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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.
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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 Options Trading FAQ
Hello everyone, Legit Binary Options Review is here with the Binary Options Trading FAQ. Though you obviously know what FAQ mean we are saying it again, it’s Frequently Asked Questions.
Let’s know the Binary Options Trading FAQ for better understanding on binary options trading and on the binary options market.
What is Binary Option?
“Binary Option” is a very simple prediction or betting type trade which the only outcome is ‘Binary’ and always resulting as Yes or No. If you win or your prediction is right you will get a fixed amount which includes profits, but if you lose or your prediction is not right then you will lose your total investment. In one sentence “Binary Option” is a form of financial option with fixed returns.
How Stock Trade Works?
You can trade stock through binary option by following below steps:
1. Select the stock what you want to trade.
2. Set the expiry time of your trade.
3. Enter your trade size or the investment what you want to invest.
4. Predict the stock price, if it will go up or down and execute your trade by placing a put or call trade.
The stock trading process is same in all broker. In some broker, you can see few more complexity layers, but in stock trading Up/Down option trade type is the most popular among the traders.
What is Call and Put Option?
Call and Put are the term to buy and sell options. If you think the asset price will rise than the underlying price, you can buy a Call option. But if the asset price expects to fall, you can buy a Put option.
Call and Put shows as the buttons in a trading platform and different broker names them differently like Call/Put, Buy/Sell etc. Most of the broker uses the Call/Put term in their trading platform. Every broker makes it pretty much clear that a trader is opening his/her trade in which direction by the Call or Put option.
Is Binary Option a Scam?
A common question because people feel insecure when they want to invest on something. Binary option is a tool of financial investment, so it can’t be a scam. But yes there are dishonest, unsafe brokers, signal providers and trading robots in the market.
The point is Binary Option itself is not a scam but a broker can be dishonest and a scam. For these type of dishonest operators, binary option financial investment tool suffers. For that reason, financial regulatory authorities from all over the world started to regulate and license the operators and they fine the dishonest operators or closing them to clean up this industry.
You can avoid the scams by checking the below facts in an operator:
1. Promise huge return in the promotion – It’s a clear warning for you. Binary options trading is a financial tool with high risk and high reward as a return. You can’t be wealthy overnight by trading binary options. The operators who claim such thing is not trustworthy.
2. Know about the brokers – Some binary options trading operators especially binary options auto traders and robots are partners with different brokers, so in many cases trades have no idea with what broker they are opening their accounts. Before start trading, a trader should know about the broker whether it licensed or not.
3. Beware about Cold Calls – Cold Calls can be a dangerous thing for the trades and regulated brokers are not allowing Cold Calls. Also, legit brokers are not offering this. The unregulated brokers who are interested in getting the initial deposit amount from the traders offer Cold Calls. You should avoid these type of broker.
4. Check brokers terms and conditions – I suggest you check the terms and conditions of a broker especially before accepting any kind of bonuses. Some brokers are looking for an amount of initial deposit until the traders make trades in a high volume. The first deposit amount is only trader’s money, the legit and licensed broker would not claim this money before any trade is placed by the traders. Some brokers also offer an option for canceling the bonus in case it does not suit for them.
5. Do not depend on anyone for your trading – Trade yourself and do not let the account manager trade behalf of you. In this case, you can see a conflict of interest because the account managers always encourage trades to trade in a large size and to take big risks. You should be careful about that.
6. Check license and regulation of the brokers – I think this is the most important part to determine if a broker is a scam or legit. If a broker is licensed and regulated by the financial regulatory authorities, only then you should trade with that broker. But if a broker is not licensed and regulated, simply avoid them.
Which are the Best Trading Strategies for Trading?
The strategies of binary options trading are different from each other. Legit Binary Options Review has a section for Binary Options Strategies, and from there you can learn about different binary options trading strategies and can experiment with them. Combining with asset price research and charts many traders use technical analysis. For all trading to ensure the risk management, money management is very important. Different traders suits with different trading strategies.
Actually, there are multiple best strategies, not a single one. What trading strategy suits you depends on you need, investment aim and on the risk management.
Is Binary Option Trading a Gambling?
It entirely depends on the habit of traders. Without any research and strategy based on your luck if you invest to win or lose then it’s more like gambling. But if you don’t depend on your luck and trade with your skill and with your result of market research to avoid the lose then Binary Option is a fair trade to place on.
You should make a trade based on the expected asset value and profit, not on your luck which is gambling. I think you understand that this question’s answer completely depends on the trader’s behavior.
What are the Advantages of Binary Options Trading?
Today’s world is filled with many financial investment tools and now people can easily engage with these financial markets through the advanced technology like the Internet-connected computer, laptop or mobile device from any place of the world.
There is little bit confusion among the people in what financial market they should invest. Forex has got the attention because of the legit activities of Forex brokers and they were able to believe people that forex is the easy way to make money. But forex market has few peculiarities and for these many traders already have been seen the wrong end of the forex market.
This is the point where binary option comes to save the traders with many unique advantages over any other financial trading instruments.
Check out the below advantages of the binary option.
• Low Financial Risk
If you traded forex before you obviously know about the huge risk of forex market because the blown off the forex market is very easy. In the other online trading except for binary options, trades outcome affects by many parameters and traders have to battle with them. You have to consider too many things for forex trading like margin, leverage, price re-quotes, slippages and news events too which are able to make a negative impact on your trading. That is why forex is riskier than binary options because there are no such things in binary options trading.
There are no leverage, slippages and price re-quotes in binary options trading. So your trade will not affect by any additional facts or tools. This is the main reason which makes binary option trading a low financial risk trading. Some binary options brokers return an amount of the asset purchases even though traders lose their trades.
• Trading Flexibility
You can trade currency and commodities in binary options without leverages, slippages and price re-quotes as well as can trade stocks and indices. You will not have such trading flexibility in any other online trading. Binary options are like an all in one shop where you can trade all the major assets in one place.
• Binary Options Trading Simplicity
The direction is the base parameter of binary options trading. On what specific direction the asset price will end the traders are predicting that. Moreover, you have the freedom to set your own trade expiry time. This gives the opportunity to a badly started trade end up well. There is no such thing in the other financial market. So there is much less risk in binary options trading than the other markets.
• Great Control on Trading
In binary options trading, you will have better control on your trading. As the example, you want to buy an asset, you already know what you in advance what you can gain and if you lose the trade what you will lose you also know that. It’s decent and clear to the traders what is not happening in other trading markets.
In this case, if you look at the forex market you will see that if you want to set a pending order to buy a news event with high impact, there is no guarantee that your trade will place at the entry value or at the exit point to stop loss your losing trade can be closed out.
• Binary Options Trading has Higher Payouts
You will have a higher payout for your trades comparing the other trading market. Most of the legit and licensed trading brokers offer a payout of 70% to 90%. Without jeopardizing your account this payout can be achievable. In the other financial trading market, you can expect that kind of payout if you are able to disregard the money management rules and can invest a huge amount on trading.
• Trading Accessibility
You need to have a huge amount of capital if you want to trade in the forex market with higher volatility. In the time of high volatility, Gold a commodity asset of forex market may have the volatility of up to 10,000 pips means that requires an investment of $10,000. For this reason, the trading access is limited in such type of market for the traders.
Binary options entry requirement is so much lower than the other financial market, you can trade with a low investment as $10 with some legit binary options trading broker.
What are the Disadvantages of Binary Options Trading?
• For Sure-Banker Trades Reduced Trading Odds
If an asset trading success rate is very high then the payout reduced drastically for that specific binary options trade. It is also true that some assets trades offers a payout of 85% for every trade. But this type of payout is only possible in long term trading and this type of trading is more unpredictable than the short term trading.
• Lacking Trading Tools
Some binary options broker do not provide useful trading tools like technical analysis tools and chart to their customers. Expert binary options traders always looking for that type of tools and new traders are not so fortunate like them. Though the scenario has changed quickly now. Renowned binary options brokers have all the tools and who have not they are adopting these tools according to their customer’s needs.
• Risk Management Limitation
Financial tools like forex allow the traders to trade in min-lot and in micro-lot which are small trading size, while some binary options trading broker only set a floor for trading and by depositing a minimum amount traders can trade. In this case, traders can lose more capital when trading binary options.
As the example, by depositing $200 in forex market you can trade forex instruments in micro-lot, but in some binary options broker if you deposit the same amount you may have to invest $50 to be eligible to trade an asset and if you lose four trade your account will blow up.
Don’t worry, there is some binary options broker who allows you to deposit as low as $10 and you can trade by investing only $1.
• Losing Trades Cost
How much losing trades cost you? It’s a very important thing for options trading. Binary options trading risk reward ratio favors the red side means losing trades. If you win in a trade, your payout can be 70%-90% depending on your asset and investment. In the same case if you lose this trade your loss will be 85%. But it is great that if you execute ten trade in a day, you only lose four trades out of ten trades in a bad day.
• Corrections of Trade
You can correct or stop a losing a trade anytime in the forex market to minimize your loss and to open a profitable new trade, you can do that in forex market if the repeat analysis tools reveal that by mistake the first trade was made. It is not so much available in the binary options brokers except few unique broker. In most of the binary options broker, the payout amount of the reverse trade is sealed and you cannot cover the losing trades.
Some unique binary options broker has an option to sell your losing trade before the expiry time and you don’t need any analytic tools help here, just sell the losing trade by clicking the sell option button. Sometimes this losing trade can be profitable during the time of sale.
We hope you found the answers to most common questions about binary options trading. If you have more queries, you can contact us through our contact page or through our chat system. Thanks for staying with us.
What are Binary Options and How Do They Work?
What is a binary option?
A binary option is a financial instrument based on a simple yes or no question where the payoff is a fixed amount or nothing at all.
This means binary options offer defined risk and clear outcomes on every trade.
Each binary option trade starts with a question – will this market be above this price at this time? If the answer is yes, you can buy the option. If it’s no then you can sell the option.
The price of a binary is always between $0 and $100, and just like in other markets, there is a bid and ask price.
The binary options we offer are always built the same way. Each trade is easy to understand.
If you think about it, binary options reflect the way we think about things in our daily life. Things either happen or they don’t. With a binary option, payouts reflect that and are always all or nothing at expiration. You’ll find we like to keep trading simple.
You can also close a position early to lock in profits or limit losses.
As an active trader, we know you are busy scanning markets each day. You are dealing with complexity all the time. The last thing you need is to be slowed down with more complications and hard to understand details with a brokerage.
When you trade, we know you want to focus on the market and your position, not on a series of unnecessarily complicated products.
So we built an innovative full service exchange to trade binary options that lets you do just that.
How do binary options work?
There are three concepts to learning more about how binary options work; the underlying market, strike price and time to expiration.
Become familiar with those three concepts and you’ll understand the basics of binary options.
Let’s walk through the three parts of each binary option trade:
With binary options the amount you pay is the maximum you can lose. Because of that we say your risk is capped.
Maybe you don’t want to wait until expiration. You can place an order to close your position to limit loss or lock in profit early.
Along with offering clear outcomes and defined risk, we also designed our binary options to work in a way that offers unique leverage that enables opportunities to profit even from small market movements.
1 The first step is to pick the assets or event you want to trade. Each one is based on an underlying market and your trade is based on that underlying markets price movement.
2 Then you want to find a strike price that works for you. The strike is the price level you think the market will be above or below at expiration.
3 When opening a trade you will select an expiration day and time. The expiration is the moment of truth traders live for. This is when trading is over and the value of your binary option is determined.
How risky are binary options?
You always know your binary option risk reward ratio before you enter into a new trade. Your trade is fully paid for up front, which means you will never lose more than you pay. You always know exactly what you have at risk.
Trading also offers the opportunity to profit. Just like you know what you have at risk, you will enter each trade knowing your maximum potential reward.
We’re serious about helping you understand and limit your risk. Our goal is to let you define and understand it clearly and upfront on every trade.
It’s why we’ve worked to design and offer an innovative way to define and cap risk while also providing an affordable way to trade.
You can start with one contract at a time for less than $100, and decide your maximum risk and reward up front when you set up the trade.
Here’s how that works:
If you buy a binary option contract for $30, hoping to have it end at $100, your profit target is $70. This is $100 less your $30 investment. A loss would never be more than $30 no matter how much the market moves.
We think that hard to understand margin requirements, complicated fees and confusing payout structures can make trading riskier than it needs to be.
You can make those things part of your past by trading binary options with us.
How are binary options regulated in the US?
Binary options are legal and available to trade in the US only on a Commodity Futures Trading Commission (CFTC) regulated United States exchange.
We are a full service exchange located in the heart of Chicago’s financial district and we are regulated by the CFTC.
As the leading United States based binary options and spreads exchange, we are proud to say we are designated by the CFTC as a Designated Contract Market and Derivatives Clearing Organization.
What this means for you is we are a well-regulated and leading binary options exchange.
Our role as the leading US based binary options exchange is to match buyers and sellers in a fair, accurate and secure way.
That way you can trade multiple global markets with us from one account knowing your trades are fair and your money is safe.
Binary options trading example.
Let’s walk through a trade on the EUR/USD currency pair.
Here is how the outcomes work at expiration:
- If the market is at or below 1.1600 at 3AM ET the seller will get the $100 payout.
- But if the market is one tick or more above 1.1600, you get the full payout as the buyer.
If you don’t want to wait until expiration, you can close your position at the current market price. Your profit or loss in that case is the difference between your entry and exit prices.
Each binary option reflects a question. In this case, the question is, will EUR/USD be above 1.16?
We show that as EUR/USD > 1.1600
In this example, the option has 4 hours til expiration and it’s 11pm.
If you think EUR/USD is going to be above $1.16 at 3AM, then you would then buy the binary.
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