What is Binary Options Trading?

Everybody who is interested in learning how to trade has been told to start paper trading at first. In the electronic world nowadays, “paper trading” means to test out a lot of demo programs which are available that do not use real money but can help you to learn the market behaviour and trade by using different technical tools. Another method to learn how to trade, especially Forex Trading, is to use Binary Options. These are a popular type of global trading tool in the meantime. 


Along with this increase in interest is the Internet growth of white-label platforms which are offered for Binary Options. This is not surprising because Binary Options have many benefits, one of them is the ability to put on a trade for an easy “yes” or “no” on whether a market will be up or down within an expiration time that can be between five and 30 minutes. A lot of trades can also return more than 70%. Beyond question this form of trading is extremely attractive for a trader. Technically these are at-the-money options with very short-term expirations. But from a risk management point of view, Binary Options require a win/loss ratio of 6-out-of-10 trades to break even. 


Binary Options come in many different forms, e.g. “one–touch” options where you can anticipate that the price will touch a level. There exist also range options, where you can take a position on whether the price will stay within a specific range. On some trading platforms you can select your own target strike prices. There exist also 60-second expiration options. These are the very difficult to end up in-the-money because the price behavior in these durations is very volatile. A lot of companies offer Binary Options that basically are set and which lock in a position until expiration, although some companies allow closing the position before expiration. To sum up Binary Options Trading is exciting and is offering within minutes the result of a win or loss. 


But like any high-growth markets there come challenges. E.g. to choose the right Broker or Platform is essential. Like any new instrument and industry, Binary Options have a “wild west” aspect. A lot of companies that offer these platforms are licensed offshore and fall outside the stricter regulatory umbrella and standards which are common in the United States, Europe and Australia. As a consequence, some companies use questionable marketing tactics which are designed to lure clients with giveaways like iPhones, flatscreen TVs etc. The reality is that a lot of clients lose their money, and lose it very fast with these scams. 


“Bonus” programs are also well known which match a client’s deposit, but essentially prevent the client from withdrawing money until 10-20 times the volume of the deposit is generated. Simpleminded clients respond to the possibility to trade the companies' money, not recognizing that they are trapping themselves into financial oblivion. E.g. when a trader places $10,000 and gets a $10,000 match in one company, they have to generate $200,000 in trading turnover or volume before they can withdraw their capital. The result is a very low statistical probability of ever getting any money back. So you should never enter a “bonus” agreement unless you have a proven track record. 


In conclusion like age-old boiler rooms, some of these unregulated or offshore-regulated companies use fraudulent practices in that their brokers use aliases. Adding insult to injury, brokers in these companies have little experience in financial trading. They are essentially sales people who try to use the right words to fake expertise. These Brokers give out fake trade alerts which primarily encourage the clients to trade but not in a profitable way.  


These warnings aside, Binary Options Trading is an affordable way to trade and learn the market. Trading these products also offers you a great opportunity to improve your trading skills. It especially strengthens the understanding of fundamentals because the key to success is detecting the right direction. Binary Options are definitely a good place for a beginner trader t start to understand the Forex market. E.g. the North American Derivatives Exchange (Nadex) provides free demo accounts which you can use to get a feeling for the market and familiarize yourself with different tools to keep up with it. The exchange is also regulated by the Commodity Futures Trading Commission and provides you several currency pairs, including the EUR/USD, USD/JDP and USD/CAD on its platform. You can trade directly with Nadex and do not need a broker. A great attraction of Binary Options lies in their amenability to the use of classic trend lines, resistance and support levels, candlestick charts and analysis of price patterns to find trading signals.