Ultimate Binary Options e Book

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Table of Contents
1. INTRO - What are binary and digital options? - How do binary options work? - Why trade binary options? - Glossary 2. TYPES OF BINARY OPTIONS PLATFORMS White-Label Platforms - SpotOption - Tech Financials - Tradologic - MarketsPulse Proprietary - Betonmarkets - Saxo Bank - AnyOption 3. TRADE TYPES - Call/Put - In/Out (Boundary) - High Yield Trades - 60 Seconds
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Touch/No Touch Paired Options
4. EXECUTING THE TRADE TYPES - Executing a Call/Put Option - Executing a Boundary Trade - Executing a High Yield Option Trade - Executing a 60 Seconds Trade - Executing a Touch/No Touch Trade - Executing the Paired Options 5. SPECIAL FEATURES - Rollover Function - DoubleUp Function - Early Closure/Buy Me Out
6. TRANSACTIONS IN BINARY OPTIONS - Transaction Methods (credit cards, ePayments, etc) - How to Deposit Funds - How to Withdraw Funds - General Rules on Transactions 7. WHAT EVERY BINARY OPTIONS TRADER SHOULD KNOW - General conclusion on aspects of the trade process. - Technical Analysis - Fundamental Analysis - Protecting Your Investments
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1. INTRODUCTION What are Binary Options? Binary options are a relatively new type of investment vehicle, opened up to retail investors in 2008. A binary options contract is a trade type in which the trader is expected to predict that the trade will end in one out of two possible scenarios, hence the name binary. The trader is paid a fixed, predetermined amount if the trade is successful. If the trader gets the outcome of the trade wrong, the entire amount invested in the trade is lost. Binary options trading also goes by other names; digital options, fixed return options or fixed odds options. How do binary options work? The binary options market is all about trading a binary options contract. A binary options contract consists of the following parameters: The underlying asset to trade: this is the financial instrument or asset that is traded in the binary options market. There are four major classes of underlying assets. This will be discussed later in this document. The trade contract: there are contract specifications for each trade.
a) The Underlying Asset The underlying asset refers to an item of value that is traded on the financial markets. The underlying asset is also known as a financial instrument. The term underlying is used because the trader is not actually purchasing the asset, but rather purchasing a contract that mirrors the movement or behaviour of that asset. Underlying assets are the same assets that are traded on other financial markets, and are classified accordingly on the binary options platforms. We therefore have the following classes of underlying assets in the financial markets: Stocks Currencies Stock Indices Commodities
STOCKS
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Stocks refer to the value of shareholding in a company. They are usually the most numerous assets in the binary options platforms, which is in keeping with the status of the stock market as the market with the most abundant tradable instruments of all the financial markets. The stocks listed on a binary options platform can be drawn from any stock market in the world, but brokers tend to give a greater percentage of listing to stocks that are listed in the same geographical location as their operations. A stock can only be traded at the time that the exchange it is listed on is open for business. CURRENCIES Currencies are the most liquid assets of all financial assets, and the currency market is usually open for 24 hours a day. This makes them very popular among binary options traders, as currencies are always available for trading at any time of the day on a binary options platform. INDICES A stock index is a measure of the performance of the stocks of the largest companies in a stock exchange. While there are sector indices, national indices and international indices, it is usually the national stock indices that are offered for trading on the binary options platforms. Examples are the major European and American exchanges (CAC40, Zurich SMI, Xetra DAX, FTSE100, NASDAQ, S&P500, Dow). Many binary options platforms now offer Middle Eastern and Asian stock indices such as Nikkei 225, Hang Seng, Tadawul, Tel Aviv 25, etc. Indices are a measure of how stocks listed in that exchange perform. A net sell-off effect in the individual stocks listed will cause the value of the index to drop. Conversely, if more people are buying those stocks than selling them, the value of the index will go up. It is this rise and fall in the value of the index that is traded in the binary options market. The commonly traded stock indices are: FTSE-100 This is the stock index that measures the performance of the 100 largest companies trading on the London Stock Exchange (LSE). Trading Hours (GMT): Mon Fri 07:30- 15:30
Xetra DAX-30 The DAX, which is the German stock index, is a stock market index made up of the 30 major German companies trading on the Frankfurt Stock Exchange. It is a very important and strategic index because Germany is the most powerful and most economically viable country in the Eurozone. Trading Hours (GMT): Mon Fri 07:30 15:30
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Dow Jones-30 (DJ30) The Dow Jones Industrial Average or the Dow is a price-weighted average of 30 stocks traded on the New York Stock Exchange (NYSE). Trading Hours (GMT): Mon Fri 13:30-20:00
Nasdaq-100 The NASDAQ 100 Index features 100 of the larger domestic and international non-financial companies cutting across computer hardware/software companies, telecoms, retail/wholesale and biotechnology, listed on the NASDAQ exchange. Trading Hours (GMT): Mon Fri 13:30-20:00
Ibex-35 The Ibex-35 is the stock market index of the Madrid Bourse. It is a weighted index measuring performance of the 35 most traded stocks. CAC-40 The CAC-40 is the French stock index, consisting of 40 major French companies. Trading Hours (GMT): Mon Fri 07:30-15:30 Trading Hours (GMT): Mon Fri 07:30-15:30
TADAWUL Saudi Stock Exchange or Tadawul is the only stock exchange in Saudi Arabia, and it is supervised by the Capital Market Authority. The Tadawul All-Share Index (TASI) lists 115 publicly traded companies (as of April 30th 2008). Trading Hours : Sun - Wed 8:10 - 12:20
S&P-500 The Standard &Poors 500 Index focuses on the leading companies in leading industries in the US. Trading Hours (GMT): Mon Fri 09:30-20:00
Straits Times Index
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This is the index that measures the performance of the 30 largest stocks listed on the Singapore stock Exchange. Trading Hours (GMT): Mon Fri 02:00 04:00 and 6:30 to 08:30
Nikkei-225 Future This is the price-weighted index of 225 prominent stocks on the Tokyo Stock Exchange. Trading Hours (GMT): Mon Fri 23:40-16:45
Hang Seng This is the market capitalization-weighted stock market index in Hong Kong. Trading Hours (GMT): Mon Fri 00:10-07:05
Some binary options brokers offer all these indices for trading, while some offer only a few of them. SSE -180 (Shanghai) This is the Shanghai stock exchange or the SSE Composite Index, measuring the performance of the 180 largest stocks in this exchange that has class A and class B shares. Trading Hours (GMT): Mon Fri 05:00 - 07:00
Other stock indices traded on the Dragon Options platform are RTS (Russia), TADWUL (Saudi Arabia), MICEX-10 (Russia), ISE (Turkey) and MSM-30 (Oman). COMMODITIES Several commodities ranging from agricultural products to spot metals and energy derivatives are traded in the commodity markets. The three commonly traded commodities are gold, silver and crude oil. Gold Gold is usually expressed as a quote with the US Dollar, with gold as the base instrument and the USD as the counter instrument (XAU/USD). The price of gold is expressed as the price per ounce. Silver Silver is expressed as a quote with the US Dollar, with silver as the base instrument and the USD as the counter instrument (XAG/USD). The price of silver is expressed as the price per ounce. Trading Hours (GMT): Mon Fri 04:00 21:00
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Trading Hours (GMT): Mon Fri 04:00 21:00
Crude Oil Crude oil is expressed as the price of an oil futures contract. Trading Hours (GMT): Mon Fri 04:00 21:00
As you may have noticed, commodities are only traded at certain times of the day, when the open outcry and online commodities exchanges are open for business. Other commodity assets traded on the Dragon Options platform are sugar, wheat, platinum and corn. Commodities are items of value either extracted from the ground (hard commodities) or produced agriculturally (soft commodities). They are available for trading on the binary options platform only when the commodities exchanges are open for business. Examples are gold, silver, coffee, corn, wheat, platinum, crude oil, natural gas and sugar. b) Trade Contract Specification As mentioned earlier, the trader does not buy the physical asset to sell later at a profit. What is traded is the contract specification that mirrors the movement or behaviour of that asset. The elements of the contract that will determine how much the trader will win if a trade is profitable are: Strike price. This can be the price at which the trader entered the trade, or can be a price target that the trade must achieve for a profit to be made. Expiry time/date. All binary options trades must expire at some point. Some brokers allow traders to set their own expiry times, otherwise most expiry times and dates are fixed by the broker. This can range from as low as 30 seconds to as much as one year, depending on the trade type and the broker. Investment amount: This is the money that the trader invests in the trade. Profit: This is the earnings that the trader makes on top of his investment. It is sometimes expressed as a figure and at other times as a percentage of the original investment. Payout: This is the sum of any profits made and the original investment. Again, it is sometimes expressed as a money figure and at other times as a percentage of the invested amount. The payout is usually shown as a preview before trade execution, so the trader knows exactly how much is due to him if the trade is profitable.
Why Trade Binary Options? There are some valid reasons why you should consider trading binary options. a) Risk
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Even though there is some element of risk, the risk is not as great as is found in other markets. Certain peculiarities of the binary options market give it a lower risk profile than other markets. Unlike the options market where the trader needs a margin of 1:20 or the forex market where the leverage required is 1:50 (in the US) and 1:100 for international users, there are no margin requirements for binary options traders. This allows traders to enter the market with much smaller capital requirements than if the trader were to trade the assets on their conventional markets. In addition, the loss on a trade is confined to the invested amount. In other markets, the loss on a trade is only limited to the stop loss set by the trader. Woe betide any trader on the losing side of a trade in a super-volatile market with heavy slippage. In such markets, stops get taken out without closing the trade and the trader can sustain heavy losses. It happened to many traders in the crash of the Dow in 1987, after the Sept 11, 2001 attacks, and following the collapse of Lehman Brothers in 2008. This scenario never occurs in the binary options market because it is not a leveraged market. b) Profitability The returns of a binary options trade are known even before the trader enters a position. The returns on trading the forex, options or commodities markets are not usually known. Returns on those markets are a function of many variables that are sometimes out of the traders control. c) Flexibility No market gives small time traders trading flexibility like the binary options market. Traders can trade asset from different classes all from a single account and at costs much less than would have been charged to the trader. In the binary options market, traders have greater control over their trades. Typically, when a trader wants to purchase a binary options contract, there is a displayed tab where he can click to check the cost of the contract as well as the expected payout percentage. With this tool, traders can decide if the trade in question has a reasonable risk-reward ratio, and base his trading decision on this. This function is absent in other markets. It is left to the trader to work out for himself, the risk-reward ratio. Many retail traders without much experience find this a difficult task, and this is one reason why traders in the forex market get themselves into trades with so much risk and very little reward. d) Less Psychological Stress Monitoring charts and news items, looking at multiple screens and trying to keep a tab on active trades is a feature of other financial markets and these activities produce a lot of emotional and psychological stress effects on the trader. Due to the fact that binary options are basically a set and forget way of trading, the stress components of the trade are minimized, making binary options a less stressful way to trade. GLOSSARY American Option: An American is an option that can be exercised before the contract gets to maturity or
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before the trade expires. In the binary options market, some platforms have the BUY ME OUT or EARLY CLOSURE feature that mimics the American option. Ask: In the financial market assets have an ask price, this is the price which the investor can buy an asset in the financial markets. The ask price is part of the formula which uses to calculate the expiry level of an asset. Assets: Assets refer to the financial instruments that are traded in the binary options platform. There are four asset classes. At the money: A situation where the price of the underlying asset on expiry is the same as the price when the options contract was purchased. This is a trade possibility with the 60 seconds option. Bid: The bid price is the price at which the investor can sell an asset in the financial markets, or the price at which the dealer buys the asset from the trader. Binary Options: Also called digital options, these are options that pay out a fixed amount if the underlying asset on which the option is based performs according to the traders expectation. Call Option: A call option contract provides the investor with the opportunity to gain if the assets price goes above the entry price of the trade, and remains higher than entry price on expiry of the trade. Commodities: The term commodities is a general name given to raw materials that are extracted from the ground (crude oil, gold, silver, natural gas, platinum) or derived from agricultural products (corn, wheat, sugar, coffee). Current rate: The current market price for an underlying asset. Early Closure: A feature of a binary options trade that allows the trader to close the trade manually prior to the pre-set expiry. Entry rate: The market price for an underlying asset when an option trade is executed. End of day: The close of the trading day. European Option: an option that can only be exercised when it reaches the expiry date. This is equivalent to a fixed return option. Expiry: The time and date at which a binary option contract reaches the end of its life cycle. Expiry rate: The price level of the underlying asset when the option expires. This price determines whether the option is in-the-money, out-of-the-money, or at-the-money.
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In the money: A financial term, which means that the option is profitable. For instance, if the trader chose a Call option and the asset price ends the trade higher than market price, the option is in the money. Indices: An Index represents a measurable basket of the most-capitalized stocks in a sector or on a stock exchange. One Touch Option: An option which gives the investor a predetermined fixed payout once the price of the underlying asset reaches or surpasses a predetermined strike price. Option: A financial derivative that represents a contract sold by one party to another. The contract offers the buyer the right but not the obligation, to buy (Call) or sell (Put) a security or other financial asset at an agreed-upon price (the strike price) during a certain period of time or on a specific date. Out of the money: A financial term that means the option contract is not profitable. A call option is "out of money" if the asset ends the trade in a position that is contrary to the traders position. Put Option: A put option provides the investor with the opportunity to gain if the asset ends the trade below the open price of the transaction. Stock index: An index that measures the performance of a basket of stocks on a day to day basis. The Dow Jones and the Xetra DAX are examples of stock indices. Strike price: also known as the exercise price, this is the price at which a specific derivative contract can be exercised. The strike price is used as the price barrier that an asset must attain, or fail to attain, in order for the option to be exercised. Technical analysis: a method of evaluating a security by using statistics related to its historical performance, such as past prices and volume. Charts and other research tools are utilized to identify any possible patterns that may be an indicator of future activity. Trading Hours: This is the time frame in which the asset can be traded in the binary options market. Currencies are open for binary options trading 24 hours of the day, while other assets are only available for trading a few hours a day, depending on when the parent exchanges are open for business. Tunnel Option: This is an option that is equivalent to a boundary option, where there are two price barriers, one above and one below the market price, in which the trader seeks to profit from the asset either staying in the tunnel or ending the trade out of tunnel.
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2.
TYPES OF BINARY OPTIONS PLATFORMS To be able to trade binary options, every trader must have access to a trading platform. Binary options trading platforms are usually web-based and are provided by the broker. Broadly speaking, there are two types of binary options trading platforms: a) White-label platforms b) Proprietary platforms WHITE-LABEL PLATFORMS The white label platforms are trading platforms created by specific software companies that can be modified and customized for the use of each individual binary options broker. Some binary options brokers may not have the time, resources or personnel to create a trading platform that will be capable of handling all front-end and back-end transactions from thousands of traders. For these brokers, there is the option of paying the software company to customize an existing platform solution for the specific use of the broker. The concept is not a new concept as this has been in use in the forex market, where the MT4 platform created by Metaquotes Inc has been adopted and used by almost all market makers in that market. In the same vein, some software companies have produced trading platforms that can be used as white-label solutions for the use of a broker and their clients. Presently, the following companies provide white-label platforms for binary options brokers: a) SpotOption b) Tradologic
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c) Tech Financials Each white-label platform designed by the companies mentioned above has peculiar characteristics that are unique to each of them, and we shall describe them below. SpotOption The SpotOption platform is the most widely used white-label binary options platform. It is used by the following brokers: Dragon Options TradeRush EmpireOptions Banc Options Banc de Binary OptionRally IkkoTrader EasyTrade Trader24 OptionWorld GTOption iOption AlfaOptions Binary360 and many other binary options brands.
The white-label platform has a front-end (the trading interface) which is entirely web-based, eliminating the need for any downloads. There are also versions of the platform for the iPhone, Android devices and the accompanying tablet devices. The SpotOption also allows for integration into MT4 with a simple plug-in, allowing traders with access to the MT4 platform to trade binary options from their MT4 brokers. This feature makes it possible for traders with EAs and indicators to use them to trade the binary options market; an industry first. Traders using SpotOption white-label platforms have access to more than 200 assets from 20 different markets worldwide, and can receive up to the minute market news and price quotes from Reuters and Leverate. There are five trade types that are available to traders: a) The conventional Call/Put option (also called the Digital Option)
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b) c) d) e)
The 60 seconds option (which is a Call/Put option with a 60 seconds expiry time). OptionBuilder (which is a Call/Put option with a customizable expiry time). High Yield Touch option Variable options feature which is a Call/Put option with the Buy Me Out (Early Closure) and Rollover expiry features that allow the trader to either close trades before the expiry or to postpone the expiry time altogether. f) The Paired Options feature also allows traders to trade one asset against another, and make bets on which asset will end the trade higher or lower than the other. Apart from the OptionBuilder, expiries for all binary options contracts are determined by the broker. SpotOption is the only binary options software provider which has acquired a license from the Cyprus Securities and Exchange Commission (CySEC) to provide regulated binary options services through their sister company, s.o.SpotOption. This allows all brokers using the SpotOption white-label platform to provide licensed and regulated binary options trading activity in Europe to all its traders. Tradologic The Tradologic BINARIX trading platform is another white-label solution used in the binary options market by the following brokers: EZBinary Markets.com XPMarkets OptionBit
The white-label platforms front-end (the trading interface) is entirely web-based, with versions of the platform for the iPhone, Android devices and tablet devices. Tradologic now offers an MT4 plug-in to allow traders trade the Tradologic brand of binary options from MT4 compliant brokers. In addition, the new ChartPlus feature allows traders generate charting information in order to enable them trade from the charts. There are five trade types that are available to traders on the Tradologic platform: a) The Digital Option). This trade is the conventional Call/Put option contract. b) The 60 seconds option (which is a Call/Put option with a 60 seconds expiry time) was recently introduced on Tradologic platforms. c) The Range option which is essentially the boundary trade d) The Touch trade which is a Touch/No Touch trade option.
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e) The One Touch option which is essentially a high yield touch option that pays out close to 200% on successful trades. All expiries on binary options contracts offered on Tradologic platforms are determined by the partner brokers; traders have no control over the expiry dates/times. Tradologic has recently integrated its BINARIX binary options software to the major regulators in the binary options industry (CySEC, FSA, IFSC Belize and FSA Japan) so that its white-label partners can apply for, and obtain a license to provide regulated binary options services. Tech Financials The Tech Financials trading platform which is based on Orca+ trading technology is another white-label solution used in the binary options market by the following brokers: OptionFair 24Option OptionsClick ZoneOptions OptioNet
The white-label platforms front-end (the trading interface) is entirely web-based, with versions of the platform for the iPhone, Android devices and tablet devices. Tech Financials now offers an MT4 plug-in to allow traders trade the Tech Financials brand of binary options from MT4 compliant brokers. In addition, the new ChartPlus feature allows traders generate charting information in order to enable them trade from the charts. There are four trade types that are available to traders: a) The High/Low option (equivalent to SpotOptionss Digital Option). This trade has two varieties: the conventional High/Low (using the market price as strike price) and the Above/Below option (which allows traders to choose a strike price for the trade). b) The 60 seconds option (which is a High/Low option with a 60 seconds expiry time) was recently introduced on Tech Financials platforms. c) The boundary trade has two varieties: the In/Out trade and the High Yield Boundary trade. Tech Financials is the only binary options software provider to offer a high yield boundary contract. d) The Touch trade which has two varieties: the Touch/No Touch trade and the High Yield Touch option.
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All expiries on binary options contracts offered on Tech Financials platforms are determined by the partner brokers; traders have no control over the expiry dates/times. Tech Financials offers one of the most extensive assets listing in the binary options market. MarketsPulse The MarketsPulse trading platform is used exclusively by Opteck binary options brokerage firm. The platform is web-based, with a web-based mobile version of its site accessible to all smartphones (as opposed to having a native app). MarketsPulse provides a venture solution which allows brokers to adopt its white-label binary options platform. There are three trade types that are available to traders: a) The High/Low option (equivalent to SpotOptionss Digital Option). b) The Range option c) The Touch trade which provides two strike prices, either of which the trader can choose for a high yield. All expiries on binary options contracts offered on MarketsPulse platforms are determined by the partner brokers; traders have no control over the expiry dates/times. PROPRIETARY PLATFORMS Proprietary platforms are binary options trading platforms that are designed by the brokers themselves. The advantage of brokers having unique trading platforms is that it enables them to add their own features and any other trade types that are not available on the white-label platforms. The proprietary platforms also serve the traders well in that they have better choices of trade types and expiry settings than are conventionally available on the white-label binary options platforms. The popular proprietary binary options platforms are discussed below: Betonmarkets Betonmarkets is the most popular proprietary trading platform in the binary options arena today. Developed by Regency Markets Inc, the Betonmarkets (BOM) platform has been in use since 2008. The platform has some unique trade types that are not seen anywhere else and while traders cannot customize their trade expiries, they have a greater spectrum of expiry times to choose from. BOM offers traders expiry times starting from 30 seconds for the Rise/Fall trade, to as much as 365 days. The following trade types are available on the BOM platform:
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a) Rise/Fall: This is equivalent to the Call/Put digital option with the market price serving as the strike price for the trade. b) Higher/Lower: Basically the same as a Rise/Fall trade but the trader chooses the strike price for the trade. c) Touch/No Touch: d) In/Out: There are four possible outcomes to the In/Out trade which makes it easier for the trader to profit from this option type than on other platforms. WHAT ASSET TYPES ARE AVAILABLE? Broadly speaking, there are several types of assets traded on the binary options platforms. Each of these asset types features a wide range of traded assets. The asset types offered by Dragon Options are listed below: 1) 2) 3) 4) Stocks Stock Indices Commodities Currencies 3. BINARY OPTIONS TRADE TYPES From the discussion on the various types of binary options trading platforms treated earlier in this document, we can see that there are various trade contracts available for traders in the binary options market. The following binary options trade contracts are available: 1) Call/Put: In this bet, the expected outcome is for the asset to end higher or lower than the strike price on trade expiry. 2) In/Out: The In/Out option is also known as the tunnel option, boundary option or range option. Here the essence of the trade is to bet on whether an asset would be range-bound or would break out of the specified range before the trade expires. 3) There are two High-Yield options available in the binary options market. The High Yield boundary option is found exclusively on the Tech Financials white-label platforms, and involves setting two prices as the upper and lower price barriers, which must be touched by the asset at least once before the one-week expiry time is over. The barriers are spaced apart much more than usual, which is why the trade is high-yield in nature. The second high-yield trade is the High-Yield Touch option, found on the Tech Financials and SpotOption white-label platforms. The bet is to choose whether the asset will touch a price target, which could be located either to the upside or downside. The high yield options are highly speculative and pay 4 to 6 times greater than the conventional option types. 4) 60 Seconds Options: This is a Call/Put option that lasts only 60 seconds.
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5) Option Builder (customized options): This is a Call/Put option with a customizable expiry time and risk-reward ratio. Found only on the SpotOption platform. 6) Touch/No Touch: Found on the Tech Financial and some Tradologic platforms, this bet type is to predict on whether an asset will touch the price target or not. Unlike the high yield touch option, the trader has an option of choosing and profiting from the asset not touching the price target. 7) Paired Options: The paired options is a bet type found on the SpotOption platform that allows a trader to bet on the performance of one asset against another. The trader can bet on asset A outperforming asset B and vice versa. Assets traded on must be in the same asset class and in the same sector. A full explanation of the execution of each binary options trade type on the various platforms is given below. We shall pick an example from all the trading platform types mentioned above to give a perfect illustration on what the trader can expect using a particular trade type. We will use DragonOptions to represent the SpotOption brokers, 24Option to represent the Tech Financials brokers, Opteck to represent MarketsPulse, OptionBit to represent Tradologic and BOM to represent the proprietary platforms.
4. HOW TO EXECUTE A CALL/PUTOPTION TRADE The Call/Put trade is also known as the classical Digital Option, Up/Down, Rise/Fall, High/Low, Above/Below, etc. It just depends on what trading platform you are using. Here is how it is executed on the various platforms, SpotOption The trade is known as the Call/Put trade on the SpotOption broker platforms. To execute the trade, a) Select the asset to be traded. b) Out of four expiry options, choose an appropriate expiry. c) Clicks on the CALL (green) button if you feel the asset will end higher, or the PUT (red) button if you feel the asset will end the trade lower than market price. d) Enter the amount to be invested in the trade in the pop-up window that appears. e) Click on the APPLY button.
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The snapshot above shows all what needs to be done and where the trader should click. Tech Financials The trade is known as the High/Low option and has two variants: the classical High/Low and the Above/Below trade types. a) High Low - Select the asset to be traded after selecting the High/Low variant by clicking on it. - Click on HIGH or LOW depending on where the trade is expected to end. The strike price is the market price on trade entry. - Select an appropriate expiry. - Enter the amount to be invested in the trade. - Click on BUY to execute the trade.
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b) Above/Below After clicking the Above/Below button, the same process is repeated as can be seen from the snapshot below.
Tradologic On the Tradologic platform, this option type is known as the Digital or Above/Below option. a) b) c) d) Click on the Digital tab. Click on the asset to be traded to select it. Click on either ABOVE or BELOW. This opens a small dialog box. In the space provided for it in the dialog box, enter the investment amount. This is for the simple trade type. For the auto trade type, enter the number of contracts that you want to purchase. The value of each contract is equivalent to the minimum amount that can be invested per trade. e) Click on the appropriate button to execute the trade.
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MarketsPulse On the MarketsPulse platform used by Opteck, this trade type is known as the High/Low option. a) b) c) d) e) Click on the High/Low trade tab on the Opteck homepage. Select the asset class to be traded by clicking on the relevant tab. Choose the asset to be traded. Look below the asset line chart, and select either CALL or PUT. Input the investment amount, and click on INVEST NOW to execute the trade.
Proprietary (BOM) The proprietary platforms are unique to each broker, so the exact method of execution will depend on the individual broker. We use the example of BOM, which has two forms of the trade. a) Rise/Fall
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Select the asset class to be traded. This reveals a dialog box on the page. On this dialog box, use the drop down menu to select the asset, and set the trade parameters as shown in the chart below. - The expected payout is shown on the right hand side of the page. If the trader is satisfied with the payout versus the risk, he can execute the trade. b) Higher/Lower - Select the Higher/Lower tab and follow the same process outlined above. -
HOW TO EXECUTE A 60-SECOND TRADE The 60-second option trade is a Call/Put trade which expires in 60 seconds. Due to the extremely short nature of the trade, there is a possibility that the asset may end the trade where it started, in which case the trader gets his invested amount back. Here is how the trade is played on the SpotOption and Tech Financial platforms, which are the only 2 platforms where it is traded. SpotOption a) b) c) d) Select an asset to trade. Enter the investment amount. Choose either Call (for a higher price ending) or Put (for a lower price ending). Click on START and hope for the best 60 seconds later.
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Tech Financials a) b) c) d) e) Click on the 60 SECONDS tab. Select the asset to be traded. Select an appropriate expiry. Enter the amount to be invested in the trade. Click on BUY to execute the trade.
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HOW TO EXECUTE THE HIGH YIELD TRADES There are two high yield trades: a) High Yield Touch traded on the SpotOption, Tech Financials and Tradologic platforms. b) High Yield Boundary traded exclusively on the Tech Financials platform. SpotOption a) b) c) d) When the One Touch trade becomes available, click on the ONE TOUCH button. Select the asset to be traded. The expiry time and the strike price will be clearly displayed. Choose the number of units to be purchased. Click the ENTER button to execute the trade.
Tech Financials a) High Yield Touch - Select the asset to be traded after selecting the High Yield Touch variant of the Touch options. - Click on either the upside or downside target displayed, depending on where the trader feels the asset will head to in order to touch the price target. - Select an appropriate expiry. - Enter the amount to be invested in the trade. - Click on BUY to execute the trade.
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b) High Yield Boundary After clicking the Above/Below button, the same process is repeated as can be seen from the snapshot below. Select the asset to be traded after selecting the High Yield Boundary variant of the Boundary option. Select an appropriate expiry. Enter the amount to be invested in the trade. Click on BUY to execute the trade.
Tradologic The High Yield Touch option is simply called TOUCH on the Tradologic platform. To trade this option, follow these steps below: a) Select the asset by either clicking the asset class or from the list. b) Choose UP if you feel the asset will head upwards and come in contact with the displayed price target, or DOWN if you feel the reverse will occur. c) Input the investment amount and select an expiry in the dialog box that opens after the previous step, then execute the trade.
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HOW TO EXECUTE AN OPTIONBUILDER TRADE The Option Builder is only traded on the SpotOption platform. To trade the Option Builder, a) Select the asset to be traded. b) Choose a suitable expiry time. c) Adjust the parameters for risk and reward. The percentage payout reduces or increased as the loss return is increased or reduced. d) Input the amount to be invested in the trade. e) Click on APPLY to execute the trade. HOW TO EXECUTE THE PAIRED OPTIONS TRADE Paired options will involve trading the performance of one asset against the performance of another in a trading day. These assets will usually be in the same sector to provide a balanced playing field. a) b) c) d) Select the asset combination to be traded. Choose a suitable expiry time. Input the amount to be invested in the trade. Click on APPLY to execute the trade.
HOW TO EXECUTE A BOUNDARY (IN/OUT) TRADE This trade is known as the Boundary trade on the Tech Financials platform, Range option on Tradologic, or just the In/Out trade on the BOM platform. Tech Financials
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To trade the Boundary option on Tech Financials platform brokers, a) b) c) d) Choose the trade type by clicking on it, and selecting the Boundary variant of this trade. Select an appropriate expiry from the drop down menu. Enter the investment amount. Click BUY to execute the trade.
MarketsPulse On the Opteck platform, this trade is known as the Range High/Low trade. a) b) c) d) Select the Range High/Low tab by clicking on it. Use the scroller to select the asset to trade, or select same from the asset tabs. Enter the investment amount and select an expiry time. Click on INVEST NOW to execute the trade.
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Proprietary (BOM) The following variants of the In/Out trade exist on the BOM platform. a) Stays Between/Goes Outside Here the asset only needs to stay in the price range (stays between) or to touch/step outside the price barriers without even ending outside these barriers. All the trader needs to do is to choose one of these trades. Choose this trade variant by clicking on it. Select the asset class to be traded. This reveals a dialog box on the page. On this dialog box, use the drop down menu to select the asset, and set the trade parameters as shown in the chart below. The price barriers are customizable. The expected payout is shown on the right hand side of the page. If the trader is satisfied with the payout versus the risk, he can execute the trade.
b) Ends Between/Ends Outside The asset is fully required to either end the trade strictly inside the price range or outside the price barriers. To trade this variant of the boundary option, Choose this trade variant by clicking on it.
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Select the asset class to be traded. This reveals a dialog box on the page. On this dialog box, use the drop down menu to select the asset, and set the trade parameters as shown in the chart below. The price barriers are customizable. The expected payout is shown on the right hand side of the page. If the trader is satisfied with the payout versus the risk, he can execute the trade.
5. SPECIAL FEATURES This section will describe some of the special features on the binary options platforms that traders can use to enhance their trading experience. These functions are as follows: a) b) c) d) Order cancellation Rollover DoubleUp Early Closure/Buy Me Out
Order Cancellation
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Once the trade entry button is clicked to execute a trade, there is a few seconds delay as the order is processed, and this window allows the trader to either confirm the trade or to cancel it. If the trader decides to do nothing, the trade will progress to execution. If the trader decides he has made a mistake in his order, then the CANCEL button can be engaged within a 3-5 second window. This function is found in most trading platforms under different names. Rollover The Rollover is used to postpone the expiry time of a trade that looks destined to end out of the money, so as to give the trade a fighting chance of recovery. The use of the rollover function comes with certain preconditions. The rollover feature can usually be used only once for an asset in each open trade and the feature usually opens up a few minutes to the expiry of the trade, remaining open for no more than 3-5 minutes before being permanently non-available.
Rollover Double Up If a trader sees a trade that looks like a sure banker, it is possible to use the Double-Up function to double the potential profit from that trade. If a trader had invested $200 into a trade, the Double Up function adds another $200 to the trade, at the price where the asset was doubled up.
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Double Up Many traders use the Double Up function to try to make up for losses currently being sustained in the initial trade. The Double Up function can be used when the trader is sure of a trade outcome, and works well when used with a longer trade expiry. For instance, if we feel that the market sentiment at work in the market will lead to a sell-off on Wall Street, and the trade opens to our expectation, and we are doubly sure that Wall Street will end the day lower than the previous day, we can Double Up the initial position for increased profit. In order to execute the DoubleUp function, look for the Double Up or the X2 button on the top right corner of your trading platform. Early Closure (Buy Me Out) This function is used to close out profitable trades before expiry. It becomes available 15 minutes to trade expiry and remains open until 5 minutes before the trade is to end, after which the trader is unable to use the function. This service comes at a premium; some platforms charge as much as 50% of the original payout for this function. It is available on the SpotOption, Tech Financials and the BOM platforms. 6. TRANSACTIONS IN BINARY OPTIONS Transactions in binary options refer to deposits and withdrawals that traders make on their trading accounts. There are several transaction methods available. These are:
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- Credit/debit cards - E- wallets (PayPal, Moneybookers, CashU, Ukash, etc). - Bank wires In selected countries, traders can use their credit cards or their bank debit cards to deposit funds and withdraw from their binary options trading accounts. There are several e-wallet options available to traders, and traders can also use the good-old method of bank wire transfers to effect their transactions. How to Deposit Funds into an Account Depositing funds into a binary options trading account allows traders to start trading the binary options market, and there are several ways to do this. Credit/Debit Cards There are countries where the cashless system of transactions is fully entrenched with solid protective measures against identity theft and fraud. If you live in such countries, it is likely that your credit/debit cards will have international recognition, enabling you to use your credit/debit cards to deposit funds into your binary options trading account. The following credit cards are accepted: a) b) c) d) e) f) g) MasterCard VISA Diners Club Maestro Carte Bleue Discovery American Express (rarely)
Traders from countries where some of the credit card usage protection strategies are not in place or are rudimentary will not be able to use their credit/debit cards. Card deposits usually do not attract any charges and where they do, the charges are infinitesimal. Card deposits are usually instantly processed. E-Wallets The most popular e-wallet used for binary options market transactions is Skrill, formerly known as Moneybookers. This company plays a very pivotal role in binary transactions as they provide three levels of service.
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a) There is the conventional e-wallet service, where traders can deposit money using the Skrill ewallet. This will require the trader to open a Skrill account. The brokers would usually be able to connect to the Skrill interface where traders can use the e-wallet to pay for transactions.
Skrill interface on DragonOptions b) Skrill has a third-party credit card processing system, which handles credit card transactions c) Skrill now issues a prepaid MasterCard, which can be used by the card owner to deposit funds into the trading account. Other e-wallet solutions mirror what Skrill offers in terms of deposit functionality. Wire Transfer There are traders who cannot use credit cards or e-wallet methods because of international financial restrictions. For these traders, the bank wire option is the only way to deposit funds into the trading account. This method is slow (takes on average 3-7 working days), and attracts transaction fees on both the traders side and the financial institutions side. So deposits must always factor in these possibilities. How to Withdraw Funds from an Account The commonly used methods of withdrawals are as follows: 1) Credit/debit cards 2) Wire transfers 3) E-wallets These transaction methods follow the same principles of the deposits: they are country-specific, attract similar charges as the deposits and are handled in the same processing times.
Credit/Debit Cards
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The only addition to the information on credit cards is that in addition to the conventional cards used, traders could also use prepaid debit cards issued by some of the brokers. These cards are usually issued to VIP account holders. E-wallets Withdrawals are made directly to the traders e-wallet account. Wire Transfers It generally takes between 2 to 7 working days to complete a bank wire transfer. General Rules on Transactions a) As a rule, traders are required by law to withdraw funds using the same channel in which deposits were made into the trading account. b) Some brokers place limitations on the frequency and amounts that can be moved with each method of transaction. Many brokers will charge fees for more than one withdrawal made in a month. c) Traders who use credit cards for withdrawals must have their cards verified on the first attempt, by sending a scanned copy of both sides of the card (with the security number and parts of the card number blocked out). 7. WHAT EVERY BINARY OPTIONS TRADER SHOULD KNOW Aspects of the Trade Process The same assets traded in the conventional financial markets are the same assets traded in the binary options market. This means that the same methods of analysis can be applied to pick out trading opportunities. The only other aspect that must be catered to is the definition of the expiry times, which must be spot on for the trade to be a success. Trading opportunities in the binary options market can be determined by technical analysis and fundamental analysis. TECHNICAL ANALYSIS Technical analysis is the use of price action and chart information to predict the future behaviour of the traded asset. Technical analysis therefore involves the use of technical indicators, chart patterns, pivot points and price action analysis. Some of the methods of analysis can be used in the following ways:
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Chart Patterns Chart patterns involve the use of triangles, rectangle patterns, channels, wedges, flags and pennants as well as various patterns that define tops and bottoms to determine the future behaviour of an asset. Used properly, they are very accurate tools for analysis. Triangles There are three triangle patterns: a) Symmetrical triangle: Formed by an upper sloping trend line connecting the lower highs and a lower diagonal trend line that connects the higher lows. The bias is neutral, and therefore not suitable for trading the binary options. b) Ascending triangle: Made up of a horizontal trend line that connects the highs of the price action and a diagonal trend line that connects the lows of the price action, which are gradually getting higher to form higher lows. The end-point of this pattern is a bullish break of the upper horizontal trend line, which can be used to trade the CALL and TOUCH/NO TOUCH options.
c) Descending triangle: Formed by a lower horizontal trend line that connects the price lows and a diagonal trend line that connects the highs which are gradually descending to form lower highs. The end-point is a bearish break out, which can be used to trade the PUT and TOUCH/NO TOUCH options.
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Channels Channels are formed by two parallel trend lines. Three types of channels are seen depending on their direction: a) Ascending channels connect higher highs and higher lows. They can be used for trading the CALL option, using the lower trend line as the entry point.
b) Descending channels connect lower highs and lower lows. They can be used to trade the PUT option, using the upper trend line as the entry point.
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c) Horizontal channels are just what they are: horizontally oriented, where the price action is rangebound. They are suitable for trading the boundary option because their perfect horizontal range has clearly defined upper and lower price boundaries. Wedges Wedges are formed by two sloping trend lines, where the angle of slope of one trend line is greater than the other. There are two wedge patterns: a) Rising wedge is formed when the angle of slope is greater in the lower trend line. The rising wedge can be used to trade the PUT option since it is a bearish pattern, as well as the TOUCH/NO TOUCH trade type.
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b) Falling wedges are formed when the angle of slope is greater in the upper trend line. The falling wedge can be used to trade the CALL option since it is a bullish pattern, as well as the TOUCH/NO TOUCH trade type.
Candlesticks Candlesticks are a form of price representation in the financial markets. Candlesticks can also be used to predict the future movements of the price of an asset. Certain candlesticks are branded as continuation patterns and others as reversal patterns. Of these two, binary options traders should concern themselves more with the reversal patterns. There are two types of candlestick reversal patterns:
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Bearish candlestick reversal patterns: These are candle patterns that are of importance to the trader when they occur at the top of a trend.
(Courtesy of fxwords.com) of the trend. The snapshots above and below show the most important bearish candlestick patterns in the market.
(Courtesy of fxwords.com)
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These patterns are best used for trade entries when they occur at the same time as the following: a) Price action is at a resistance pivot point (R1, R2, R3). b) Stochastics oscillator lines cross at overbought levels (>75) It doesnt have to be complicated. Simply combining the bearish reversal candlesticks with these two scenarios will deliver an accuracy rate that approaches 95%.They identify when a bearish reversal of price action will occur, and can therefore be used to trade the PUT option. Bullish reversal candlestick patterns: These are candle patterns that are of importance to the trader when they occur at the bottom of a trend. They identify when a bullish reversal of price action will occur, and can therefore be used to trade the CALL option. These patterns are best used for trade entries when they occur at the same time as the following: a) Price action is at a support pivot point (S1, S2, S3). b) Stochastics oscillator lines cross at oversold levels (<25). The snapshots below show the most important bullish reversal candlestick patterns.
Bullish candlestick patterns (moderately reliable)
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Courtesy of fxwords.com
Traders who have difficulty identifying these patterns can use any of the candlestick pattern recognition software that can be purchased online. Indicators Technical indicators are usually combined with either candlesticks or chart patterns to produce trading signals. The two most important technical indicators for use in deriving binary options signals are the MACD indicator and the Stochastics oscillator. Stochastics: The best use of the Stochastics oscillator in the binary options market is seen when it is combined with candlesticks, with pivot points and with channels to produce signals that can be used to trade the CALL and PUT options. PUT option trade: a) Price action of an asset is located at the any of the resistance pivot points at the same time that the lines of the Stochs cross at an overbought level. b) Price action is at upper trend line of a descending channel and Stochs is at overbought level. c) Bearish reversal candlestick pattern at the top of a trend, with Stochs at overbought level. CALL option trade: a) Price action of an asset is located at the any of the support pivot points at the same time that the lines of the Stochs cross at an oversold level. b) Price action is at lower trend line of ascending channel and Stochs is at oversold level.
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c) Bullish reversal candlestick pattern at the bottom of a trend, with Stochs at oversold level. MACD: One of the uses of the MACD indicator is in divergence trades. Divergences occur when prices are making higher highs and the MACD indicator is making lower highs or the price is making lower lows and the MACD is making higher lows. The binary options trader should look for the occurrence of a divergence and use this as a signal for a CALL trade or a PUT trade, depending on the direction of the divergence.
In this chart, the price is making higher highs and the MACD indicator is making lower highs, the price is expected to correct itself in the direction of the MACD, which it does. The trader can take advantage of this setup with a PUT option trade. Conversely, the MACD indicator can be used for a convergence trade, where the price action makes lower lows and the indicator makes higher lows. The price action is expected to correct itself to follow the indicator, and we look for a candlestick pattern to confirm this.
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The snapshot above is for a MACD convergence. In both cases, the entry signal for the trade is when a reversal candlestick pattern forms. This is when the trader should execute the trade.
FUNDAMENTAL ANALYSIS Fundamental analysis is all about trading the news. In binary options, it is very difficult to use the news to develop trading signals. This is because most platforms will either make certain assets unavailable or alter the trading conditions in such a way that getting good trading results becomes impossible. It is advised that traders only use the news numbers to get the bias of the market, then use any of the methods of technical analysis to trade in the direction of the trend.
TRADER PSYCHOLOGY Trading the binary options market tasks the mental abilities of the trader, but not as much as the forex market or other markets. The trade pattern in the binary options market is basically a set and forget mechanism. The most tasking element is at the stage of trade analysis. The trader has to be able to forget all the market noise and stick to his trading principle or his trading plan in order to derive the correct trading signals. Negative emotions such as fear, anxiety, panic and confusion will work against a trader. Anxiety and panic can easily cause the trader to place misplaced orders such as clicking CALL when he actually means to click
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PUT. Greed is another factor that leads to downfall in the form of assuming too much risk. Using $100 accounts for a platform that has a minimum investment amount of $25 is equivalent to a risk factor of 25%, which is way too much risk. Then there is the greatest emotional pitfall of all; trading on a hunch. Guesswork in trading is one reason why binary options has been termed a form of gambling, which is a wrong concept because proper analysis can still be done to pick out good opportunities. Behavioural scientists have found that the adoption of positive trading psychology will eliminate a large percentage of the trading errors that bedevil traders. There are not many positive emotions that traders need to develop. If traders can use analysis instead of guesswork, adopt confidence in place of panic and anxiety, and use good risk management by either increasing the amount of money in their accounts or using brokers with very low minimum investment amounts, they would be much better off and trading psychology would not have to be such a big deal in binary options trading. Trading in the Zone by Mark Douglas is one book that traders looking to adopt the correct trading psychology need to read. It is available on Amazon.com. 6. TRADING BONUSES Traders can claim two varieties of trading bonuses: 1) Deposit bonuses 2) No-deposit bonuses Deposit Bonuses Almost every broker awards various degrees of deposit bonuses. The exact bonuses given depend on the broker. No-deposit Bonuses The two prominent no-deposit bonus brokers are: GT Options iOption
Both brokers give $100 no-deposit bonuses and these are claimed from Intellitraders and other affiliate partners.
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Bullish candlestick patterns (moderately reliable)

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