🔄 Trading Binary Options -FAQ, Strategies, and Rules

Binary options (also called digital options) are financial instruments traded over a fixed period with a pre-set return. Binary options have only two possible outcomes: you're either in-the-money or out-of-the-money. A trader can earn a profit simply by predicting the direction of a price trend. It doesn't matter whether the asset's price moves 10 pips or 50 pips—whether it's a call or a put option—the potential profit is always the same. Every binary option that ends in the money pays out a fixed amount. Typically, binary options offer a payout of 70–80%. In addition, many binary brokers offer a refund of 5–15% if the option ends out-of-the-money.

Trading binary options is simpler than trading standard options because fewer factors influence their pricing. Unlike standard options, binary options offer specific payouts based on small price movements in the underlying asset.

---

What are the Underlying Assets?

Binary options can be based on a variety of assets including stocks, indices, bonds, forex pairs, and commodities. Among the most popular assets for binary trading are Gold, Oil, and EUR/USD.

---

How are Binary Options Priced?

Binary options are priced in a similar way to standard options. To decide whether to buy a call or put binary option, traders must consider three factors:

i) strike price

ii) current price of the underlying asset

iii) implied volatility of the underlying asset

---

 

The Two Types: Call and Put Options

• If a binary trader believes the asset’s price at expiration will be higher than the current strike price, they buy a call option.

• If a binary trader believes the asset’s price at expiration will be lower than the current strike price, they buy a put option.

In-the-money & Out-of-the-money binary options

If the asset’s price at expiration is higher than the strike price, the binary option is in-the-money, and the trader receives the payout. If the price at expiration is lower than the strike price, the option is out-of-the-money, and the trader takes a loss. In most cases, the binary broker refunds 5–15% of the initial investment to the trader’s account.

Binary Option Breakeven Point or Tie

A Tie occurs when the strike price equals the asset’s price at expiration. In this case, the binary option is considered at-the-money, and 100% of the initial investment is returned to the trader’s account.

👉 Tip: Always check your broker's policy before opening a trading account.

Time-to-Maturity of a Binary Option

Binary options can be traded over a range of periods, from as short as 5 minutes to as long as 5 months.

---

Pair Options

Pair options are a type of binary option used to trade the relative performance of two stocks over a specific period. A trader buys a pair option when they believe one stock will perform better than another (for example, Google stock vs. Apple stock). If the price movement of the selected pair favors the trader, they receive a fixed payout. If the price movement goes against the trader’s choice, the initial investment is lost.

The main advantage of trading stock pair options is that the general market trend doesn't matter. This means you can earn a payout even if the overall market is falling.

Trading Risk

When buying a pair option, your risk is limited to the original cost of the option since it’s not a leveraged trade. However, overall market risk may still be considered high.

Option Expiry Time

Expiry time for pair options can range from 1 hour to 5 months.

---

Basic Rules when Trading Binary Options

These are some basic rules:

1) Focus on a couple, not many, underlying assets

Focus on just a few underlying assets rather than spreading across many. This makes it easier to analyze their fundamentals and stay up to date with the latest news. It also helps you track regular price movements and spot trading signals more effectively.

Example:
Oil prices tend to rise in September, as heating oil is ordered in advance before winter.

2) Find price correlations between assets

Look for correlations in the price movements of different assets and use that knowledge to trade call and put options.

Example:

The US Dollar affects the price of all commodities traded in USD. When the USD is weak, commodity prices often rise—and when the USD is strong, commodity prices tend to fall. This correlation is especially strong with precious metals. For instance, in the first decade of the 2000s (2000–2010), the USD weakened against the EUR, and commodity prices—especially gold—skyrocketed.

3) Manage your portfolio with discipline

Trading in binary options is high-risk, so you must stay disciplined. Monitor your portfolio regularly and avoid risks you're not willing to take. For example, if you know you'll need to make a withdrawal soon, avoid aggressive trading during that time.

4) Develop a binary option strategy

Every trader should create and follow a binary options strategy. This strategy should include a set of rules that match your long-term goals, risk tolerance, and trading profile. Choose a strategy that can adapt to changing market conditions, rather than one that's too rigid or one-directional.

 

 

5) Take advantage of special promotions and available bonuses

Binary brokers often offer promotions and bonuses ranging from 10% to 50%. Some higher bonuses are only available for professional or VIP accounts. In such cases, it’s better to wait and save until you qualify, rather than rushing in.

"Learning to wait and acting only when the perfect timing occurs is rule No. 1 for professional traders."

6) Learn about your partners and get familiar with their platforms using demos

• First, it's strongly recommended to review multiple binary brokers before choosing one. TradingCenter offers many broker reviews. Also, research specific policies that matter to you—like withdrawal terms.

• Second, make full use of any demo accounts your broker offers. Get 100% familiar with their trading platform. "Practice sharpens your skills and reduces your risk as a beginner." 

---

Standard Options vs Binary Options

The following table presents the key differences between Standard Options and Binary Options

Table: Key differences between Standard Options and Binary Options

ASPECT	STANDARD OPTIONS	BINARY OPTIONS
Risk Exposure	Risk Exposure is Variable	Risk Exposure is Fixed
Profit Potential	Profit Potential is Variable	Profit Potential is Fixed
Market	Standard Options are Traded on the Secondary Market	Binary Options are not traded on the Secondary Market
Right to Buy	Standard Options offer their holders the Right but not the obligation to buy the Underlying Security	Binary Options does not offer such a Right
Collateral	Collateral may be demanded by a standard option broker	No Collateral is demanded by a binary broker
Expiration	Expires on the 3rd Friday of each Month of an Option Contract	Expires in a wide Time Frame (from 5 minutes to 5 months)

 

 

■ Trading Binary Options -FAQ, Strategies, and Rules

TradingCenter.org (c)

 

 

⚠️ RISK WARNING 

Trading Futures and Options on Futures and Binary Options includes extremely high levels of risk

Trading Futures and Options on Futures and especially Binary Options include significant risk of loss. These types of trading are not suggested for non-professional investors. Trading on these financial products should be made only with the advice of professionals. Trading Futures and Options on Futures and especially Binary Options may lead to the loss of your investment or even more of your initial investment. Opinions, market data, and recommendations are subject to change at any time.