How Binary Options Work – Can You Make Money With Binary Options?
Let’s say the price of the binary option to bet on Gold being above $1,700 by the end of the day, is $40.
When placing the trade, the broker takes $40 out of your account.
If by the end of the day Gold closes above $1,700, you get $100 back. So you put $40 in and you get $100, i.e. your profit is $60.
If Gold closes below $1,700, then you get nothing back. And since the broker took $40 out of your account, and you get $0 back, your loss is $40.
Here’s the cool thing:
Binary options are available for a wide variety of underlying markets:
Major indices like the Dow Jones, S&P 500, Nasdaq, … Major commodities like Crude Oil, Gold, Silver, … Major currencies like EUR/USD, USD/JPY, GBP/USD, …
… AND they expire daily or even hourly!
So if you don’t want to wait until the end of the day, you can trade a binary option that expires in the next hour.
All you need to do is decide whether a certain market is closing above or below a certain price within the next hour!
As you can see, the possibilities are (almost) endless.
So the next question is…
Can You Really Make Money with Binary Options?
IF you trade with a reputable broker: YES.
We will talk about the best binary options brokers that are NOT a scam in a few moments, but let’s talk about how to make money with Binary Options first:
Here are the 3 things you need to know:
Is the market more likely to go up or down? Will a market close above or below a certain level? What’s the maximum price you’re willing to bet?
I will show you a simple trading strategy for Binary Options in the next article.
But before I show you the strategy, let’s first talk about…
What Are The Best Binary Option Brokers?
There are a lot of fraudulent binary options brokers and scammers out there, and you need to be careful.
The only “broker” that I would ever trust is the North American Derivatives Exchange (NADEX) .
Nadex is 100% legitimate and is designated by the Commodity Futures Trading Commission (CFTC) as a Designated Contract Market and Derivatives Clearing Organization.
The CFTC is a U.S. government agency whose mission is “to foster open, transparent, competitive, and financially sound markets,” to “avoid systemic risk” and “to protect market users and their funds from fraud, manipulation, and abusive practices.”
That’s a mouthful for saying: Nadex is a 100% legitimate and regulated exchange .
They allow customers to open an account directly with them!
So you’re cutting out the middle man, which means lower commissions for you!
Talking about commission…
I really like Nadex’s commission structure:
It’s only $1 to open a trade, and they ONLY charge you another $1 to close the trade if you make money. If you lose money, they don’t charge you a commission to close the trade. How awesome is that?
Long story short: If you want to trade Binary Options, trade them at Nadex!
Are Binary Options Legit?
As stated earlier, there are many unregulated brokers who just take the customer’s money and never return it. Most of these brokers are operating offshore in countries that have very few or no regulations.
In the US, brokers and exchanges are VERY regulated. As of the moment, NADEX is one of the few licensed companies in the U.S. that is allowed to offer Binary Options Trading.
Binary options are legal and available to trade in the US, but only on a CFTC-regulated United States exchange, which – again – is NADEX.
In a nutshell: As long as you trade Binary Options on NADEX, it’s legit and legal.
This leads us to the next question:
Is Binary Options Trading Safe?
We already talked about the regulations, so we don’t need to cover this again.
As a trading vehicle, Binary Options are very safe since they are not leveraged.
This means that you can not lose more money than you have in your account.
Here’s an example of how binary options work:
If you have $500 in your account, and you want to put on a trade in which you risk $50, NADEX will automatically reserve $50 from your funds.
When the order is filled, these $50 will automatically be deducted from your account. So your balance is now $450.
If you were right, NADEX will give you $100 back as soon as the markets close. In this case, your account balance will jump to $550, i.e. you made $50.
Because of this mechanism, it’s impossible for you to lose more money than you have in your account.
As you can see, trading Binary Options is safe.
What Is The Best Strategy For Binary Options?
The best strategy for Binary Options is a strategy that makes it easy for you to pick the direction of the market.
After all, in order to make money with Binary Options, you need to know…
Is the market more likely to go up or down? Will a market close above or below a certain level? What’s the maximum price you’re willing to bet?
Actually, since this article is getting pretty long, I’ll stop right here and will write another article on a trading strategy for Binary Options.
Related Posts.
Best Vertical Spread Option Strategy.
What Type of Trader Are You?
A Beginner’s Guide To Buying Vs Selling Options.
How To Sell Put Options: Margin Requirements Explained.
Leave a Reply.
Troy Smith says:
Hi Markus, I loved the trading strategies that you had on you tube about how to trade Nadex binary options . Why have they been removed these strategies really worked ,I needed them to show my sister the step by step process, are they band from YouTube . I just wanted to know .
Rockwell Trading – Social says:
Hi Troy, Markus is no longer doing binary options. He is now trading stocks using the Wheel Strategy and the PowerX Strategy.
Better Planning Better Trading.
Hi, I’m Markus Heitkoetter. I’m determined to create profitable traders. The question is, will you be one of them? I’ve put together a trading plan template & short training where I’ll walk you through building a “bulletproof” trading plan:
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