that the trade will work.  This does not mean that the trade definitely will work, because no trades are a sure thing, but the trade setup must be almost perfect.  If you study international monetary policy for instance, and you do not think that current exchange rates have fully priced in a central banks stated goal, you may take a longer term foreign currency exchange trade with your binary options account with a large position.

The key is to exercise discretion here, and understand that the market is a very difficult place to extract profits consistently.  Most traders are very well served to put strict limits on their position size for the safety of their account.

 

How to Choose the Best Binary Options Brokerage For You

There are many binary options brokers from which a trader can choose.  So many brokerages are small, and there is not a lot of trustworthy information about them or their business practices.  Different brokerages have different payouts, software packages, account funding requirements, and withdrawal practices.  We at How We Trade are here to help you navigate the sea of brokers, and to help you identify the reputable from the untrustworthy.  We do prefer using large brokerages, especially those regulated by relevant securities regulatory agencies, over newer and smaller brokerages.  Ultimately the brokerage that you choose may come down to what is legally available for you, but ideally you will be able to pick the brokerage with the best blend of reputation, payouts, software and convenience.  At How We Trade we feel like Tradorax provides the best blend of all these factors for our needs.

Below is a detailed summary of every factor that most traders will consider when they choose their brokerage.

We realize that what every trader really wants is to make the most money.  With that in mind, at How We Trade we feel that Tradorax is the best brokerage.  We feel they are top notch because they have excellent trading software, their servers and execution speeds are extremely fast, and they give traders the tools they need at their disposal to consistently make money.  In the binary options trading world, Tradorax is one of the most professional brokerages on the market.  We always recommend the most professional outfit to our clients.

Regulation

This is a hot topic with binary options, and for good reasons.  Many binary option brokerage are operating in countries where they are not registered.  For instance, if you are a US trader based in the United States, there is only one legal brokerage for you to use.  This brokerage is NADEX.  This is the only brokerage that is registered with the SEC, and can legally accept US traders.  If you trade with NADEX you know that they will adhere to legal requirements regarding accurate price quoting and the withdrawal of money.  The downside of NADEX is that they charge a premium because they are the only brokerage which can legally accept US traders.

There are other international brokerages which do accept US traders, however these brokerages are not operating within US regulations.  Usually the trader will not be punished by trading with a brokerage that can not operate legally within the US, but they do risk the brokerage being punished.  They also have no guarantees from US law for the protection of any cash balances within the brokerage.

This is not to say that there are not other reputable brokerages.  Tradorax for instance is a very reputable brokerage, and they are registered with CYSEC, which is a securities and exchange regulatory body for Cyprus, where many brokerages are based.  They adhere to strict price quoting principals, allow for speedy withdrawals, and have a reputation for integrity.  They also accept traders from anywhere in the world.

Also of interest, many brokerages are simply white labels for the brokerage Spot Option, which is a very large brokerage re-branded by many smaller companies.  Spot Option is also registered with CYSEC.

Payouts

Payouts are set by each individual brokerage, for each individual available trade.  A good payout for most short term binary option contracts is 85%, while some brokerage may pay as low as 60%.  The payout is everything in terms of profitability.  Look at the profitability table half way down the article.  The higher the payout, the lower your threshold is for probability of wins/losses where you are still profitable.  Use a brokerage that routinely offers contracts paying 75% or higher.  Tradorax often offers 85% payouts and higher for winning trades, which gives you a much higher chance of making money in the long run.  This is one of the best payouts in the industry.

Keep in mind that if you plan on trading binary options successfully, the payout is a major factor in how much money you will ultimately make or lose over time.  The payout is second only the the accuracy of price quoting of the brokerage.

Price Quoting

Speaking of price quoting, this is another extremely important factor to consider.  Some brokerages have been in trouble in the past regarding manipulation of price to lower the winning percentage of their traders, essentially they were committing fraud.  While much of this has been put in the past, luckily, the possibility always exists that an unscrupulous brokerage will manipulate your closing prices or account to their advantage.  Always be sure that you are working with a reputable and straightforward brokerage, who will always quote you an accurate price.  NADEX is of course the most reliable as they are regulated by the SEC, but we use Tradorax because they also have an impeccable reputation for accuracy and honesty in the industry.  The key is for you as a trader to be completely confident that the price displayed at all times matches the real market price.  Make sure you work with an honest broker.

Speed of Withdrawals

Some brokerages are famous for being extremely slow returning money to clients, or getting profits to clients.  You want to avoid any brokerage which has multiple complaints against them regarding the speed of their withdrawals.  We have never seen or heard of a problem with Tradorax, which is another reason why we recommend them.  The last thing any trader wants is to have profits sitting with a broker which are inaccessible.

Software

You want software to be modern, easy to use, easy to understand, and to effectively convey a lot of information regarding the trading.  You can see our previous article regarding the best trading software for binary options for a more in depth discussion, but we favor Tradorax for their slick, accurate, and easy to use trading platform.  Their software is extremely fast, which is what every trader wants, and their price quoting is extremely accurate.  They allow both one touch trading for extremely fast order entry, or if you prefer to double check your orders you can confirm each before it is placed. We believe that they has one of the best software platforms in the industry for new and experience traders alike, which is another reason why re recommend them.

Asset Classes

You want to choose a brokerage that offers a diverse set of asset classes and trades.  Tradorax offers a wide range of equities, commodities such as gold, silver and oil, stock indexes, foreign currency exchange, and they offer trades in a variety of formats.  You can take bets that the the option will close with the price within a certain boundary, that it will close above or below a certain price, and there are many various lengths of contracts available from minutes to weeks in length.  Always make sure that any brokerage which you decide to trade with offers a diverse set of assets and option contract structures because good brokerages always will have many options.

Be Comfortable With Your Broker

The most important aspect of choosing a brokerage is to choose one that you will be comfortable with for a long time.  You want the software to be easy and intuitive with minimal lag, you want the price quoting to be spot on accurate, and you want to be able to add and withdraw money to your account quickly and easily.  The last thing any trader wants to worry about is any factors outside of their goals of taking the correct trades and making money.

How To Make Money Day Trading Binary Options With A $250 Deposit

Most forms of day trading require a very large investment to have any hope of realizing a return large enough to provide a living.  Hedge funds are set up with hundreds of millions of dollars in funding, and in good years may return about 10% on this investment. 

Often times after fees and commissions and profit sharing the true return on investment to those who fund them are even lower. Why not try out one of the binary options brokers that require a $250 deposit or less.

The best way to start trading is by using OptionRobot, the best binary options robot. This is a free software that helps you trade on auto pilot. Check it out here:

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OptionRobot is a top rated binary options robot with 83% average success rate. You can get this robot for free.

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If you don’t want to try out the binary options robot, you can pick one of the top rated binary options brokers and read the broker reviews.

Day Trading Accounts

As written about previously, if you want to be an individual day trader, your account will be marked as a pattern day trading account.  This requires a minimum deposit of $25,000.  A good day trader may return something in line with about 15%-20% per year.  On $25,000, even a 20% return is only $5,000 per year, hardly enough to live on.  With rates of return at these levels, it will takes years and years, leaving all earnings in the account, to be able to provide a living.  One down year will also be a significant setback.  An equity day trader also must devote 100% of his attention to the markets for the entire trading day.  Luckily there are other less competitive niches to make money trading, such as binary options.

How To Use Binary Options To Improve Returns

With a Binary options trading account, a person can become a day trader with only a $250-$500 funding deposit.  While lower amounts are possible, we do not recommend this because it becomes very difficult to place enough trades to understand if your system is working.  This is one of the flaws of a small sample size, it is not reliable.  A deposit of $250 to $500 is not too difficult of a financial commitment for most new traders to make.

Because binary options pay out about 80% return on a winning trade, a few wins can add up fast.  However with a 100% loss of the entire trade, a few losses can add up quickly as well.  Clearly with this system you will need to have more winning trades than losing trades to be profitable over time. Look at the graph on our open account page to see how each winning percentage corresponds to internal rate of return.  The positive is, if you are able to follow a system where your wins outnumber your losses, the additional money adds up very quickly.

Example of a $500 Account

Proper risk management is the key to winning over the long term with any trading system.  With binary options especially, you can not allow a few bad trades to destroy a large portion of your account value, because not all trades will be winning trades.  If one were to deposit $500 into an account, trading with about 4%-5% of the total account value would be appropriate for each trade.  This comes out to about $20-$25 per trade.

A winning trade for $25 will net the trader a $20 gain with an 80% payout.  Lets say the trader can win on 3/4 trades, or around 75% of trades placed, which is sensible for a scalping strategy, though not guaranteed of course.  This will net the trader a 35% return over the long haul.

Luckily, binary options have very short expiration times, with most contracts expiring in 1-5 minutes.  This means that many trades can be placed in a day.  We do not advise taking more trades than become available through your system of course.  Let’s say that about 2 trades per hour present themselves.  Over a 6.5 hour trading day, that is about 12-15 trades per day.  If each trade is $25 dollars, with 15 trades per day this is $375 dollars being cycled through trades over the course of the day.

A 35% return on this money will yield a trader over $130 per day!  And this is with very little risk on a per trade basis.  This is the true advantage of binary options.  The ability to place many short term trades each day, if the time exists for you to pay attention.  If not, it will just take a little bit longer to experience the same gross returns.

Successful System Key

The key is to implement the right trading system.  There are no commissions in binary options trading.  It also does not matter how far into the money a trade becomes, it just needs to end in the money.  The key is to create a short term scalping system with a high win rate, even if the wins are by the smallest margins, the rate of return will be the same.

Deposit $250 or less with OptionRobot.

Invest $200 or more and get 5 Risk Free Trades on Tropical Trade:

Are Binary Options A Scam?

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.

First make sure you check out the scam brokers here.

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

How To Get Risk Free Trades

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

Rank Broker Min. Deposit Max Returns Features Review
1
review $250 88% + 1 RISK FREE TRADE
TRADE NOW
3
review $250 91% + 3 PROTECTED TRADES
TRADE NOW

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.

Also read:

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- Scalping Strategy

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.

How To Set Up a Binary Options Account

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.

To set up your own account visit our account opening page, or our broker comparison page for other brokerage options.

How to Make Money Trading Binary Options

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.
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 make money

Can A Beginner Make Money With Binary Options?

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 July, 2019:

Country Binary Options Available? Best Broker or Alternative Broker Info
NO
Plus500 (visit site) Trade CFDs on stocks, indices, currencies.
YES
Nadex (visit site) Regulated US Binary Broker
YES
HighLow (visit site) Regulated AU Binary Broker
NO
EasyMarkets (visit site) Trade CFDs on stocks, indices, currencies.
Mostly YES
IQ Option (visit site) Binary Broker for non-EU/US/AU/CA traders

*Other countries: Binary options is still available to most non-EU/US/AU/CA traders however there may be some exceptions.

  • EU Traders are banned from binary options trading. The best alternative is eToro.
  • US Traders should go to our US Welcome Brokers page.
  • 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.

Here is our #1 Rated Broker

IQ Option – Best Trading Platform

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.

  • Trusted CYSEC Regulated Broker
  • Minimum Deposit: $10 (Lowest In The Industry)
  • Free Demo Account

OPEN DEMO ACCOUNT

How To Get Started With Binary Options Trading

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.

  1. Step1: Sign up with 24Option
  2. Step2: Make a first deposit
  3. Step3: Start trading using trading signals

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:

Rank Broker Min. Deposit Regulated Features Review
1
review $100 YES + CRYPTO TRADING
TRADE NOW
2
review $200 YES + COPY TRADING
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3
review $200 YES + ASIC LICENSE
TRADE NOW

Common Mistakes of Beginners- And How To Fix Them

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.

make money binary options

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.

  1. 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.
  2. 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.
  3. 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.
  4. 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.
  5. 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:

  1. 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.
  2. 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.
  3. 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.
  4. 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.
  5. 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!

Interested in opening an account? Check out our homepage for the best trading platforms, along with our top rated binary options brokers.

IQ Option – Best Trading Platform

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.

  • Trusted CYSEC Regulated Broker
  • Minimum Deposit: $10 (Lowest In The Industry)
  • Free Demo Account

OPEN DEMO ACCOUNT

The Difference Between Equity Securities and Future Contracts For 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.

How to Start Trading Binary Options

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.

Rank Broker Min. Deposit Max Returns Features Review
1
review $50 200% + $50 CASHBACK
TRADE NOWREAD REVIEW
2
review $100 85% + CYSEC REGULATED
TRADE NOWREAD REVIEW

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.

4.Read our binary option trading tips.  This guide is a basic overview of strategy for new traders.

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 Explained

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.

payouts3

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.