Where Not to Trade Binary Options

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Where Not to Trade Binary Options

Where Not to Trade Binary Options

Binary options trading may be exciting and have great prospects, but the question must be asked: is it supposed to be traded on any underlying asset?

Binary options is a trade type that is based on correctly predicting price direction as related to targets and deadlines. If you attempt to trade binary options where it becomes difficult or impossible to predict price directions, then you are in for a money-draining spree. Here are the few situations where you should not trade binary options if you do not want to lose money.

1) During News Trades

Much has been said about trading the news and the extreme volatility that could follow these events. No one can tell for sure what the market response to a news item will ultimately be. There have been occasions when the news seemed to point one way, only for traders to come up and send the underlying asset in such a strong reversal. I remember a trade I took on the USDCAD in 2008 when the news sent the USDCAD soaring, only for traders to sell the USD long and hard, prompted by a hefty trade volume from a trader in the middle East who bought Euros and sold the USD in very massive amounts, thus completely obliterating whatever gains that those who purchased the USD against the CAD had made. Such is the nature of news trading and it is simply not advised to try purchasing a binary options contract when a news event is playing out in the market.

2) On the CHF Pairs

Many binary brokers have taken away the CHF pairs from their trading platforms, but a few have left them there as a snare for traders wishing to dare the EURCHF minimum exchange rate peg set by the Swiss National Bank (SNB) on September 6, 2020. There have been rumours floating in the markets on several occasions that the SNB intends to raise the peg from 1.2000 to 1.2500. If such a move plays out, the peg will drag the CHF along with it wherever that currency is found. Even without the actual move by the SNB, the rumours have always triggered a frenzy of CHF selling. So it is really risky taking positions in the CHF pairs as the risk of the trade disintegrating before the trader’s eyes are very real. Interventions are surprise events and can be very nasty if you are caught on the wrong side.

3) The Yen Crosses

The Japanese economy depends on a weak Yen to sell its products cheaply to its trade partners. A strong Yen certainly does not give the Bank of Japan much joy, and even though they have been more conservative with interventions, they have wielded the big stick twice in 2020. The USDJPY has been range trading for a long time, which is not the usual pattern for this currency pair. There is nothing ruling out interventions in 2020 and so traders are better off looking for some other underlying asset to trade binary options on.

Trading involves some bit of common sense. There is no wisdom in putting money in trades that pose greater risk and where there is more uncertainty. There are many other assets that can be traded comfortably; traders are advised to trade those assets, and under the right conditions.

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When to Trade and When Not to Trade Binary Options

The binary options market is unique in that it is one of the few markets where traders can trade assets of different classes from one trading account. Each of these assets all have their own peculiarities in terms of when they are traded on their respective exchanges. In order to know when to trade or when not to trade the binary options contracts for these assets, traders must be fully aware of the times in which these exchanges operate.

The forex market is a 24-hour market, and traders have round the clock access to trading binary options contracts on currencies. But this does not automatically mean that traders should trade currencies anytime they like. There are also certain times when currencies display maximum volatility and these are the times that traders should target to trade forex binary options contracts.

Other assets are not traded on a 24-hour basis, and so traders must know when these assets are available for trading on their various exchanges, and consequently, the binary options market.

Best Trading Time: Stock Indices/Stocks

Stocks are only traded when the respective exchanges on which they are traded are open for business. In the same vein, the stock indices that represent the exchanges on which stocks are traded can only be traded when they are open. The following table shows the trading times for these assets:

Index Asset/Exchange Trading Times (GMT)
Dow Jones, Nasdaq, S&P500 1.30pm – 7.30pm GMT
London FTSE100 7am – 3pm GMT
Xetra DAX (Germany) 7am – 3pm GMT
Nikkei 225 (Japan) 11.30pm – 6.30am GMT

Best Trading Times: Commodities

Commodities are traded on the commodities exchanges: Chicago Mercantile Exchange (CME), Globex, New York Mercantile Exchange (NYMEX), etc. Commodities are peculiar because they are not only traded on physical exchanges using the open outcry system, but also on online exchanges. This means that for each commodity, there will probably be two trading periods in a single day.
The trading times for the commonly traded commodities are as follows:

Energy Commodities

It is very important to keep a tab on the trading times for the various asset classes, so that traders can appropriately time when to make their trades.

Trading on Weekends

Generally speaking the markets are closed over the weekend. BUT there are options to still trade with over the counter offerings. Sure, the volume is much smaller and the available options are limited but there are very few brokers giving you the chance to do so. One of them is IQ Option which became the largest broker anyways. The reason for that is their constant innovations – like the over the counter weekend trading.

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A Guide to Trading Binary Options in the U.S.

Binary options are financial options that come with one of two payoff options: a fixed amount or nothing at all. That’s why they’re called binary options—because there is no other settlement possible. The premise behind a binary option is a simple yes or no proposition: Will an underlying asset be above a certain price at a certain time?

Traders place trades based on whether they believe the answer is yes or no, making it one of the simplest financial assets to trade. This simplicity has resulted in broad appeal among traders and newcomers to the financial markets. As simple as it may seem, traders should fully understand how binary options work, what markets and time frames they can trade with binary options, advantages, and disadvantages of these products, and which companies are legally authorized to provide binary options to U.S. residents.

Binary options traded outside the U.S. are typically structured differently than binaries available on U.S. exchanges. When considering speculating or hedging, binary options are an alternative—but only if the trader fully understands the two potential outcomes of these exotic options.

Now that you know some of the basics, read on to find out more about binary options, how they operate, and how you can trade them in the United States.

U.S. Binary Options Explained

Binary options provide a way to trade markets with capped risk and capped profit potential, based on a yes or no proposition.

Let’s take the following question as an example: Will the price of gold be above $1,250 at 1:30 p.m. today?

If you believe it will be, you buy the binary option. If you think gold will be below $1,250 at 1:30 p.m., then you sell this binary option. The price of a binary option is always between $0 and $100, and just like other financial markets, there is a bid and ask price.

The above binary may be trading at $42.50 (bid) and $44.50 (offer) at 1 p.m. If you buy the binary option right then, you will pay $44.50. If you decide to sell right then, you’ll sell at $42.50.

Let’s assume you decide to buy at $44.50. If at 1:30 p.m. the price of gold is above $1,250, your option expires and it becomes worth $100. You make a profit of $100—$44.50 = $55.50 (minus fees). This is called being in the money. But if the price of gold is below $1,250 at 1:30 p.m., the option expires at $0. Therefore you lose the $44.50 invested. This called out of the money.

The bid and offer fluctuate until the option expires. You can close your position at any time before expiry to lock in a profit or a reduce a loss, compared to letting it expire out of the money.

A Zero-Sum Game

Eventually, every option settles at $100 or $0—$100 if the binary option proposition is true and $0 if it turns out to be false. Thus, each binary option has a total value potential of $100, and it is a zero-sum game—what you make, someone else loses, and what you lose, someone else makes.

Each trader must put up the capital for their side of the trade. In the examples above, you purchased an option at $44.50, and someone sold you that option. Your maximum risk is $44.50 if the option settles at $0, and so the trade costs you $44.50. The person who sold to you has a maximum risk of $55.50 if the option settles at $100—$100 – $44.50 = $55.50.

A trader may purchase multiple contracts if desired. Here’s another example:

  • NASDAQ US Tech 100 index > $3,784 (11 a.m.).

The current bid and offer are $74.00 and $80.00, respectively. If you think the index will be above $3,784 at 11 a.m., you buy the binary option at $80, or place a bid at a lower price and hope someone sells to you at that price. If you think the index will be below $3,784 at that time, you sell at $74.00, or place an offer above that price and hope someone buys it from you.

You decide to sell at $74.00, believing the index is going to fall below $3,784 (called the strike price) by 11 a.m. And if you really like the trade, you can sell (or buy) multiple contracts.

Figure 1 shows a trade to sell five contracts (size) at $74.00. The Nadex platform automatically calculates your maximum loss and gain when you create an order, called a ticket.

Nadex Trade Ticket with Max Profit and Max Loss (Figure 1)

Best Binary Options Brokers 2020:
  • Binarium
    Binarium

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  • Binomo
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