Short Term Options
Short term options trading is popular with retail investors, providing opportunities in various markets. But while some investors use traditional options, others trade binary options, which offer fixed payouts and contracts that expire in just a minute or less.
This trading guide will provide a run-down on the fundamentals of short term options, from strategies and indicators to the best brokers and platforms. We also compare short term binary options with standard options to help you decide which instrument may best suit your needs.
Short Term Options Brokers
Founded in 2017, Pocket Option is a binary options broker offering up/down contracts on forex, stocks and cryptocurrencies. With over 100,000 active users and a global reach, the brand has proven popular with budding traders. Pocket Option also supports dozens of payment methods and has a low minimum trade of just $1.
Demo Account Regulated By MT4 Integration Yes IFMRRC No Min. Deposit Min. Trade Leverage $50 $1 None
IQCent is an offshore binary options and CFD broker based in the Marshall Islands with 10+ payment methods and a low $50 starting deposit. With 100+ assets, around the clock trading and high payouts the brand is popular with aspiring short-term traders.
Demo Account Regulated By MT4 Integration Yes IFMRRC No Min. Deposit Min. Trade Leverage $250 $0.01 1:500
Videforex offers access to stock, index, crypto, forex and commodities markets via binary options and CFDs. The proprietary platform, mobile app and integrated copy trading are user-friendly and will suit new and casual traders, and the market analysis tools and trading contests provide good ways to improve your trading skills.
Demo Account Regulated By MT4 Integration Yes No Min. Deposit Min. Trade Leverage $250 $0.01 1:500
Dukascopy is an online broker operated by a Swiss-regulated banking group. It offers a good selection of 500+ markets, with forex, stocks, gold, ETFs, indices, bonds and cryptocurrencies available. It also offers flexible trading opportunities through the choice of CFDs or binary options. Traders will use MetaTrader 4 or a proprietary platform that is well-suited to automated trading.
Demo Account Regulated By MT4 Integration Yes FINMA, FCMC, JFSA Yes Min. Deposit Min. Trade Leverage $100 0.01 Lots 1:200
AZAforex is a multi-asset broker founded in 2016. The brand offers a sophisticated proprietary platform, ECN trading and 40+ deposit methods. The brokerage has 120,000+ registered customers with copy trading and a VPS.
Demo Account Regulated By MT4 Integration Yes No Min. Deposit Min. Trade Leverage $1 0.00001 Lots 1:1000
Focus Option is an offshore broker that specializes in binary options as well as CFDs. Binary options trading on forex, cryptos and three commodities is done through the broker's simple web-based platform with average payouts between 70% and 95%. The broker also offers a mobile app for trading CFDs, with 300+ tradeable instruments.
Demo Account Regulated By MT4 Integration Yes No Min. Deposit Min. Trade Leverage $10 $1 1:50
CloseOption is a Georgia-headquartered broker with over a decade in the trading industry. The brand offers high/low binary options trading on forex and crypto markets, with decent payouts, welcome bonuses, 24/7 customer support and intuitive trading software.
Demo Account Regulated By MT4 Integration Yes National Bank of Georgia No Min. Deposit Min. Trade Leverage $5 $1 None
World Forex is an offshore broker registered in St Vincent and the Grenadines, offering commission-free trading with a $1 minimum deposit and 1:1000 leverage. Digital contracts are also available, offering beginners a straightforward way to speculate on popular financial markets.
Demo Account Regulated By MT4 Integration Yes SVGFSA Yes Min. Deposit Min. Trade Leverage $1 0.01 Lots 1:1000
GC Option is a binary options broker offering contracts with flexible contract lengths and payouts up to 86% on 27 instruments. This is one of the few binary options brokers to support MetaTrader 4, which it provides alongside two proprietary trading platforms.
Demo Account Regulated By MT4 Integration Yes Yes Min. Deposit Min. Trade Leverage $10 $1 None
RaceOption is a binary options broker operating from the Marshall Islands. With over 1,500 clients, the broker aims to offer fast funding, low fees and a secure trading environment. Traders can access over 100 binary options and CFDs, plus copy trading and weekly prizes.
Demo Account Regulated By MT4 Integration Yes No Min. Deposit Min. Trade Leverage $250 $0.01 1:500
BinaryCent is an unregulated binary options broker that offers 24/7 trading on forex, cryptos and stocks with payouts up to 95%. Despite its lack of regulation, this broker takes client security seriously and stores client funds in European banks. The broker also offers CFDs with very high leverage up to 1:500.
Demo Account Regulated By MT4 Integration Yes VFSC No Min. Deposit Min. Trade Leverage $250 $0.01 1:500
Short Term Options Explained
While there is no concrete definition of what constitutes ‘short’, it is generally thought to be within the range of minutes to hours. The most common contracts tend to be 60 seconds, 2 minutes, 5 minutes, or 15 minutes. However, short term can also go up to a few days. These kinds of options tend to be binary options, as they are more closely associated with shorter expiry times.
Short term binary options contracts work in the same way as their longer term counterparts, in that they are all-or-nothing trades. A good prediction will see traders go home with a fixed payout, usually displayed as a percentage of the stake. A losing prediction will see the trader’s account debited with the initial investment.
Short term options typically ask traders to answer a straightforward question. For example, will the price of the FTSE increase or decrease in 1 minute?
Let’s assume an investor bets $1000 with a 45% payout.
- In 1 minute the price of the FTSE rises – The trader is right and wins $1,450 ($1000 + $450)
- In 1 minute the price of the FTSE falls – The trader is wrong and loses the $1000 stake
Note, short term options tend to have higher returns vs longer term options due to the volatility and risk involved.
Short Term Options Vs Short Term Binary Options
When trading binary options, if the trader is incorrect about the direction of the price movement, they lose their entire investment. With standard short term options contracts, the loss is the premium (price) of the contract.
A winning binary options trade simply requires the investor to correctly predict whether the price of an asset will rise or fall. A standard options trader will profit from the purchase of a call contract if, at the expiry time of their short term option, the price of the asset has risen. This is because the trader purchased the underlying asset before the increase in price. They can now sell the asset at a higher price than what they paid. Conversely, a profit is made from a short term put option if the price of the underlying asset falls, and the trader sells the asset before expiry.
With short term binary options, the trader never owns the underlying asset – they are simply speculating on the movement in price. With standard options, the contract holder has the right to buy or sell the asset in question at expiry.
Overall, binary options are more straightforward, but providers come with less regulatory oversight and retail trading safeguards.
Pros Of Short Term Options Trading
- High returns due to volatility
- You choose the size of your position, so you can invest whatever you can afford
- Many binary options brokers offer ultra-short expiry times with contracts from just 30 seconds
Cons Of Short Term Options Trading
- Volatility and unpredictability mean short term options are high risk
- Traders do not own the asset when buying a binary options contract
Strategies & Indicators
One of the most common types of indicators, oscillators show traders the speed at which prices change by comparing price movements over time. Popular examples include know-sure thing (KST) oscillators and stochastic oscillators.
With candlestick charts, before the price moves in one direction for an extended period, there is typically a long body accompanied by either a long upper or lower shadow. This indicates high standard deviations, meaning there is little stability in the asset at its current price.
These indicators don’t consider the direction of price movement, only the rate of price movement. Usually, when volatility sees a spike, it indicates instability in a market. For beginners, volatile markets should be avoided as predicting the direction of movement in the short term can be difficult without experience.
Some examples of volatility indicators include Bollinger bands or average true range. The greater the distance between the bands, the more volatile the market is.
Trend indicators take an average of the price of an asset to measure the direction and strength of a trend. If prices move above or below the trend line, it can be taken as an indicator of either a bullish or bearish trend. If the price consistently deviates from the trend in one direction, a new trend is created. Correctly anticipating the direction of the new trend is when profits can be made.
Volume indicators can help to measure the strength of a short term trend. When the volume of an asset being traded increases, it shows confidence in the trend as other traders are also following it.
The best short term options strategies combine a variety of indicators to accurately predict the direction and strength of a trend.
How To Compare Brokers That Offer Short Term Options
- Fees – Short term options brokers may charge deposit and withdrawal fees, commissions, and inactivity penalties. Pocket Option, for example, charges a 0.5% withdrawal fee if using a bank transfer or the Pocket Money system. Importantly, the top brokers will publish details of trading fees on their website. Alternatively, our reviews compare costs across the best short term options brokers.
- Range Of Assets – On which underlying assets can you speculate with short term options? Can you trade currencies, stocks, and commodities? Several top short term options brokers also offer opportunities on cryptos like Bitcoin, including Quotex.
- Customer Service – The best short term options brokers offer 24/7 support. Assistance is often provided through live chat, email or social media messenger. Leading brands can advise on platform queries, contract stipulations, and more.
- Education & Tools – Successful short term options trading is not easy, so traders should look for brokers with solid education bases that introduce strategies and give good trading tips and tutorials. This is particularly important if you are new to binary options trading. Other useful tools for beginners include copy trading.
- Payouts – Short term binary options brokers offer payouts of over 90% on popular assets like major forex pairs. Volatile assets like cryptocurrencies tend to come with lower profit potential.
- Minimum Deposit – Some brokers offer short term binary options trading with a low deposit of just $5 or $10. Again, these are good options for new traders. Also check the list of supported payment methods. Can you deposit with bank cards, e-wallets or digital currencies?
Tips For Trading Short Term Options
- Economic Calendars – Many brokers provide a free economic calendar with upcoming events and announcements. These events can be used to place short term options trades, anywhere from 2 days to minutes before the event happens. Key news events can include interest rate decisions, reports released on company numbers, government jobs reports, press conferences or companies releasing their quarterly income reports.
- Expected Movements – When trading short term options, traders need to be aware of implied volatility and the effects of how the market is expected to move. If you purchase an options contract for an asset widely expected to move in a specific direction, then the premium will be much higher and/or the payout may be lower. Expected movement can also make the market move less which may impact your returns.
- Money Management – Limit the size of your potential losses by not risking more than a set percentage of your total capital on a single trade. This could be 1% – 2% of your account balance.
- Trading Journal – Journals on Google Sheets or Microsoft Excel, for example, are a great way to keep track of your trades. Making notes on each trade including the date, time, and signals you used, can help you to identify which strategies and setups work for you.
Bottom Line On Short Term Options Trading
Binary options are one of the most popular forms of short term options. They are fast-paced, come with fixed risks and payouts, and are available on multiple markets, from stocks to forex to metals. Alternatively, retail investors can trade traditional options which feature some of the same characteristics but with added complexity.
Use our list of the top binary options brokers that offer short term options trading to get started.
What Are Short Term Options?
A short term options trade refers to a contract that is opened for a short period, such as a few minutes, hours or days. This is typically done in conjunction with a major event that is going to change the movement of the market drastically. Investors can use traditional options contracts or binary options which have expiries of just a few seconds at some brokers.
Are Short Term Options Risky?
Binary options and other short term options are considered riskier than most due to the volatility present in the short term. Trends are not given a chance to stabilise, so it is even more difficult to be certain of price movements. Still, they can form part of a diverse portfolio.
What Tools Do I Need To Trade Short Term Options?
We recommend using an economic calendar to keep track of major news events, and use this knowledge to predict which way the market is going to swing. From this, you can place short term trades at the right time before the market begins to move.
What Is The Law On Short Term Options Trading?
Standard short term options are legal instruments at supporting brokers. However, there are restrictions on UK-based brokers offering short term binary options. As a result, many investors sign up with offshore firms. See our review for a list of the best short term binary options brokers.
Are Short Term Options Halal?
Short term options are considered to be halal if adequate research is undertaken and if the assets traded are Shariah compliant. However, these conditions may be difficult to achieve, so many Muslim traders opt for alternative trading vehicles.