One of gambling strategies, Martingale has been used in France since the 18th century. Does it apply to the binary options market?
Martingale’s principle is very simple: double the bet after every loss. It has been used in games that rely on being 50% effective, such as “heads or tails”.
Let’s say John invested $1 and wants to bet on heads regularly. It’s tails. His next bet is $2. If it’s tails again, then his next bet is $4. If it’s heads, he’s lost $3 (1+2) and his net profit is $4. Thanks to this strategy John gained $1. If he wins, he goes back to his original bet. But what happens when he only has $7 and he was wrong 3 times in a row? There’s only one answer: he’s a bankrupt. This is why using martingale not only requires significant capital, but also high stakes limit. Still, we risk losing the entire capital (a losing streak is always possible) and we do not earn much at the same time; you’re very likely to win small amounts of money and there’s a slight risk of losing significant capital.
Martingale has also been used in the present-day gambling, e.g. in roulette, bookmaking or Forex. There are also those who use its principles in binary options. Still, martingale’s popularity is a product of its simplicity not effectiveness. It may seem a very sensible strategy that ensures minimizing losses, but if it’s that effective, how come we don’t triple the bet every time we lose?
The table below shows why following the strategy may be extremely risky, especially in the long run:
Doubled games Stake ($) Chances of losing the next bet The cost of winning ($) The amount won ($) Profit ($) 0 1 50% 1 2 1 1 2 25% 3 4 1 2 4 12.5% 7 8 1 3 8 6.25% 15 16 1 4 16 3.1% 31 32 1 5 32 1.5% 63 64 1 6 64 0.8% 127 128 1 7 128 0.4% 255 256 1 8 256 0.2% 511 512 1 9 512 0.1% 1023 1024 1 10 1024 0.05% 2047 2048 1
The chances of losing 9 times in a row are 0.1%, but – at the same time – when somebody follows the strategy for 1000 bets, chances that they will enter a losing streak at least once are extremely high and such a streak may cause a terrible loss.
Binary options do not offer doubling the stakes. Profits range from 70 to 80% of the stake, so following this strategy in its most typical version will not help us make a profit– it will cost us the minimal loss, which is why to make use of this strategy we need to go even higher and – sometimes – triple the stake.
Let’s go with an optimistic scenario and assume that our options make 80% profit. This means that our stake should be increased by more than 120%. Since brokers have different minimum and maximum settings, the range of martingale usage differs. For instance, if a broker offers the minimum of $10 and the maximum of $10000, then after 8 losses we won’t be able to go higher and it’s over for our martingale strategy. What’s more, as we risk more than $5000 to earn no more than $10, it doesn’t seem worth the risk.
If you really want to go with martingale, make sure that its effectiveness is about 70%. Also, go through your past strategies and check how long your losing streak was. Still, remember that your strategy may fail even 10 times in a row, because every strategy may just have a bad day and history does not always repeat itself. It’s best to wait it out than go with systems that cause your account to be in the red. What’s more, betting low in the beginning helps since you may just find out that you don’t have enough money to go with this strategy.
Hedging binary options strategy means opening two compensating opposite options at the same time so that the options are protected. For instance, a “high” option is offset by a “low” option, and the other way round. This strategy has been successfully used in the Forex market, but it’s forbidden by some brokers. Opening two opposite, equally priced positions in the Forex market (a longer and a shorter one) causes them to counteract and, theoretically, they become neither losses or gains. Such a situation can be used when we’re not sure of the outcome of the opening position. Then, using tools such as take profit, profit target, stop loss and limit, we can minimize the risk of closing the position with a loss by opening a counteracting position.
But how can we use hedging in binary options? As we know, winning means making a profit of 70-85%, so opening two counteracting options means at least one of them is a complete, 100% loss. Globally we’ll lose either way. Even if we take into account that some brokers refund up to 15% of a failed option, then – in the best-case scenario where the potential gain from both options is 85% and the refund is 15% – we’ll break even. What kind of security is this then?
Hedging strategy and binary options
Let’s say that we open a “high”-type option at $20. According to our analysis, it’s the more probable direction than a “low”-type option. Still, we want to make sure. Therefore, without changing the asset, we open a “low” option, but at $10.
What happens when we’re right about our “high” predictions?
Let’s look at these three possibilities:
- the option makes 70% profit;
- the option makes 80% profit;
- the option makes 85% profit.
The first scenario, when our “high” option brings $14 profit ($20×70%) and our “low” option brings $10 loss, the net profit with the Hedging strategy is $4, so 20%. Adding to that the maximum possible refund that’s available with some brokers (15%), we’ve made $5.5 (14-10+1.5), so 27.5%.
The second scenario, when our “high” option brings $16 ($20×80%) and our “low” option costs us $10, the net profit with the Hedging strategy is $6, so 30%. Adding to that the maximum possible refund that’s available with some brokers (15%), we’ve made $7.5 (16-10+1.5), so 37.5%.
The third scenario, when our “high” option brings $17 ($20×85%) and our “low” option costs us $10, the net profit with the Hedging strategy is $7, so 35%. Adding to that the maximum possible refund that’s available with some brokers (15%), we’ve made $8.5 (17-10+1.5), so 42.5%.
What happens when we’re wrong about our “high” predictions and “low” is the winner?
Let’s take a look at these three possibilities again:
The first scenario, when our “low” option brings $7 profit ($10×70%) and our “high” option costs us $20, the net profit with the Hedging strategy is $13, so 65%. Adding to that the maximum possible refund that’s available with some brokers (15%), we’ve lost $10 (20-7-3), so 50%.
The second scenario, when our “low” option brings $8 profit ($10×80%) and our “high” option costs us $20, the net profit with the Hedging strategy is $12, so 60%. Adding to that the maximum possible refund that’s available with some brokers (15%), we’ve lost $9 (20-8-3), so 45%.
The third scenario, when our “low” option brings $8.5 profit ($10×85%) and our “high” option costs us $20, the net profit with the Hedging strategy is $11.5, so 57.5%. Adding to that the maximum possible refund that’s available with some brokers (15%), we’ve lost $8.5 (20-8.5-3), so 42.5%.
Is it worth it?
Hedging strategy is easy to follow. As it’s been shown, it restricts both the losses and the gains. There’s no guarantee of a stable profit. The strategy is effective when choosing brokers with the highest refunds. It’s up to the trader to know what’s most important: minimizing or maximizing the risk and gains.
Here’s a simple strategy drawn up by our fellow trader: using the basic indicators in such a restrictive way that only few signals are generated, making them more effective.
It’s all about seeking the overbought and oversold moments.
We set the chart on 5M time interval.
In the price chart we install the following indicators:
- 2 x simple moving average (SMA), one set at 100 (here: yellow) and the other at 50 (here: purple).
- Bollinger Band set at 20 and 2.5 (not the default/standard settings).
- The RSI set with the period of 3 and levels 10 and 90.
- ForexMTN on the RSI chart for better visualization (optional).
CALL – if 100 SMA is below 50 SMA (a signal of an upward trend), and the price chart is below those two lines. Also, if the signal candle’s chart closes below the scope of Bollinger Bands. To confirm the signal we check the RSI (there’s a blue signal if it’s oversold). If the above is true, we enter the call option on the next candle for 30 minutes.
PUT – if 100 SMA is above 50 SMA (a signal of a downward trend), and the price chart is above those two lines.. Also, if the signal candle’s chart closes above the scope of Bollinger Bands. To confirm the signal we check the RSI (there’s a red signal if it’s overbought). If the above is true, we enter the put option on the next candle for 30 minutes.
PUT option (click to enlarge):
If we want more signals, we can test this strategy on 1M chart and set the expiry date at 15 minutes. Bear in mind that the right RSI level is crucial.
A very special offer: access to the VIP section!
We offer descriptions and templates of interesting binary options and Forex strategies that have been optimized by our team.
We provide tools useful when making a decision, different levels of sophistication and solutions not accessible to the general public.
We want to award those users who subscribe to the brokers we have recommended and who have an active deposit at one of the following brokers:
If you’ve met those criteria, you might get access to the VIP section where we provide details on many strategies. All you need to use them is install some indicators (it’s best to use MT4 platform). Contact us!
One of such strategies has been developed by a fellow well-versed trader who’s worked on it for many months. This strategy is characterized by high success rate (up to 70-80%) and fewer signals. As we all know, it’s quality over quantity: you can always make up for the signals with an adequate stake. This strategy should be used with short expiry dates (15 minutes – 1 hour). It adjusts to the current trend and can be used on many currency pairs (we send the recommended pairs along with the strategy). It’s semi-automated, which means that the signal is generated automatically by means of an arrow and an alarm. It can be used by the beginners.
StockPair is one of the highest rated binary options brokers so you don’t need to worry to be scammed here. It offers comprehensible and interesting services and is subject to CySec regulations since 2014. StockPair has built its position on an efficient platform and fast and seamless payments however without offering a demo account.
What truly sets this broker apart from its competitors is the addition of the so-called “pair options” to the standard binary options offer: choosing two active assets and determining which will go higher in a given time interval. We get to decide whether one asset will go higher than another or which asset will fare better. In the first case, the return is relative as it depends on the price difference between the assets (the higher it goes, the lower the return). In the second case, the return is fixed and common for both assets.
Pair options enable earning even if the price of both assets goes higher or lower. What matters is which asset’s price goes higher or lower. While the rate of return is quite high (up to 82% for the typical binary options), StockPair does not refund failed transactions.
The additional tools and privileges of an account depend on the deposited amount. The access to webinars and seminars online or help from a personal trade expert, and other bonuses and promotions, are available for as long as you have the necessary balance.
To upgrade your account you need to deposit at least $1000. Here are the available account options: Silver, Gold, Platinum or VIP.
One of StockPair’s biggest assets, the platform, is clear, fast and user-friendly. Thanks to a plethora of tools it’s easy to follow and read all the charts. StockPair leaves its competitors behind, because in so many cases following charts requires installing additional tools, e.g. Metatrader 4, which is completely unnecessary here. The platform can be accessed via the website.
Not all the options are available, though. There are no boundary options, range options, or one-touch options. What is available? The classic binary options, pair options, short-term options and KIKO-type options.
The last type is the newest addition (March 2015): KIKO stands for “knock-in-knock-out” and it means that you have no expiry time decision to make. It’s very similar to “boundary out”, but here we decide which boundary (upper or lower) the chart is supposed to cross. Also, we do not have any expiry time set. The option remains open as long as one of the boundaries (upper or lower) is not crossed. The boundaries are predetermined by the platform. All we can choose is whether the range is “low span” or “high span”, the latter meaning that the option will be open longer. This choice, however, does not influence the return, which can go as high as 82%. What else do we get to choose? A currency pair, the moment the option opens and which boundary (lower or upper) gets to cross the price chart. Still, their position to the current price is so narrow that options close rather quickly (after a couple or a dozen or so minutes in the “low span”).
A winning KIKO option screen:
StockPair has a different expiry time structure than most brokers: there is no predetermined opening and expiry time. It is up to the user to choose when an option opens or expires.
It’s similar to the short-term options but with even more choices when it comes to the expiry dates. This lets us choose the opening moment that we really want and need. It’s also easier to adjust the transactions to the strategy we’ve chosen, so we can open more of them.
Available expiry time: 60, 90 seconds; 5, 10, 15, 30, 60 minutes; end-of-day; end-of-week; or for 14, 30, 60, 90, 150 days. The longest one is about 6 months.
The minimum to invest is $20 and the maximum is $16,000 (VIP account).
StockPair offers a respectable number of about 170 assets.
The platform is also available for mobile devices.
StockPair deposits and withdrawals
Depositing and withdrawing money is not complicated, but there is a limited number of payment methods. We can do so using credit cards, bank wires or Skrill. Some countries (Eastern Europe mostly) can deposit/withdraw using iDEAL, GiroPay, Sofort, AstroPay, WebMoney, QIWI and Moneta.
The minimal deposit:$/EUR/GBP200.
Standardly, to withdraw the funds, you need to verify the account by sending documents that confirm your identity. This will happen only once and when it’s done, you can take advantage of the quick unlimited withdrawals (up to 2 business days or that plus how much time your bank needs to clear them).
The broker does not offer a demo account for a standard user. Only those participating in the affiliate program may access a demo account.
StockPair is definitely user-friendly and it’s not only as far as treating clients/users goes, but when it comes to the whole policy as well. User tools, the platform interface, educational materials, regular webinars or the bonus policy; it all makes StockPair a friendly place.
The website has been translated into 11 languages. You can contact the support (in English) via a contact form, e-mail, chat or phone.
StockPair’s “Education” section is well-developed although it mostly consists of market news and platform descriptions. There’s a separate service, stockpairinsight.com, dedicated to a more detailed daily/weekly market analysis. Advanced tools, such as expert support or indicators, however, are available only for those with upgraded accounts.
StockPair offers a bonus up to 60% of the deposit, but to be withdrawn you need to meet the minimum trading volume requirement (40 times the value of the bonus you received).
There are many different opinions of StockPair, but it’s not a scam. We have not received any complaints. Withdrawals – even the large ones – are straight-forward.
StockPair is an exceptional broker that has achieved its high ranking through careful quality assurance. It’s especially recommended for those who wish to invest more money, since – so far – the broker has proven to be serious about the responsibilities shared. The “pair options” – and the availability of a demo account – will be warmly welcomed by the beginners as they do not need any intimate knowledge to trade this way.
What should be pointed out is that a draw has been classified as a loss (it constituted a 100% refund before). Still, higher refunds are available, but – according to our calculations – such changes are unfavorable for the users.
The lines of support and resistance are those places on a chart that usually bring the price to halt and change its course. Those are the levels that cause the price problems with surpassing them. As a result, the price keeps on rebounding “from” those places.
A support line is the price level from which it usually does not drop. A resistance line is the price level from which it usually does not go higher. Please take note of the “usually” part, as there is no level of support and resistance which cannot be broken by the market.
An example of support/resistance levels:
A resistance level that has been broken automatically becomes a support level and the other way round:
How to define the lines of support and resistance?
A support trend line is formed when a securities price decreases and then rebounds at a pivot point that aligns with at least two previous support pivot points. Similarly, a resistance trend line is formed when a securities price increases and then rebounds at a pivot point that aligns with at least two previous resistance pivot points. Stocks often begin or end trending because of a stock catalyst such as a product launch or a change in management.
The levels of support and resistance (SR) are created in the highs and lows of the chart, but not only in those highest and lowest. In those places we draw horizontal lines. For instance, in a growing trend the preceding highs, which have not been broken by the price, are the lines of resistance and the preceding lows are the lines of support.
A broken level of resistance is automatically a level of support, and the other way round. The stronger the level of support/resistance, the stronger level of resistance/support it becomes.
It’s hard to recognize the differences between the levels of support/resistance at first, but with time it becomes intuitive and all you need to draw the lines that matter to you is to take a look at the chart.
Once you establish the levels they will also work in the future and in different time intervals, which is why it’s common practice to move them from the higher time intervals to the lower ones (e.g. from H1 to M5). We don’t move them from the lower to the higher time intervals as we’d have too many illegible levels.
Using two adequately strong SR lines we can establish the scope within which the price chart will be “restricted” upwards and downwards. Therefore, the line will “bounce off” those two lines in a side trend until a stronger price movement occurs.
The levels of support and resistance may be established in different ways, they can also be trend lines and channels of trend, average or Fibonacci ratios.
The more often a support/resistance level is “tested” (touched and bounced off by price), the more significance given to that specific level.
The strength of the SR levels
We can find multiple levels of SR in a chart, but only some truly matter. We should seek out those SR levels that are stronger at keeping the price. A strong support/resistance level is the one that has repeatedly prevented the price from going up or down.
To assess the strength of the SR levels we need to historically check how often a given level has supported/resisted a given price chart. The stronger the level of support/resistance, the higher the probability that the price chart will be halted at a given level and “bounce off” of it.
What is also important are the moments when the level is broken. We watch the real body of the breaking candle. If it’s big, the market needs a strong “bounce” to break past the level. The more often such strong breaks happen, the stronger the SR levels are.
Another factor indicating the strength of the SR levels are high open shadows that touch the SR lines.
Finding and analyzing the places where the trend is reversed is also helpful when assessing the strength of the support/resistance levels.
Below you’ll find an example of strong levels of support/resistance. The horizontal lines of support/resistance are in red, and the scope of the SR lines are in gold:
Support/resistance and binary options
Knowing how the support/resistance levels work highly influences the effectiveness of transactions and the success rate. However, the levels of SR are not enough to enter into transactions, which is why we strongly recommend seeking other confirmations, e.g. combining them with price formations.
As far as the binary options go, the levels of support and resistance are particularly important in strategies, such as Carlucci grail or Bollinger Bands. Additionally, using them in transactions that go with the trend increases the chances of success.
- in uptrends we use the support to open “call”-type options;
- in downtrends we use the resistance to open “put”-type options;
- in side trends we use the rebounds from the support/resistance (resistance – put option, support – call option).
Price Action: what is it?
In short, Price Action is the chart pattern analysis of the movement of price. This method of technical analysis is based only on the observation of price chart and not the indicators. It does not mean that indicators cannot be used: they serve as confirmations of Price Action analysis. Proponents of this method claim that since it is the price that reflects everything, it’s also everything that a trader needs. Therefore, Price Action is nothing but examining price movements.
Using Price Action as a form of technical analysis without the indicators is called naked trading. Naked trading implies lack of fundamental analysis, so following the economic calendar is not essential in this strategy. This method is effective and possible to immplement in binary options investments.
Price Action method
The method mostly consists of observing and seeking price formations (formations are the most important part of this strategy) and the lines of support and resistance. When using this technique, transactions are usually placed according to the current trend, so being able to define the line of the trend is crucial.
The candlestick is the core of this technique, as it’s easier to use. The goal is to define the momentum (highs and lows), meaning the points where the price changes, which can be high or low.
Price Action and indicators
As Price Action mostly pays attention to the history of the price, instead of the fundamental factors which influence the market, it is considered a technical method. In fact, it is a pure form of analysis since it is not based on derivative pricing, meaning the mathematical analyses on which the indicators are constructed.
The basic part of every technical indicator (no matter if it’s a moving average or the Stochastic Oscillator or the RSI) is the price, which is why the Price Action proponents claim it’s best to use the price itself as the indicator. Other indicators may just blur our judgment and reasoning.
Knowing the rules of Price Actions is the basic analysis method, so it’s good to get to know it before we use any other form. Indicators won’t teach us the market analysis or how to interpret the price chart. Thanks to Price Action you can understand where the lost positions came from; it improves the strategies and acts as a filter.
If you are into using indicators, make sure you know what they do and how they do it before you start using them. It will not only help you with the choice process, but will assure not doubling the indicators as well, which is how you avoid a mess of having a couple of indicators telling you the same thing.
- Price Action helps you understand the market. The indicator is a derivative of price. Price Action does not tell you what will happen, but what has just happened.
- It’s a universal system that works with every market, every time interval and can be used with many strategies.
- It’s a system that adapts to the market directly.
- It’s simple since there are just easy-to-remember rules. Still, using the system is not that straight-forward as you need to rely on your intuition heavily. You can achieve surprisingly positive results with some training, knowledge and patience.
- It’s comprehensible. All you need is the candlestick chart, so your platform is not overburdened with needless indicators.
- There are no delays, we decide on what we see not on what we think.
Price Action and price formations
Formations are certain repetitve, specific price chart patterns.
In general, there are two types of formations:
- Consolidation and continuing formations.
- Reversal patterns.
Here’s a list of some candlestick patterns:
- Inside bar,
- Outside bar,
- Engulfing pattern,
- 2-bar reversal,
- Fakey pattern.
There are many more, but the ones listed above are the easiest to spot and the most popular with the traders.
Price action and the lines of support, resistance, and trend
Price Action formation analysis may be more effective when combined with the lines of support and resistance. If a given formation is close to the lines of support/resistance, it is more probable that it will work more permanently.
The effectiveness is more likely to be greater when Price Action is used according to the trend, which is why the ability to define the line of the trend is so crucial.
Believe in what you actually see and not in what you want to see in the chart!
Binary options are not an easy way of earning money. You may be lucky the first, second, or even third time, and if you decide to withdraw your money at that precise moment, you are officially a lucky devil. But what if you want to do it all over again?
First, let me assure you that a bad day will come sooner or later. But binary options are not just about the luck. It’s all about the strategy, and the sooner you work on your binary options strategy, the better. Which is why you may need a demo account.
Binary options demo account
It’s not only about the strategy, but also about getting to know the technology and transactional system of a given broker. Every platform has a different account system, working in a very specific way. The only difference between a demo and a “regular” account is that you use virtual money. Therefore, you get to test all the features and you get used to the way binary options work on the basis of actual market-prices. The quicker you do that, the better, because some strategies need an instant reaction. Also, you get to know a variety of options and assets as well as the particular dynamics that go with them: each asset reacts differently to a price change, which is crucial when it comes to choosing the right strategy. Some strategies demand a dynamic high/low price relationship, while others require stability and as few movements as possible.
Patience and consistency are some of the most important traits of a successful trader. The same goes for the binary options market. It may so happen that a strategy needs months of testing, because while the results are great for 1, 2 or even 3 weeks, it simply stops working after some time and we start losing money. It’s best to test your strategies until you see a certain stability and effectivity. If your success rate is 60%, you may consider it a true success, because you need at least that to achieve a reasonable profit.
What’s more, since you are not using your real money you can test even the most exotic settings and configurations. You can change the expiry dates or assets to see which configuration is the most successful and you get to do it entirely risk-free. Also, while a given strategy may work with broker A, it may not work with broker B, which may expose the differences between platforms. For instance, one platform may work slower or the assets are priced differently. That is why you should choose a demo account with a broker to whom you want to be financially connected later on.
Demo accounts: with or without a deposit?
The first demo account was available in the beginning of 2010. Before that nobody had even dreamed about that and now almost every brokers offers a demo account. Still, every broker has a separate demo account policy: some make it available to all, others require a deposit first. When you pay a deposit, you do not need to use it and you may always withdraw it, but – taking into account all the fees – usually it is financially not advisable. There are also those brokers who do not offer any demo accounts stating that they are nothing but an additional burden on the server or that they are not an accurate simulation of the process since it’s artificially emotionless without the threat of losing actual money. Still, we believe that there are more advantages than disadvantages of using a demo account.
Almost every broker limits both the availability period of a demo account as well as the amount of virtual money you can invest. However, thanks to our cooperation with OptionTrade, registering an account with our referral gives you the opportunity to fund your demo account with $1000 twice! Contact us if you’re interested.
If you made up your mind and decided to try investing in binary options, one of the crucial decisions left to make is the choice of the optimal broker. Once you type your preferences into the form on the right, you can follow our recommendations or analyze various features on your own. There are many brokers to choose from, but it is difficult to pick one since every broker has its strong and weak points, and only some services are into fair practices. For instance, one broker offers high returns but only if you choose a certain option, another has a complex platform and a wide range of assets; there will be another that offers support in your native language, and yet another offering great bonuses, but then again there’s the one who welcomes low deposits and minimal investments.
So which broker is the right one for you?
There are many forums and reviewing services where the discussions about binary options brokers never cease. Before you decide on a broker, peruse the opinions online. Bear in mind, though, that often those are the opinions of the actual brokers who advertise their service or, on the other hand, of those frustrated with their investments. It also happens that some owners of reviewing services only promote the brokers who offer them high commission for attracting new users, so they do not pay attention to any complaints directed at the “befriended” broker. Those are the services to avoid, because following their advice is just asking for trouble.
There are no perfect brokers. Even the regulated ones may turn out to be fraudulent and might be using their services to the detriment of our investments. Brokers presented here enjoy considerably good reputation and few complaints.
Demo account is everything
Inexperienced investors should choose a broker offering a demo account. Such an account enables a risk-free, first-hand experience of binary options trading using virtual money. It’s a great opportunity to test your strategies and their effectiveness before you invest your own real money.
A demo account is not a ubiquitous feature. Here is a list of brokers offering a demo account. Almost all of them activate such an account only after depositing some money (which usually can be withdrawn without any consequences), upon a special request and only for a short period of time, e.g. a week. Brokers claim that demo accounts is an additional burden on the actual platform, but one may wonder why it is not possible to have a separate server dedicated just to demo accounts… Another common explanation is that a demo account is not an accurate simulation of the process since it’s emotionless without the threat of losing actual money. This is mostly true, but it does not change the fact that seeing the platform “from the inside” is always helpful.
Here, we should mention OptionTrade, a broker who is offering an additional double funding of a demo account ($1000) and free binary options signals if you register an account from our service. Contact us if you’re interested in the offer.
Should I choose a regulated broker?
Binary options have been developing very dynamically and within a short period of time, which unfortunately means that it is a rather unregulated area of business. For instance, the British FCA (Financial Conduct Authority) treats binary options as a form of gambling and, consequently, those operating in Great Britain must seek a proper license. At the same time, according to European Union regulations once a country settles the issues of regulation, all the other countries follow automatically. That is why once it was settled in Cyprus (to be accurate, in CySec, the regulator in Cyprus), it became the norm in the other European countries. Also, as it happened with Forex, we can expect further regulations in time. Since a regulated broker does have an advantage but being regulated is not a necessity, we should not reject brokers just because they are not regulated. Being a regulated broker is often just a marketing tool and proves that the broker can afford it, but it does not mean that the investor is safe. Although an investor is probably safer with a regulated broker.
Which broker is the one for me?
There are plenty of services offering binary options which do not play by the rules, wickedly using the fine print in the terms and conditions, denying payouts due to some alleged missteps or even manipulating the platform and charts. It may so happen that you invest your money, choose winning options and still won’t be able to withdraw your winnings, or maybe even the principal deposit, and you’ll be jumping through hoops to do so (e.g. verifying your account over and over again). That is why we did our best to prepare a thorough list of the best brokers available.
And here is the blacklist of brokers, who can’t seem to stop using unfair practices on a monumental scale:
Before deciding on a broker we should also pore over every detail of the terms and conditions so that we won’t walk into any traps later on, e.g. receiving bonuses or withdrawing the deposit.
Binary options brokers offer a wide range of deposit/payouts methods. The most common options are:
- direct bank wire;
- credit card (e.g. Visa or Mastercard);
- CashU, QIWI, Webmoney, and Skrill.
Usually we can payout the money using the same method we chose when depositing money. If we deposit using Skrill, we will not be able to withdraw the money via a bank wire. If we deposit using a credit card, we can only withdraw money up to the point of that deposit. If we exceed the deposit, we need to transfer the surplus via a bank wire.
Using, e.g., a credit card also means verifying our personal data, which is why it’s crucial to give the broker the correct information upon registration. Verification usually applies to personal data (e.g. an ID scan), address information (e.g. a recent phone bill scan) or a payment method (e.g. a photo of the credit card). This is why it’s wise to verify your account before you deposit money, so that you can be sure that the process will be smooth and you will be able to payout the money afterwards.
As far as the deposits and payouts are concerned, it’s important to think about the payment fees connected with every method of payment. Skrill and PerfectMoney fare cheapest, while foreign bank wires are the most expensive, although some brokers often take it upon themselves to pay for the transfers.
Another important aspect is the issue of conversion: if you set up an account in USD or EUR and payout the money in another currency, you must take into account a double conversion fee. It is usually extremely costly, which is why it is better to deposit and payout directly from the same currency account (e.g. Skrill or a foreign currency account).
The minimum to deposit is usually set at, more or less, $200, but there are brokers who offer a lower minimum ($100). Still, it’s better to deposit more money since the minimum amount of money necessary to start investing is $10-20 and even the best strategy brings losses, so you may end up using everything. If you decide on a low deposit, go for a flat rate as well.
When it comes to how much money you should spend, it’s an individual issue. You should never invest borrowed money or money dedicated to paying the bills. Invest only the money you can survive losing. It’s a risky form of earning money, which means some gambling and a possible addiction.
It’s also worth considering if you want to make use of the bonus: it means you have more to invest, but it also means that you need to use it more than once. Using a bonus may also mean forgoing the ability to withdraw money for some time.
It’s best to go with minimal amounts of money to make sure that you can turn the money around and find out whether your strategy is successful. If you come to think of binary options as not your cup of tea, just pay out what’s left on your account.
Do not let the emotions get the better of you. Instead of imagining what to do with all the money you win, stay cool, calm and collected. Invest with your head, not your heart.
Most binary options brokers make the following four basic market options available:
- currency market (Forex);
- equity market (e.g. Google, Yahoo);
- commodity market (e.g. gold, petroleum, copper, rice);
- stock market indices (e.g. WIG20, FTSE 100).
Currency market is the most popular market in binary options, but it is also the most commonly chosen financial market in the world. As the economists tend to say, it’s the circulatory system of the global economy. Forex average daily turnover in global foreign exchange markets is estimated at $3.98 trillion. It’s extremely hard to anticipate what is going to happen in a market that extensive, which explains the risk level connected with Forex investments.
When it comes to binary options, you do not buy or sell any currency. All you do as an investor is predict in the market’s direction in a currency pair (an asset). You can earn if the pair goes up and you lose if it goes down.
Currencies such as United States dollar, Japanese yen or Euro make currency pairs which are traded on a currency market.
The most popular currency pairs are:
Different brokers offer different varieties of currency pairs. You can check the availability of currency pairs either on the broker’s website or the platform.
Each pair is specific. While some currency pair prices change dynamically, others are slow to change, which is especially important when choosing the optimal strategy. The currency market is by and large speculative, so the currency price is not always established by way of actual, economic data (such as interest rate changes, natural disasters or political changes occurring in a given country). In fact, it’s mostly speculating on changes in the currency. The crucial pairs are usually made up of United States dollars.
When using fundamental analysis it’s important to follow the market’s news. Binary options brokers often allow special access to market information. Naturally, some are more important and more influential than others, but it also happens that some statements or declarations are incorrectly interpreted by the market, causing sudden price swings in both directions (up/down), for example some statements made by the European Central Bank (ECB) regarding the changes in interest rates. Therefore, some economic events, and especially their effects on fluctuations in the price of the currency pair, can be used in binary options trading.
What does it mean that a currency pair goes up or down?
When we have a currency pair, e.g. EUR/USD, and the euro is getting stronger against the dollar, then the currency pair goes up. If the opposite is true, it goes down. As the prices constantly change, the market price of the currency fluctuates as well. Such fluctuations are illustrated on charts, by means of which you can assess the trends, corrections and changes using technical analysis (using the analysis of the charts based on historical data to predict the future course of the price).
The currency market is open Monday to Friday, therefore using it in binary options trading is also available Monday to Friday. Bear in mind, however, that a broker may consider making some exceptions.
Shares are securities issued by companies like Google, Yahoo, or Microsoft. Upon their purchase we become owners of a share of the company’s assets. The shares have a certain value which is subject to constant changes (depending on the condition of the company). Consequently, they are ideal for binary options trading. Still, remember that binary options do not mean buying any assets, all we do is predict the prices and their direction.
Brokers usually offer trading on such globally known shares as: Google, Coca Cola, Intel, or Vodafone.
In contrast to the currency market, shares trading is available only in certain time intervals (when the market is open).
There are many factors influencing a share price, but fundamental analysis is what’s most important, meaning the data connected to the company’s activities. It’s helpful to follow the market and the company’s statements, as well as the opinions of people analysing them, so that we know how the share price will correlate with the data. For instance, when we find out that a company has just discovered new oil resources, we may predict that the share price will go up. But when a company that was supposed to find new oil resources is not successful, we may predict that the share price will go down. Similarly, when a newly launched Apple product is defective, we may predict a drop.
To rationally analyze companies issuing shares we need to calmly calculate the options instead of taking into account our feelings for a certain company. You should not “invest” in a company just because you like the product.
Commodities and raw materials market is where the main price-changing factor is the supply and demand. Raw materials, meaning noble metals (e.g. gold, silver, platinum), other metals (e.g. copper), or energy (petroleum, gas, or gasoline). Commodities mean, e.g. rice, cotton, corn or pork.
Most brokers offer petroleum, gold and silver trading, which is available Monday to Friday.
What is the correlation between the price of raw materials and supply/demand?
For example, if there’s demand for petroleum, but the production level remains the same, it’s not hard to predict that the price of petroleum goes up. When there’s an increase in supply and more petroleum is produced, but the demand is either the same or lower, the price of petroleum goes down. Let’s say that there’s finally an alternative to petroleum (e.g. electric cars) and it’s more and more ubiquitous. That would mean that both the demand and the price of petroleum go down. On the other hand, when there’s an economic boom in China and Chinese people can afford more, there’s an increase in demand for cars, especially luxury cars that need more fuel than the cheaper and smaller ones, influencing macroeconomy.
This market is dependent on many factors, so those interested in binary options trading need to follow the commodities and raw materials market to predict the prices. Materials such as gold or oil tend to fluctuate more than currencies, especially in face of war or elections, whereas commodities such as rice of coffee are greatly influenced by climate.
Stock market indices
Index means grouping certain components on the basis of a specific criterion. For example, the NASDAQ Composite is a stock market index of the common stocks and similar securities listed on the NASDAQ stock market. Binary options brokers offer the biggest and most popular: S&P, Dow Jones, FTSE, S&P 500 or Nikkei.
Similarly to the equity market, stock market indices are influenced by supply and demand which covers not just one company, but the entire group. Therefore, analyzing the fluctuations of share prices must be global and rather extensive.