How to Trade Binary Options

Jul 4, 2024

How to Trade Binary Options

Introduction to Binary Options

  • Trading instrument offering a guaranteed return for correct price predictions.
  • High profitability, up to 99% on platforms like IQ Option.
  • Traders predict the price movement of assets (stocks, commodities, currency pairs, indices) within a selected timeframe.
  • Correct predictions yield returns; incorrect predictions result in loss of investment.

Key Concepts

Call and Put Options

  • Call Option (Buy Position): Profit if the closing price is higher than the opening price.
  • Put Option (Sell Position): Profit if the closing price is lower than the opening price.
  • Wrong prediction results in losing the entire invested amount.

Example Scenario

  • Trader (Jimmy): Predicts the price of gold for a week.
  • Belief: Gold price will exceed $1,250 by the end of the week.
  • Without binary options: Purchase gold or alternatives (gold ETF, Futures Contract).
  • With binary options: Simply predict if gold price will be higher or lower than $1,250 without acquiring the asset.

How to Trade on IQ Option Platform

  1. Select Asset: Click the plus sign in the upper panel.
  2. Choose Expiration Time: Click time button on the right panel; solid red line on chart shows expiration.
  3. Investment Amount: Enter amount using the amount button below the time button.
  4. Open Position:
    • If predicting higher price: Press the higher button (Call Option).
    • If predicting lower price: Press the lower button (Put Option).

Example Walkthrough

  • Jimmy's Actions:
    • Invest $100 predicting gold price will go above $1,250 by week’s end (chooses higher).
    • Chose expiration time with a 66% profitability rate.
    • At expiration, if prediction is correct, he sees a green window with profit ($66) + returns initial investment ($100).
    • If prediction is wrong, he sees a red window with loss.
    • Closing price equal to opening price returns the initial investment.

Conclusion

  • Binary options offer a way to trade based on price predictions without acquiring the actual asset.
  • High potential profitability but also a risk of losing the entire investment if predictions are incorrect.
  • Proper analysis and understanding of market behavior can enhance trading success.

Have a nice trading experience!