How To Make Money Trading Binary Options

Now that we have a basic idea on how binary option trades work, let’s take a look at a simple example.

Let’s say, you decide to trade EUR/USD with the assumption that price will rise. The pair’s current price is 1.3000, and you believe that after one hour, EUR/USD will be higher than that level.

You then look at your trading platform and see that the broker’s payout is 79% on a one hour option contract with a target strike of 1.3000. After much deliberation, you finally decide to buy a “call” (or “up”) option and risk a $100.00 premium. You could say it’s similar to going “long” on EUR/USD on the spot forex market.

Ending Scenarios After Entering a CALL Option	Gain/Loss
Expiry price is above the strike price (in-the-money)	$100.00 x 79% = $79 $100.00 + $79.00 = $179.00 You gain $179.00 on your account.
Expiry price is equal to or below the strike price (out-of-the-money)	You lose your stake and your account declines by $100.00.

As you can see from the calculations above, the risk you take is limited to the premium paid on the option. You cannot lose more than your stake. Unlike in spot forex trading, where your losses can get bigger the further the trade goes against you (which is why using stops are crucial), the risk in binary options trading is absolutely limited.

Payouts in Binary Options

Now that we’ve looked at the mechanics of a simple binary trade, we think it’s high time for you to learn how payouts are calculated.

More often than not, the payout will be determined by the size of your capital at risk per trade, whether you’re in- or out-of-the-money when the trade is closed, the type of option trade, and your broker’s commission rate.

In the example given above, you bet $100 that EUR/USD will close above 1.3000 after an hour with your broker offering a 79% payout rate. Let’s say that your analysis was spot on and your trade ends up being in-the-money. You would then get a payout of $179.

$100 (your initial investment) + $79 (79% of your initial capital) = $179

Easy peasy, right? Don’t get too excited just yet! You should know that there’s no one-size-fits-all formula for calculating payouts. There are a few other factors that affect them.

Factors in Payout Calculations

Each broker has its own payout rate. For starters, Forex Ninja’s intel shows that most brokers offer somewhere between 70% and 75% for the most basic option plays while there are those who offer as low at 65%. Various factors come into play when determining the percentage payout.

The underlying asset traded and the time to expiration are a couple of big components to the equation. Normally, a market that is relatively less volatile and an expiration time that is longer usually means a lower percentage payout.

Next, the broker’s “commission” is also factored into the payout rate. After all, brokers are providing a service for you, the trader, to play out your ideas in the market so they should be compensated for it. The commission rate does vary widely among brokers, but since there are so many binary options brokers out there (and more coming along), the rates should become increasingly competitive over time.

When a Binary Option Trade is Closed

As mentioned before, binary options are typically “all-or-nothing” trading instruments in that the payout or loss is only given at contract expiration, but there are a few brokers that allow you to close a binary option trade ahead of expiration.

This usually depends on the type of option, and usually it’s only available within a certain timeframe (e.g., available 5 minutes after an option trade opens, up until 5 minutes before an option expiration). The trade-off for this flexible feature is that brokers who do allow early trade closure tend to have lower payout rates.

When trading with a binary option broker that allows early closure of an option trade, the value of the option tends to move along with the value of the underlying asset.

For example, with a “put” (or “down”) option play, the value of the option contract increases as the market moves below the target (strike) price. This means that, depending on how far it has moved passed the strike, the closing value of the option may be more than the risk premium paid (but never greater than the agreed maximum payout).

Conversely, if the underlying market moved higher, further out-of-the-money, the value of the option contract decreases and the option buyer would be returned much less than the premium paid if he/she closed early.

Of course, in both cases, the broker commission is factored into the payout of an option trade when closed early.

So before you decide to jump head first into trading binary options, make sure you do your research and find out what your broker’s payout rates and conditions are!

02:46   by Unknown ·   0

What Are Binary Options?

Don’t be intimidated! Its name may sound complicated, but binary options are arguably a simpler way to trade than traditional options or currencies.

Just like traditional options, binary options have a premium, a strike price, and an expiration.

The difference is that, with binary options, the “premium” amount for the option is chosen by the trader (usually determined by the market with traditional options) and the expiration timeframes are much shorter.

Traditional options have an expiration range of a week to a couple of years, while binary options have an expiration range of less than a minute to a few days.

These variations bring about the biggest difference, which is how a profitable trade is calculated. But before we cover the ka-ching ka-ching, let’s take a look at how binary option trades work.

With a binary option trade, the broker will pay out a percentage of the premium at risk if the conditions of the contract are met (e.g., the market price is at or beyond your target strike at expiration with a call option).

Basically, you receive a predetermined fixed profit, regardless of how far the market moves beyond the strike price or met the conditions of the contract.

Whether it’s by 1 pip or 1,000 pips, it’s the same profit payout at contract expiration; there is no middle ground. This is why binary options are also known as “all-or-nothing” options.

02:43   by Unknown ·   0

What Are Options?

Before we dive into binary options, it’s important to get a basic understanding of what options are and how they work.

Traditionally, an “option” contract gives the holder the right to buy or sell an asset at a predetermined price within a certain period of time (or by an expiration date). Note that the holder is not obligated to buy or sell at the predetermined price, he merely has the option to do so if he wishes to. That’s why they’re called options, yo!

There are two kinds of options: calls and puts. And for this brief overview, we’ll only quickly cover the mechanics of option buying.

A CALL option allows an investor to BUY the underlying asset at a predetermined price, dubbed the “strike price.” If an investor expects the underlying asset to rise above the strike price before the contract expires, he would purchase a call option.

On the other hand, purchasing a PUT option gives the buyer the right to SELL an asset at their chosen strike price. So, if he thinks the market price of an asset will drop below the strike price before the contract expires, he would buy a put option.

The purchase price of an option is also called the “premium,” and when buying options, the premium is the most you will risk or can possibly lose. So, the profit from an option trade is the amount the market has gone beyond the strike price minus the premium at the contract expiration.

For example, let’s say you want to buy a piece of land that is currently worth $100,000. You think it will rise in value by another $30,000 one year from now, but you don’t want to tie up $100,000 for a year in that investment.

The seller of the land offers to sell an option contract to you to purchase the land for $100,000 (strike price) one year from now. The seller offers the contract at a $5,000 premium. You agree, pay the $5,000 to the seller for the contract and wait to see if the value rises.

Let’s say in one year, the land value increases to $130,000. You decide to exercise your right to purchase the land at the agreed price (the strike), pay the owner the $100,000 contract price and now you own the land. Your profit on the land is the current value, $130,000, minus the purchase price (strike) plus the contract premium: $130,000 – ($100,000 + $5,000) = $25,000.

Alternatively, let’s say that in one year, the land falls in value to $80,000. You are not obligated to exercise the contract and you obviously decide not to buy the land because it has fallen in value. Your only loss is the premium paid ($5,000) to the option seller. As you can see, options are a great alternative to play your market ideas with very limited risk.

Now that you have a basic idea of how options work, we can now take a look at binary options.

02:42   by Unknown ·   0

What Are Options?

What Are Binary Options?

How To Make Money Trading Binary Options

3 Types Of Binary Options

Market Analysis For Binary Options

Are Binary Options Regulated?

Binary Options Vs. Forex

02:41   by Unknown ·   0

How To Protect Yourself From Forex Scams

So what have we learned?

Scams ARE real!

Yes! Really bad people are out there trying to make a dishonest living. However, unlucky for them, you are smart! You know that the only way to succeed in currency trading is to learn from square one and build trading experience!

Now say this three times out loud:

“I will not fall for no-risk robots! I will not succumb to guaranteed returns! Lastly, I will not be lazy and let someone else trade me lucky charms *cough* I mean my money for me!”

Now that we have that over with, let’s close out with some questions our viewers have asked us countless times!

Q: How can I protect myself from fraud?

A: Easy. Be educated. Be smart. Know what a scam looks like. Anything that seems too good to be true usually really isn’t true.

Q: How do I choose a forex broker?

A: First and foremost, make sure the broker is regulated by a national agency. Research, research, and do more research! And for reference use our Broker Guide!

Q: Can forex managed accounts be trusted?

A: If your forex manager is yourself, yes! If not, I’d exercise extreme caution. But if you’re persistent and want to find out the hard way, do a background check and make sure the person has proper licenses and certifications.

Q: Are forex robots profitable?

A: It’s possible, but because they’re usually built for a specific set of conditions, their profitability and how long it may be profitable depends on the market.  Like human traders, they can go on long profitable runs, have a long string of losing trades in a row, or see-saw somewhere in-between.  If you take anything away from the school about them, just don’t think they’re a “set-and-forget” solution to trading; they must be monitored closely as well.

Q: Who do I contact if I suspect fraud?

A: There are specific organizations depending on your location.

United States:

CFTC: http://www.cftc.gov/ConsumerProtection/RedressReparations/index.htm

NFA: http://www.nfa.futures.org/basicnet/Complaint.aspx

United Kingdom:

ActionFraud – the UK’s national fraud and Internet crime reporting centre: http://www.actionfraud.police.uk/

Australia:

Scamwatch: http://www.scamwatch.gov.au/content/index.phtml/tag/reportascam#h2_10

Q: Where can I capture me a leprechaun?

A: Look for a unicorn. Where you’ll find a unicorn, you’ll find a leprechaun!

So remember, forex scams DO exist. Be wary of them and hold onto your hard earned money. The good news is that there ARE legitimate forex companies out there. Make sure you do thorough research on a company if you are thinking about giving them a shot.

Ask other forex traders on the forums if they’ve had experiences with them. There is a wealth of information on the Internet so do your homework, use your head, and you’ll be just fine.

02:34   by Unknown ·   0

Foreign Regulatory Agencies

UK: The FCA and PRA

If you live in the U.K., the Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA) are for you! On April 1, 2013, both of these agencies replaced the Financial Services Authority (FSA) as the financial industry’s regulatory bodies.

The Financial Conduct Authority is a non-government agency funded by the firms they regulate, and they are accountable to a Board appointed by the Treasury. Their goal is to protect consumers, ensure industry stability, and promote healthy competition in the financial services industry through the regulation of financial advisers, asset managers, or any firm not covered by the PRA.

FCA website: http://www.fca.org.uk

The Prudential Regulation Authority is a part of the Bank of England, and their main role is to promote a healthy UK financial system through the regulation and supervision of banks, credit unions, major investment firms, and insurers.

PRA website: http://www.bankofengland.co.uk/pra

Finanstilsynet

The Danish FSA was formed in January 1988 and was charged with supervising financial activities in Denmark. Members of the FSA are monitored in attempt to protect investors and prevent market abuse.

Finanstilsynet’s website: http://www.dfsa.dk/en.aspx

Swiss Federal Department of Finance

The Federal Department of Finance or FDF was formed in 1848. While the FDF is the overseer of financials in Switzerland, it is the Swiss Financial Market Supervisory Authority or FINMA that regulates the banks, securities dealers, and stock exchanges. FINMA acts like the big brother in Switzerland and does pretty much the same as the other regulatory agencies.

FDF’s website: http://www.efd.admin.ch/index.html?lang=en

FINMA’s website: http://www.finma.ch/e/Pages/default.aspx

Association Romande des intermediares financiers

This organization is similar to FINMA in that they are both from Switzerland, but this body is based on the French speaking part of Switzerland. ARIF was formed in 1999. It too acts as a regulatory agency with members abiding by certain rules and laws.

ARIF’s website: http://www.arif.ch/en/index.htm

Hong Kong Securities and Futures Commission

The Hong Kong Securities and Futures Commission (SFC) was formed in May 1989 due to ineffective efforts of two regulating bodies. With a combined single organization, the SFC took charge. It monitors all futures and securities-related activities in Hong Kong.

SFC’s website: http://www.sfc.hk/sfc/html/EN/index.html

Australian Securities and Investments Commission

Founded in 1991, the Australian Securities and Investments Commission (ASIC) acts as a corporate regulator in Australia. ASIC regulates companies, financial markets, and financial service organizations as well as insurance, and credit. The organization aims to maintain fairness in the market environment.

ASIC’s website: http://www.asic.gov.au/asic/asic.nsf

02:30   by Unknown ·   0

U.S. Regulatory Agencies

Commodities Futures Trade Commission (CFTC)

In the United States, we like to call the CFTC… Big Brother.

This agency was developed in 1974 to protect individuals (average cool dudes like you and the FX-Men) in futures and commodities trading. Since futures include the currency market, the CFTC “naturally” protects forex traders as well.

From 1974 to the present, the CFTC has undergone many changes in hopes of improving trading conditions and creating a level playing field for everyone. The CFTC is also responsible for publishing the Commitments of Traders Report (COT) every Tuesday.

Five commissioners appointed by the President, the offices of the Chairman, and the agency’s operating units make up the Commission. The Commission has 3 offices along with HQ located in Washington, D.C. – Chicago, Kansas City, New York.

Futures exchanges are also located in these cities. So if you have a problem with them, you can make your way over there and bust out your uzis and spray them. Just kidding. Don’t do that – they’re the good guys. They’re here to help you.

Imagine if there was no organization out there to protect you. There would be a lot more scammers, and brokers would cheat their clients in a heartbeat. The CFTC provides order in a market that would otherwise be chaotic.

The mission of the CFTC is to protect market users and the public from fraud, manipulation, and abusive practices related to the sale of commodity and financial futures and options. In the “unregulated” forex market, this regulatory agency will help you determine if a forex company is reliable or trustworthy.

The CFTC’s Website can be found here:

http://www.cftc.gov/index.htm

If you need to file a complaint or report suspicious activities:

http://www.cftc.gov/consumerprotection/redressreparations/index.htm

National Futures Association (NFA)

The NFA is an industry-wide self-propelling organization created in 1982 that regulates the futures market in the United States. By self-propelling, we mean that the NFA collects dues in order to sustain itself without having to rely on taxpayers’ dollars.

If the CFTC is Big Brother, then we like to call the NFA….Little Big Brother. NFA’s activities are overseen by the Commodity Futures Trading Commission (CFTC), the government agency responsible for regulating the U.S. futures industry.

The NFA’s mission is to:

• Ensure futures industry integrity
• Protect market participants
• Enforce NFA members to meet their regulatory responsibilities

Virtually every firm or individual who conducts futures or options on futures business with the public must be registered with the CFTC and a Member of NFA. NFA performs the registration process on behalf of the CFTC.

NFA Member categories include: Commodity Trading Advisors (CTA), Commodity Pool Operators (CPO), Futures Commission Merchants (FCM) and Introducing Brokers (IB).

In order to conduct any business in the futures market, you would have to be a member of the NFA. To be a member of the NFA, an organization would have to pass a screening done by the NFA and comply with NFA standards and regulations.

These rules and regulations provide market integrity and a level playing field for all, and not just for investors.

Over time, they have been making significant progress. In order to resolve futures-related issues, the NFA began an arbitration method in 1983. In 1991, a mediation program was developed as a faster way to resolve disputes.

In late 2001, the NFA started to accept claims online. Members could also start registering online in 2002.

In 2004, the NFA started to submit digital images of fingerprint cards to the FBI enabling quicker background checks and shorter registration times. What an active organization! This goes to show that they keep up with the times. Who knows, they might just make their own iPad app. Ha!

Along with the CFTC, the NFA provides investors and individuals with security and protection from fraud and scams.

The NFA’s website can be found at http://www.nfa.futures.org/index.asp.

02:24   by Unknown ·   0