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What are binary options
A binary option is a type of option with a fixed payout in which you predict the outcome from two possible results. If your prediction is correct, you receive the agreed payout. If not, you lose your initial stake, and nothing more. It’s called ‘binary’ because there can be only two outcomes – win or lose.
Advantages of binary options trading
Aside from the simplicity of its ‘yes or no’ proposition, binary options trading is also very flexible. It gives you the ability to trade:
- All markets
Trade on underlying markets that include forex, stock indices, commodities, and more.
- All market conditions
Predict market movement using up/down, touch/no touch, and in/out trade types.
- All durations
Take a short-term or long-term view with trade durations from 10 seconds to 365 days.
- All payouts
Earn payouts up to 50,000 USD. Losses are limited to your initial stake and nothing more.
Why you should trade binary options with Binary.com
Enjoy an award-winning online trading platform with trading conditions that are ideal for new and experienced traders.
Award-winning online trading platform
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- Simple and intuitive
Enjoy a trading platform that’s easy to navigate and use.
- Instant access
Open an account and start trading in minutes.
- Available 24/7
Trade when you want. Our Synthetic Indices are available even on weekends.
- Patented technology
Trade with the industry pioneer and holder of a patented pricing technology.
- Security and privacy
Trade confidently, knowing that your personal data, transactions, and funds are always secure.
All conditions and durations
- All markets and conditions
Trade currencies, stock indices, commodities and more in rising, falling, sideways, quiet, and volatile markets.
- Short to long-term durations
Choose timeframes from 10 seconds to 365 days.
Competitive and transparent pricing
- Sharp, benchmarked prices
Receive prices that are benchmarked against interbank rates.
- Transparent risk and potential reward
Know how much you will win or lose before you purchase the contract.
- Protect your profits
Sell your long-term contracts before expiry to protect any profits you may have made or to minimise your losses.
- Two-way pricing
Receive quotes for a trade and countertrade, so you always get unbiased, transparent rates.
Ideal for new and experienced traders
- Low minimum stakes
Deposit as little as 5 USD to start trading.
- Trade according to your preferred strategy
Trade based on «gut feel» or rely on technical and fundamental analysis.
Choose from over one million possible trade variations at any time, and customise your trades according to your preferred strategy.
Earn the same proportional return on stakes of all values.
How to trade binary options
Binary options trading is relatively easy. You can purchase a contract in just three steps:
What You Need To Know About Binary Options Outside the U.S
What Do You Need To Know About Binary Options Outside the U.S?
Binary options let traders profit from price fluctuations in multiple global markets, but it’s important to understand the risks and rewards of these controversial and often-misunderstood financial instruments. Binary options bear little resemblance to traditional options, featuring different payouts, fees, and risks, as well as a unique liquidity structure and investment process.
Binary options traded outside the U.S. are also structured differently than those available on U.S. exchanges. They offer a viable alternative when speculating or hedging but only if the trader fully understands the two potential and opposing outcomes.
The Financial Industry Regulatory Authority (FINRA) summed up regulator skepticism about these exotic instruments, advising investors «to be particularly wary of non-U.S. companies that offer binary options trading platforms. These include trading applications with names that often imply an easy path to riches.»
- Binary options have a clear expiration date, time, and strike price.
- Traders profit from price fluctuations in multiple global markets using binary options, though those traded outside the U.S. are structured differently than those available on U.S. exchanges.
- Non-U.S. binary options typically have a fixed payout and risk, and are offered by individual brokers rather than directly on an exchange.
- While typical high-low binary options are the most common type of binary option, international brokers typically offer several other types of binaries as well.
Binary options outside the U.S. are an alternative for speculating or hedging but come with advantages and disadvantages. The positives include a known risk and reward, no commissions, innumerable strike prices, and expiry dates. Negatives include non-ownership of the traded asset, little regulatory oversight, and a winning payout that is usually less than the loss on losing trades.
Understanding Binary Options Outside the U.S
What Are Binary Options?
Binary options are deceptively simple to understand, making them a popular choice for low-skilled traders. The most commonly traded instrument is a high-low or fixed-return option that provides access to stocks, indices, commodities, and foreign exchange.
These options have a clearly stated expiration date, time, and strike price. If a trader wagers correctly on the market’s direction and price at the time of expiration, they are paid a fixed return regardless of how much the instrument has moved since the transaction, while an incorrect wager loses the original investment.
The binary options trader buys a call when bullish on a stock, index, commodity, or currency pair, or a put on those instruments when bearish. For a call to make money, the market must trade above the strike price at the expiration time. For a put to make money, the market must trade below the strike price at the expiration time.
The broker discloses the strike price, expiration date, payout, and risk when the trade is first established. For most high-low binary options traded outside the U.S., the strike price is the current price or rate of the underlying financial product. Therefore, the trader is wagering whether the price on the expiration date will be higher or lower than the current price.
Binary Options Outside the US
Foreign Versus U.S. Binary Options
Non-U.S. binary options typically have a fixed payout and risk and are offered by individual brokers rather than directly on an exchange. These brokers profit from the difference between what they pay out on winning trades and what they collect on losing trades. While there are exceptions, these instruments are supposed to be held until expiration in an «all-or-nothing» payout structure.
Foreign brokers are not legally allowed to solicit U.S. residents unless registered with a U.S. regulatory body such as the Securities and Exchange Commission (SEC) or Commodities Futures Trading Commission (CFTC).
The Chicago Board Options Exchange (CBOE) began listing binary options for U.S. residents in 2008. The SEC regulates the CBOE, which offers investors increased protection compared to over-the-counter markets. Chicago-based Nadex also runs a binary options exchange for U.S. residents, subject to oversight by the CFTC.
These options can be traded at any time, with the rate fluctuating between one and 100, based on the current probability of the position finishing in or out of the money. There is full transparency at all times and the trader can take the profit or loss they see on their screen prior to expiration.
They can also enter as the rate fluctuates, taking advantage of varying risk-to-reward scenarios, or hold until expiration and close the position with the maximum gain or loss documented at the time of entry. Each trade requires a willing buyer and seller because U.S. binary options trade through an exchange, which makes money through a fee that matches counter-parties.
High-Low Binary Option Example
Your analysis indicates the Standard & Poor’s 500 index will rally for the rest of the trading day and you to buy an index call option. It’s currently trading at 1,800 so you’re wagering the index’s price at expiration will be above that number. Since binary options are available for many time frames—from minutes to months away—you choose an expiration time or date that supports your analysis.
You choose an option that expires in 30 minutes, paying out 70% plus your original stake if the S&P 500 is above 1,800 at that time or you lose the entire stake if the S&P 500 is below 1,800. Minimum and maximum investments vary from broker to broker.
Say you invest $100 in the call that expires in 30 minutes. The S&P 500 price at expiration determines whether you make or lose money. The price at expiration may be the last quoted price, or the (bid + ask)/2. Each binary options broker outlines their own expiration price rules.
In this case, assume the last quote on the S&P 500 before expiration was 1,802. Therefore, you make a $70 profit (or 70% of $100) and maintain your original $100 investment. If the price finished below 1,800, you would lose your original $100 investment.
If the price expires exactly on the strike price, it is common for the trader to receive her/his money back with no profit or loss, although brokers may have different rules. The profit and/or original investment is automatically added to the trader’s account when the position is closed.
Other Types of Binary Options
The example above is for a typical high-low binary option—the most common type of binary option—outside the U.S. International brokers will typically offer several other types of binaries as well.
These include «one-touch» options, where the traded instrument needs to touch the strike price just once before expiration to make money. There is a target above and below the current price, so traders can pick which target they believe will be hit before the expiration date/time.
Meanwhile, a «range» binary option allows traders to select a price range the asset will trade within until expiration. A payout is received if price stays within the range, while the investment is lost if it exits the range.
As competition in the binary options space heats up, brokers are offering additional products that boast 50% to 500% payouts. While product structures and requirements may change, the risk and reward is always known at the trade’s outset, allowing the trader to potentially make more on a position than they lose. Of course, an option offering a 500% payout will be structured in such a way that the probability of winning the payout is very low.
Unlike their U.S. counterparts, some foreign brokers allow traders to exit positions before expiration, but most do not. Exiting a trade before expiration typically results in a lower payout (specified by broker) or small loss, but the trader won’t lose their entire investment.
The Upside and Downside
Risk and reward are known in advance, offering a major advantage. There are only two outcomes: win a fixed amount or lose a fixed amount, and there are generally no commissions or fees. They’re simple to use and there’s only one decision to make: Is the underlying asset going up or down?
In addition, there are also no liquidity concerns because the trader doesn’t own the underlying asset and brokers can offer innumerable strike prices and expiration times/dates, which is an attractive feature. The trader can also access multiple asset classes anytime a market is open somewhere in the world.
On the downside, the reward is always less than the risk when playing high-low binary options. As a result, the trader must be right a high percentage of the time to cover inevitable losses.
While payout and risk fluctuate from broker to broker and instrument to instrument, one thing remains constant: losing trades cost the trader more than they can make on winning trades. Other types of binary options may provide payouts where the reward is potentially greater than the risk but the percentage of winning trades will be lower.
Binary Option Trading
Binary option trading requires basic knowledge, patience and common sense. In this article we guide South African traders through all the steps necessary to place a successful trade in binary options.
As always, we recommend trading only with regulated and trusted brokers. Read more in our IQ Option review about added benefits such as a free binary options demo account, $10 minimum deposit and only $1 minimum investment. For more brokers, see our binary options brokers page. Let’s get started explaining more about binary option trading.
How Does Binary Options Trading Work?
Binary options are nothing else but a prediction of an asset’s price direction in a pre-specified amount of time. The price doesn’t have to go too high or too low for traders to make a profit. All they need to do is predict whether the closing price will go higher or lower than the opening price as shown in the figure above.
When you are engaged in binary option trading you must consider your binary investment trading as speculation. You are speculating in the direction of the market short term. You do not worry about Microsofts 10 year strategy and how they perform against the market in the general long term. You do not need to consider whether Tesla will actually take over the world as the current stock prices suggest that they will 20 years from now.
You have to come to the realisation that you are speculating and not investing in the traditional sense. The fact you bid on a positive trend of a certain equity, commodity or forex pair doesn’t mean you want to put your life savings into it. You could be reading Q1 results for BMW and quickly realize that the Corona virus didn’t in fact cause as much harm as the market in general believed. Therefore you can buy a CALL option END OF DAY in the belief that you read the results and market expectations better than the average person.
Binary Option Trade
Your binary investment trading strategy has to be concise and fit your ability and time to follow the market news. If you see oil being traded for negative amounts as we saw during the COVID19 crisis you might buy an END OF MONTH call option in the beliefs that the market will recover during the given time period. You can also think it is only the start on something much worst and then buy a PUT option, which means you think the market price has to be even lower.
We on Binary Options South Africa are not investment advisors but only here to explain you have binary option trading works technically. We believe that binary trading options are ideal to learn more about market movements, especially if you do not have the time and energy to make 10-20 years plans for your retirement funds and look for something short term with higher risk.
What is Binary Trading?
Binary trading is named this way because the outcome is binary. There is only two options Up or Down. These binary options are called “Call” and “Put” when trading or “Higher” and “Lower”. If the price stays the same, then traders receive their investment back. If the trader predicts correctly, then the profit made can go up to 91% depending on the broker and the asset. On the other hand, if the prediction is wrong, then the trader loses the investment.
Binary Trading Broker
Registering with most binary brokers takes only two minutes. All you need to do is fill in the boxes with your email and a password. You also have the option to continue with your Facebook or Google account or simply fill in your personal details like name and surname. Some traders also opt to trade with the best binary robots, however we have to alert you that IQ option robot is closed not because of a IQ option scam, but because the CySEC regulators did not want them to have a binary option trading robot as part of their investment instruments.
Binary Trading Options Step Guide
Practice binary trading with a free demo account available to South Africans, before switching to a live account in order to get familiar with the binary trading platform. In this section there is a detailed explanation on how to place a successful trade with the legendary Binary.com minimum deposit of $5. Once you feel ready you can switch to live binary trading which is done exactly in the same way as explained below.
1. Select Asset
To start with, traders need to select their asset from the drop-down menu as shown here. A large selection is available as always by IQ Option.
2. Set the Investment Amount
Then, set the investment amount as shown below by clicking on the amount box at the right-hand side of the trading platform. This can be as low as $1 so that novices can start trading with a low investment capital.
3. Set the Expiry Time for the Binary Option
Once the investment amount is set, traders need to select the expiration time. There are binary options available from 60 seconds to the end of the month as shown below. You can even see that the profit percentage changes according to the expiration time. Longer expiration times will offer lower returns.
Once you choose the option’s expiration time then, you can place as many binary trades as you wish. It is usually possible to close a trade early however with a reduced win rate in case you are ITM (in the money).
4. Choose the direction (Higher or Lower)
This can be done by choosing the price direction, either by clicking on the higher button if you believe that the price will go higher than the opening price.
On the other hand, traders can click on the lower button if they believe that the closing price will be lower than the opening one as shown here.
5. Wait for the Binary Option to Expire
Finally, you wait until the expiration time comes and if you have won then, the amount will be shown in a green box as shown in the picture below.
Binary Option Trading Conclusion
We believe that binary option trading is a fun way to enter the market without being required to deposit huge amounts like the banks typically require to start trading on the stock market. Making a small deposit even in South Africa is simple and require only few minutes of your precious time to begin your binary options trading adventures.
So what is left? After you have made a broker account, simply click on the green deposit button at the right top corner as shown above and follow the instructions. You are now soon ready to start trading binary options.
Risk Warning: As always, we inform our readers that trading involves risk. Always invest funds that you can afford to lose.
We make it our mission to not recommend anything but the best – which, according to industry experts, is IQ Option, the top regulated broker for your country with a minimum deposit of ONLY $10!
- FREE $10,000 demo account
- Award-winning trading platform
- Licensed and regulated broker
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