Binary Options For Beginners

Binary options are simple in theory but, as with any type of trading, beginners need strong fundamental knowledge as well as patience and discipline if they want to consistently earn money from them. This binary options 101 guide will provide all the questions and answers needed for novice investors to pick up this straightforward derivative. It will cover the essentials of what binary options trading is, list different types of binaries, and explain how to get started with the easiest binary options strategy. We also provide our top tips for binary options traders starting out, from utilising demo accounts to beginner-friendly educational resources and registration kits.

Understanding Binary Options For Beginners

The nature of binary options comes from the definition of the word binary. This is a type of trade based on predicting whether an asset’s price will rise or fall, and, with only two possible outcomes, it is sometimes referred to as an ‘all-or-nothing option’. You either lose your entire stake or make a generous profit. This straightforward setup is also why binary options are popular with beginners vs CFDs or futures, for example.

Binaries are derivative instruments that can be traded on a multitude of underlying assets and markets, including cryptocurrencies, foreign exchange (forex), stocks, indices, and commodities.

When purchasing a binary options contract, you have a single straightforward question to answer. Will the price of an underlying asset increase or decrease by the expiry time when the contract runs out? If you answer the question correctly, you will make a profit that, depending on the asset and contract, can amount to 85%+ or more of your original stake. If you don’t, you will lose your initial bet.

How A Binary Options Trade Works – Focus Option

Types Of Binary Options Contracts

A range of different types of binary options contracts are available to beginners:

• Classic/High Low: The standard binary options contract, sometimes known as a ‘High Low’, simply asks whether an asset’s price will be higher or lower than the existing price when the contract expires. For example, will the value of the FTSE be above 7000 in two hours? This strike price will often be set by the broker slightly higher or lower than the mid-market value, so the price will need to move sufficiently to cover this for a binary options contract to pay out. As with other binary contract types, a successful bet brings a return, while an unsuccessful one loses the entire stake. This is the easiest to understand contract, and is therefore popular with binary options beginners.
• One Touch: With a one touch binary option, the price of an underlying asset needs to reach a predetermined strike price at any point before the contract expires. Let’s say you want to open a one touch binary options contract on Apple Inc. (AAPL). The current market price is around 142.2 USD, and you believe there will be a significant increase in the company’s price by end of today. If you open a one touch contract with a strike price of 143 USD and a six-hour contract length, then AAPL’s price must ‘touch’ 143 USD at any point before contract expiry for you to earn a payout. The contract doesn’t need to remain open for the full six hours – it will pay out as soon as the price is reached. The further away the trigger point is from the price at the time of purchasing your contract, the higher the potential payout and the more risk.
• No Touch: A ‘no touch’ trade works in a similar way to a one touch contract, except that you are betting that the price will not reach a predetermined level by the contract’s expiry time. If the price touches the strike price at any point before the expiry, the contract immediately ends and the trader loses their stake.
• Boundary/Range: This type of binary options trading requires investors to speculate whether the price of the underlying asset will stay within a certain range. It is sometimes also called double-no-touch trading, as there is a price ceiling and floor that, if touched, results in a loss for the trader. The smaller the range, the higher the risk, and consequently the higher the possible payout. This type of trading is often better suited to markets with limited volatility.
• Ladder: The ladder binary option presents a trader with a series of price levels ranged at equal intervals, like the rungs of a ladder. Rather than simply betting on whether the asset’s price will rise or fall, the trade is based on predictions of whether the price will be above or below these ‘rungs’ at expiry. Since ladder trades often need a significant price move, payouts can go well beyond 100%, though the added profit potential comes with added risk. Due to their relative complexity, these binary options products are less suitable for beginners.

Contract Lengths

Binary options beginners also need to understand that contracts come with a range of expiry times, from a few seconds to weeks or even months. The contract length is one of the most important factors in a binary options trade as it will have a defining impact on everything from a trader’s technical analysis to the size of the stake.

• Turbo/Short-Term Trade: The shortest binary options contracts, often called ‘turbo’ binary options, have expiry times that can zoom by in 60 seconds or less. Contracts with expiry times of up to 15 minutes are also relatively short-term trades. These quick expiry times allow binary options beginners to execute a far larger number of trades in one day, but can also limit the effectiveness of technical analysis and make it difficult to apply theoretical knowledge to your trades. It is best to purchase this type of contract with a clear strategy in mind, so binary options beginners should take care.
• Standard: There is no single ‘standard’ binary options contract length, but expiry times ranging between 30 minutes and several hours are very popular. At these contract lengths, some of the classic techniques of technical analysis come into play and traders are likely to spend more time setting up a trade. Binary options beginners may also be able to plan their trade around an upcoming current event, such as a news announcement or the publication of an official report, in a way that would be impossible with a turbo binary option.
• Long-Term Trade: These contracts are designed to last over days, weeks, and sometimes months. Since these longer-term trades have a similar contract length to classic options and other derivatives, similar strategies and technical analyses can help improve your win rate. Bear in mind that the longer a contract is open, the more chance there is for a shock event to cause unexpected market fluctuations. Since you are often not able to cut your losses in a binary trade, this presents an added element of risk, and is worth keeping in mind for binary options beginners.

How To Get Started For Binary Options Beginners

While learning the ropes of binary options, beginner traders may wish to stick with more basic high/low or touch/no touch contracts. This is partly because these types of contracts are the most widely available, meaning that you will also have the widest selection of beginner-friendly brokers to choose from. At the same time, they are the most straightforward trades, making for an easier learning curve. Below are detailed examples of how these types of binary options trade work.

High/Low

The classic binary options trade simply asks you to predict whether a price will rise or fall by the time the contract expires. Let’s say you’ve been closely following Tesla (TSLA) stock and you want to buy a £100 binary options contract with this as the underlying asset. You believe the price will rise, so you buy a call (rather than a put) contract offering a 90% payout on TSLA in a contract with a 30-minute expiry time.

The contract’s strike price is 221.34, and TSLA’s stock rises from 221.33 when you open the contract at 11:00 to 221.35 at the expiry time half an hour later. You receive your £100 stake back plus £90 in profit.

If the price movement had gone against you, you would have lost the full £100 stake.

Touch/No Touch

In this example, let us say you are trading a major foreign exchange currency pair: GBP/USD. This underlying asset is currently trading at a rate of 0.8991. When you select the asset to trade the broker automatically provides the following details:

1. Touch price of 0.8995
2. Payout as 75% of your deposit
3. Two choices to trade: ‘Touch’ or ‘No Touch’

If you believe that the currency pair will reach the price level within an expiry time of two hours, you purchase the ‘Touch’ contract at 3 pm with a deposit of £500.

The rate of exchange reaches the price level within the two-hour expiry time, meaning you will receive a payout of £875 – your £500 plus a profit of £375. Even if the rate falls below the price at expiry, the important factor is that the level was reached at least once within the time frame.

Step-By-Step Guide To Choosing A Beginner-Friendly Broker

The broker you choose will have a huge impact on your experience when trading binary options as a beginner. Below is a comparison guide to help you select the most suitable brokerage and exchange for your trading style and needs as a novice trader.

Demo Accounts

Demo accounts are one of the most useful features on offer from the best binary options brokers for beginners, opening the doors for newbies to familiarise themselves with the trading platform and test out their strategies without putting their own money at stake. This is a priceless feature for binary options beginners, as long as they have the patience to put the hours into it.

Customer Service

Some of the top binary options brokers for beginners offer 365-day, 24/7 customer service access in English, be it through email or a phone number. VideForex even offers video support. This is important as time is money, especially if you are day trading or trading short-term binary contracts.

You need reliable customer service to ensure you can get back to trading quickly if you hit a snag. Reading reviews from customers can also be reassuring, but be sure to check for a broker that has a high average rating from a large number of user reviews.

Regulation

In the UK, regulated brokers are banned from offering binary options. However, offshore brokerages that are registered with different bodies still offer services to UK customers. Beginner-friendly examples include Pocket Option, Quotex, and IQCent.

Refer to the FCA website for a blacklist of known scammer brokers.

Additional Features

Some binary options brokers for beginners have extra features and tools aimed at new traders. For example, Pocket Option offers a free app you can download to your phone. This is perfect for traders on the go, or those looking to drop and receive forex signals on the move.

Some may also offer features such as educational material or copy trading. Pocket Option also offers a chrome extension for robot or auto trading free downloads.

Signals – Pocket Option

Variety Of Assets

Some binary options beginners prefer to place trades on a variety of underlying assets, while others focus on a specific market or asset class. It is therefore crucial to choose a broker that offers the assets you want to trade, whether that is forex, cryptocurrencies (e.g. Bitcoin, Ethereum, Litecoin), indices or stocks.

Trading Platforms

Binary options brokers for beginners offer different trading platforms. Some require the use of a proprietary platform, while others will support third-party platforms such as MetaTrader’s MT4 or MT5.

Choose a binary broker that supports the platform you’re comfortable with, or try out their demo account to get a feel for the platform before depositing real cash. Also look for secure login measures, plus access to a range of indicators to facilitate the best 15 seconds,
30 seconds, 1 minute, 2 minutes, and 15 minutes binary options trading systems and strategy.

Fees & Minimum Deposits

Binary options brokers for beginners and expert traders alike are run to make a profit and they usually do this through a mix of fees and losing payouts. These can include withdrawal fees, currency commissions, inactivity charges and more. Additionally, if you wish to exchange your profits upon withdrawing to a different currency or cryptocurrency, you may need to pay a fee.

Costs can cut into profits and even lead to those with modestly successful win rates making a net loss.

Placing A Trade

Once you have opened an account with a binary options broker aimed at beginners, it is time to place a trade:

• Pick An Asset: First, log into your trading account and choose the asset you wish to trade. Many binary options brokers for beginners will automatically assume you are trading simple high/low binary options. If your brokerage offers different contract types, these options will also be displayed. There will be a menu of a variety of different assets you can choose from.
• Set Your Investment Amount: Adjust how much money you wish to stake in your trade.
• Set Your Expiry Time: Adjust how long you wish the position to be open for.
• Choose A Direction: Next, choose which direction you anticipate the price to move.
• Wait: The position automatically closes when the contract expires, at which point you will see if your contract pays out. There may also be a short window in which you can close the position early if you have a change of heart.
• Profit Or Loss: When the position closes, you either lose your investment, or make a profit.

How To Trade Binary Options – Pocket Option

Trading Tips For Binary Options Beginners

Strategy

The only way to consistently make profitable binary options trades is to develop and stick to a trading strategy. Many binary options beginners research existing systems and strategies, such as the Keltner Channel, Heiken Ashi, or Japanese Candlestick strategy, before they begin trading with real money. Others prefer to stick to a simple system, such as only trading call contracts from a certain price floor.

It is important to stay consistent and disciplined and keep a note of all your trades in a journal or excel spreadsheet so you can see what is or isn’t working and easily modify your system.

Signals

An easy and popular signal to follow is the volume of an underlying asset being traded. High volume indicates buying pressure, meaning many traders see the asset as having profit potential. This is obviously a useful signal for binary options beginners as it gives an idea of when the price can be expected to rise.

Some binary options brokers for beginners give you free signals and news updates on relevant markets. Being up to date with these can give you the edge over other traders to help you make successful trading moves.

Demo Accounts & Paper Trades

As mentioned above, demo accounts are a valuable tool that allows traders of all experience levels to practice strategies and trading moves without putting real capital at risk. They also allow you to get a taster of what trading with a certain broker would be like.

Many binary options beginners use demo accounts to make paper trades and practice implementing their strategy on the broker’s trading platform without putting real money at risk.

Risk Management

There are a variety of ways to manage risk, and many of them involve wallet management. If you have a total of $1,000 to trade, it would be extremely risky to put it all down in a single bet, especially if you are still learning. Instead, set a maximum amount that you are willing to lose in a single trade, and stick to that. For many, 2% of your total capital is a good place to start.

Binary options beginners can also manage their risk by diversifying their trades, putting a portion of their capital in safer investments such as index tracker ETFs, and by limiting the amount of money they keep in their binary options brokerage account at any given time.

Is It Hard To Learn Binary Options?

The internet is overflowing with material to help beginners learn about binary options, including books, courses, mentors, YouTube videos and more. Books can come in the form of audiobooks or digital PDF books for those on the go, and many have been translated into multiple languages.

Popular binary options books for beginners include:

• Binary Options Unmasked, by Anna Coulling
• Binary Options: The Beginners Guide to Trade and Profit, by Edward Dorsey
• Binary Options: Powerful Strategies To Dominate Binary Options, by Jordon Sykes
• Candlestick Charting For Dummies, by Russel Rhoads

Beginner binary options courses on Udemy also teach the essentials needed to trade binaries. Some popular courses on the website are ‘Binary Options Beginners Guide: Nadex’, and ‘Binary Options: Trading Strategies, 90% Accuracy and Signals’. Some Udemy courses also give learners the opportunity to interact with educators.

Additionally, videos on YouTube are great for finding advice from experts in binary options. Many focus on the most popular US and European markets, but some are also very knowledgeable about more specialised markets from countries like India. Many binary options traders also post video tutorials with directions on how to use certain trading platforms and brokers.

Scams

Binary options have developed a reputation as being risky in part due to the activities of shady brokers. Scams can come in a variety of ways, from fake websites which trick binary options beginners into depositing money to the scammers’ bank accounts, to brokers who manipulate prices, to some who allow users to deposit and trade but make it impossible to withdraw money.

In addition, be wary of emails and cold calls purporting to be from a binary options broker. Trustworthy organisations will not ask users to give sensitive personal information over the phone, so if a caller asks and you are in any doubt, do not continue the conversation.

Carefully researching binary options brokers and exchanges through user reviews and specialised websites is a good way to learn which are considered trustworthy and suitable for beginners.

Bottom Line On Binary Options For Beginners

Binary options trading has been around for years, and for many beginners, this straightforward derivative is the preferred way to trade. However, though binary options contracts are simple to understand, it is by no means easy to consistently make money from them; beginners should approach these trades with care and take the time to learn the fundamentals and develop a winning strategy. If adequate preparation and risk management techniques are put into place, they are an exciting way to trade.

Use our list of the best binary options brokers for beginners to get started.

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