Introduction... 4 A look at Binary Options Who Trades Binary Options? Binary Option Brokers... 5 Individual Investors...

Transcription

1 Table of Contents Introduction... 4 A look at Binary Options... 5 Who Trades Binary Options?... 5 Binary Option Brokers... 5 Individual Investors... 5 Benefits of Trading Binary Options... 6 Binary Option Basics... 8

2 Understanding the Parameters of a Trade... 8 The Asset... 8 The time of Expiration... 8 The Forecast or Prediction... 8 Types of Binary Option... 9 Above/Below... 9 Trading Example... 9 Touch... 9 Trading Example Range Trading Example Unique Features Close Now Extend Double Analyzing Binary Options Technical Analysis Trading Example Fundamental Analysis Basic Strategies Bullish Strategy Trading Example Bearish Strategy Trading Example Range / Volatility Trading Trading Example Fence Trading Trading Example Binary Option Trading Lesson#1 2

3 Unpredictable Market Movement Money Management Trading Hours About Us Glossary Binary Option Trading Lesson#1 3

4 Introduction Dear Trader, Thank you for viewing Binary Options Trading Lesson #1 of ebook series. Binary options have become one of the fastest growing sectors of the finance industry. While the basics of binary options can be learned in a few minutes, there are numerous advanced strategies that traders and investors can learn in order to increase their chances of getting high returns. Here we will provide you with the basic information in order for you to get started in trading binary options today. We will also cover the different types of binary options available and introduce strategies that can help you secure high returns on your investment. We are currently the only binary option broker that offers 5 types of binary options to trade: Above/Below Turbo binary High Profit Touch Touch/No Touch Range In addition, there are also unique money management tools like Close, Double, and Extend, which give traders the ability to close their options before the time of expiration, and so guarantee profits (or stop losses) or even to extend the time of expiration of the purchased option. We look forward to seeing you soon in the trading rooms. Happy Trading! Binary Option Trading Lesson#1 4

5 A look at Binary Options Binary options are high-profit, short-term investments which are traded by both Professional, and amateur traders alike. Based on exotic options, which were only traded on private markets, binary options are traded over the counter and are available 24 hours a day, 6 days a week. Who Trades Binary Options? Binary Option Brokers Until recently, binary options trading wasn t available to individual investors. The only way individuals could access binary options was to hire a middle man, or a binary option broker. Typically, such brokers charge a minimum of $500, making it extremely difficult for individuals to enter the market. In the past few years it has become extremely easy to directly trade binary options online, saving investors thousands of dollars. Individual Investors Today some of the most successful binary options traders are individual investors and day traders. Many individual investors manage multiple accounts and trade different types of options at the same time while others tend to focus their investments in specific markets. The flexibility of time and the wide range of options made binary options trading extremely easy for investors who prefer to manage their portfolios from the comfort of their home. Binary Option Trading Lesson#1 5

6 Benefits of Trading Binary Options There are many benefits to trading binary options as compared to more traditional trading. These benefits range from attractive profits to simplicity of use. High Return Binary options are a great investment because of their high return. While most traditional stocks and options must mature over time, binary options yield 75% 81% or more in a matter of minutes. Short Term Investment Option While traditional options can take years to mature, most binary options expire within less than an hour. That means high profit potential in less than an hour. Small Investment Friendly Binary Options are also extremely accessible to investors who want to invest small amounts of money. Calculated Risk and Reward One of the biggest advantages of trading binary options is that the return on an investment is fixed from the onset and the amount of potential profit or loss is known. This means that a trader will never lose more than he/she expected and can calculate their risk accurately. Binary Option Trading Lesson#1 6

7 Advantage in Volatile Markets Binary options have an immense advantage in volatile markets, because it offers a safe way to invest. While traditional investments can be affected by the volatility of the market, the fixed rates of binary options mean that no matter how drastic the swings in the market, your gains and losses will remain fixed. One Pip Only Binary options have a great advantage in calm markets as well! Unlike other types of trading, where your profits are determined by the spread between the price you bought the asset and the price at which you sell it, binary options do not require more than a one pip move in either direction to be inthe-money. Binary Option Trading Lesson#1 7

8 Binary Option Basics Understanding the Parameters of a Trade It s easy to trade binary options once you understand the parameters of the trade. Every binary option is based on three components: The Asset There are a range of assets from different financial markets to trade on in the way of stocks, commodities, currency pairs and indices. Some traders choose to specialize in one asset, or one market, while others trade a collection of options simultaneously. The time of Expiration Most binary option brokers offer contracts that expire in one month, one week, one day, or one hour, but on our trading platform you are also able to trade with options as short as 15 minutes or even buy a Turbo option that expires in 1 minute. It s important that you use the proper time frame for your analysis and prediction. The Forecast or Prediction As a trader, your job is to determine which direction the price of an asset will move before or at the time of expiration. If you believe that the price of the underlying asset will go up, you would purchase a Call (Above) option. If you think that the price of the underlying asset will go down you would purchase a Put (Below) option. If you are correct in your prediction, you will receive a high return of 75-81% - that s nearly doubling your investment. Binary Option Trading Lesson#1 8

9 We offer traders the ability to trade three types of binary options, Above/Below, Touch and Range. Traders can achieve great flexibility with their trading by exploiting the unique characteristics of each type. Above/Below Above/Below is the most popular type of binary option and the one that the majority of traders are familiar with. Based on cash-or-nothing, Above/Below binary options expire in-the-money when the trader correctly predicts whether the price of the underlying asset will move above or below the predetermined strike price by the time of expiration. Trading Example After reviewing the asset index, you decide that Gold is the asset you would like to trade with. After observing the historical graph that day and conducting a technical analysis, you notice that Gold is currently trading at a low point for the day. Based on this information, you decide that this low point is a good support and you think that Gold will finish higher than its current price at the end of the current hour. You purchase a Call option that expires in 60 minutes. (If you believed that the price of the asset would drop, than you should have bought a Put option). Since it is your first time trading, you decide to start with a small investment of $100. If the price of Gold would rise by the expiration time, you will finish in-the-money and take home a profit of 85$. Turbo Binary Welcome to the world of super-trading. Turbo binary options are like binary options on steroids. These are ordinary Above/Below options, with an ultra-short duration 1,2, or 5 minutes. Unlike other binary options, here the duration of the option starts when you place our trade. So your trade will be exactly 1 minute long. Binary Option Trading Lesson#1 9

10 Trading Example After reviewing the asset index, you decide that Gold is the asset you would like to trade with. you observe the daily chart and conduct a short intraday technical analysis, and notice that Gold is currently trading at a down trend for 20 minutes. Based on this information, you decide it s safe to join the trend for a short time frame and buy a Put option for 1 minute. If the price of Gold would dop in the next minute, you will finish in-the-money and take home a profit of 85$. Touch Touch options expire in-the-money if the price of the underlying asset touches a barrier by the time of expiration. Your chosen price barriers can be higher or lower than the current price of the underlying when the option is purchased. We offer 2 variations on Touch, the high profit touch and the Touch/No touch. High profit touch the barrier is quite far from the market price. Perhaps 1% for the next hour for the EUR/USD. If you predict it will touch up, and are correct about it you will get a higher paout, perhaps 150% profit. Touch/No Touch the barrier is quite close to the current price. Perhaps 0.4% for the next hour for the EUR/USD. You can predict either way - it will touch the barrier, or it will remain below it. In both cases you will make a return of 80% if you predict correct. Trading Example You decide that you would like to trade a touch option on Microsoft. You select the Microsoft option which expires in 30 minutes. Depending on the current price of the asset, two options are available with predetermined strike prices, Touch Up or Touch Down. You believe that the price of the underlying asset will touch the high strike price before the expiration time so you select Touch Up. If you thought that the price of the underlying asset would touch the low strike price, you would select Touch Down. Binary Option Trading Lesson#1 10

11 When the contract expires, if the price of Microsoft has touched the option you selected during these 30 minutes, you will finish in-the-money and take home a high return between 75-81%. Range Based on tunnel trading, Range options have a range set around the market price. When buying a range option, the trader must predict whether the price of the underlying asset will stay In or be Out of this range at the time of expiration. This way you trade the volatility of the asset If you think the asset volatility is high, you can buy an Out range option. On the other hand, if you think that the option is not volatile, and will not move a lot, you should buy an In range option. Trading Example You decide to trade currency pair USD/EUR. You think that the price of the underlying asset will remain in the range at the time of expiration so you select an In option. If you would have thought that the price of USD/EUR would be out of the range at the time of expiration, you would have bought an Out option. At the expiration time, if the price of USD/EUR stayed in the predetermined range that you selected, you will receive a high return on your investment between 75-81%. Binary Option Trading Lesson#1 11

12 Unique Features To make trading more flexible and exciting, we offer traders unique trading room features: Close Now, Double and Extend. Close Now This unique feature gives traders the ability to sell their option before the time of expiration. This helps traders manage their money giving them the opportunity to close an option if it is not performing as predicted. Double Double enables traders to double the amount of money they have invested in a specific option. If you believe in your prediction, and the prices are moving your way, you can decide to double you investment, and thus automatically purchase another trade, in the same option, same direction, and the same amount. Extend Extend (Roll Over) enables traders to extend the time of expiration in order to increase their odds of being in-the-money. For example, if a trader purchased an option that is not performing as they expected, they can extend the time of expiration and give themselves extended chance of ending in-themoney. It s a great tool and to use it you would just need to pay a flat one-off fee Binary Option Trading Lesson#1 12

13 Analyzing Binary Options There are many factors involved in the movement of an asset But successful traders analyze information and make informed predictions before they choose their options. There are two main ways to analyze the market, through fundamental analysis and technical analysis. Both methods can be used independently or in conjunction with one other. Technical Analysis Technical Analysis is the process of analyzing data about specific options in order to more accurately predict which direction the asset will move in. There are many different methods used in technical analysis, both objective and subjective, including means reversion, tracking momentum, moving average convergence divergence (MACD), trend following, and pattern recognition. Principles of Technical Analysis Technical Analysis is the quantitative study of prices and volumes to be better equipped in predicting the price of an underlying asset. This type of analysis helps traders determine what is likely to happen to the stock s movement. Trend Following Trend following is a form of technical analysis that looks at historical data of a trend to get a better idea of its momentum. A trend is most simply defined as any sustained movement in one direction. By observing past trends you can get a better understanding of the asset s patterns. Binary Option Trading Lesson#1 13

14 Trading Example You are interested in purchasing a gold asset and want to see if there is an established trend. You look at the 2-day and 5-day moving averages for Gold. If the 2-day moving average has crossed significantly either above or below the 5-day moving average, you can safely assume that a trend has developed. Means Reversion The concept behind means reversion is that assets converge back to their mean. If a trader can determine the mean of an asset, it will make it much easier to predict the direction accurately. Tracking Momentum Tracking momentum is a common tool used in technical analysis. By using MACD, an investor can determine whether the momentum of an asset is rising or falling, and then place their trade accordingly. Calculating momentum is a complex affair, but once an MACD indicator is determined, it can be used to track the changes day-to-day of short-term and long-term averages. If the short-term averages are generally larger than the long-term averages, momentum should be increasing, while if they are smaller, momentum should be decreasing. Pattern Return Finally, many technical analysts look for patterns in the movement of an asset or a sector of the market. Finding these patterns can be somewhat complicated, and false patterns may lead to unwise investments, but if properly used, pattern recognition can lead to long-term profitability. Binary Option Trading Lesson#1 14

15 Fundamental Analysis Fundamental analysis is a method of prediction that looks at facts in order to develop an idea of how the market will move. These facts may come from public statements, news reports, current events, and virtually anything else that might impact the value of an asset. For example, an analyst looking at currency pairs should pay attention to things like figures of a country s GDP (Gross Domestic Product), or news from their central bank. It is important for a fundamental analyst to keep both a broad and specific view, paying attention to what is happening in the world at large, as well as what is happening on the smaller scale relating to their specific assets. Unlike objectively-based methods of analysis, fundamental analysis is largely subjective because people may have different interpretations of what a CEO s announcement about the state of a company means, or how an earthquake will affect the price of oil. Since there are no rules set in stone, fundamental traders are generally referred to as discretionary traders because they use their own judgment to decide what action to take after having analyzed the data available. Most fundamental analysts find that their ability to predict market direction improves over time and they eventually become experts at reading in-between the lines, gaining an understanding of exactly what a piece of data might mean, eventually establishing a comprehensive an overall picture. ---We offer traders real times news updates and announcements of economic events. Binary Option Trading Lesson#1 15

16 Basic Strategies After you have learned the basics of binary options trading, you can now further your chances of being in-the-money by incorporating some basic binary option strategies. In addition to using technical and fundamental analysis mentioned previously, there are several other strategies that binary options traders can exercise to improve their chances of being in-the-money. Each of the strategies outlined below applies to the most popular type of trading, Above/Below. To learn more, see Binary Options Trading E-Book Advanced Binary Option Strategies for Binary Options Traders, Lesson #3. Bullish Strategy A bullish strategy is adopted when a trader believes that the price of a specific asset will follow an upward trend and gain value. Trading Example You have been following Gold today and think that within the next few minutes the price of Gold will go above its current price of 1120 and follow a bullish trend. You decide to buy a Call option that expires in 30 minutes with an initial investment of $1,000. If you are correct, and the price of Gold rises in 30 minutes, you will be in-the-money and receive a profit of $750 ($750 profit = $1,750 less $1,000 of the investment). As you become more familiar with trading strategies, you can start incorporating more advanced strategies into your trading to further increase your chances of making a high return investment. Bearish Strategy A bearish strategy is employed when a trader believes that the price of an asset will follow a downward trend and loose value. Binary Option Trading Lesson#1 16

17 Trading Example It s 12:00 PM and the asset Gold has just had a significant course of growth. However, you believe that within the next half hour the price of Gold will go below its current price of 1120 and follow its past bearish trend. You choose a Put contract with a 30 minute expiry and invest $1,000, speculating that the Gold will be below 1120 by the time of expiration. If you are correct, you will receive $1,750, a $750 profit ($750 = $1,750 - $1,000 of the investment). Range / Volatility Trading Range trading, or volatility trading as it s sometimes referred to as, gives traders the ability to trade on a range of prices. For example, if a trader believes that the price of Gold is fairly stable, he or she can purchase an option that is In the range. On the other hand, if the option appears to be volatile, the trader can buy an Out of the range option. Trading Example You decide to trade a range option on Google and think that the stock will be stable for the next hour so you invest $1,000 on a In range option. If you are correct and the option expires within the chosen range, you will be in-the-money and receive $1,800 at the time of expiration. Fence Trading Fence trading gives traders opportunities to win, no matter which direction an option moves in. Trading Example You believe that the price of Gold will go up in the next hour so you decide to purchase a Call option with Above/Below trading on the strike price of The market goes up as you expected and the price of Gold is currently at However, after a few minutes you start to think that the price of Gold is Binary Option Trading Lesson#1 17

18 going to go back down. In order to cover both outcomes, you buy a second Put option at the current rate of This way if Gold expires with a price between 1120 and 1160, you will win both of the options. Scenario 1: If you had invested $1,000 on Call and $1,000 on Put (Total: $2000), you would receive up to $3,600 (with an 80% payout), receiving a $1,600 profit ($1,600 = $3,600 less $2,000 of the investment). Scenario 2: You can also cut your losses when you win one contract and lose the other. For example, if Gold expired higher than 1160 than you would have won the Call and lost the Put. On the other hand, if Gold expires lower than 1120, you will win the Put and loose the Call. Scenario 3: In the worst case scenario, you would have invested $2,000 and received only $1,800, losing $200 (10% of your initial investment). Scenario Call Put Total Payout P&L Payout Payout SET above 1160 $1,800 - $1,850 -$200 SET between 1120 and 1160 $1,800 $1,800 $3,600 $1,600 SET below $1,750 $1,850 -$200 Binary Option Trading Lesson#1 18

19 Unpredictable Market Movement Conducting a technical and fundamental analysis is key to predicting market movement but sometimes there are also unexpected events that must be responded to quickly. This way you will minimize your risk and make higher profits. For example, you know that an unexpected economic event is going to happen at 12 PM on Monday where the US Employment Agency will be reporting the unemployment statistics for the past quarter. You know that the retail market will be affected, but you have no idea which direction the market will move in. In order to cover both possibilities, the you invest $1,000 on a Call option and $1,000 on a Put option at the same time. During the hour, the unemployment figures are released stating that unemployment has gone down 3% which has sent the price of retail options up. Now that you have seen these statistics, you know that your Call option is going to be in-the-money and your Put option is going to be out-of-the-money. In order to minimize your risk, you use the Close Now feature and are able to recover $250 of the initial $1,000 which was invested on the Put option. Since the Call option is in-the-money, you will get a return of $1,800 and have broken even with your investments. Warning: If Gold decreased again after closing the Put and went below the strike price, the Close Now option would only give the trader $150 back from their out-of-the-money trade. Binary Option Trading Lesson#1 19

20 Money Management Money management is an essential but often overlooked prerequisite to successful trading. A trader who has generated substantial profits over his/her lifetime could lose their fortune in an instant with just one or two bad trades if their money is not being managed properly. To help you to increase your trading profits we ve put together these simple strategies: Never Risk More Than 8.5% on One Trade This will allow you to be wrong 11 times and still have money to keep trading. For example, if you are trading with $10,000, you should not risk more than $850 on one trade. This way, if you do not get a high return on your investment, you ll still have enough money to keep trading. Confidence is Key Trade only when you are confident that you have researched and analyzed your options thoroughly. If you are not feeling confident about the trade, wait until you feel more convinced about your options. Diversify Never put all your eggs in one basket. Trade options on a number of different assets, markets (e.g. Forex and Indices) and industries (e.g. Google and JP Morgan) and vary between the different expiration times. Watch for Financial Announcements The internet is a great source for up-to-date news bulletins on movements in the markets. Having the knowledge gives you the edge when making an informed prediction on the movements of assets. Follow Trends Always keep your eye out for developing trends. For example, if Microsoft s stocks appear to be increasing, perhaps Apple s stocks will too. Binary Option Trading Lesson#1 20

21 Trading Hours With binary options trading you are never limited to a specific market, index, or asset. This means that if a specific asset is not available, you ll be able to choose from a variety of assets on markets around the world, giving you the opportunity to trade 24 hours a day, 7 days a week. There is live trading around the world 6 days a week, Sunday to Friday, but some binary option are aviable even in the weekends. Maximize Your Trading Time For people who choose to specialize in a handful of assets, it can be helpful to pick assets that overlap in terms of market hours. This way you ll always have an available market to trade in. For example, if a trader is interested in trading on one asset open for trading only from 9 AM to 5 AM EST, it would be advantageous to choose a second asset to also trade on an asset on another time zone. This way the investor can still focus on two or three assets, but will never have dead trading periods. Binary Option Trading Lesson#1 21

22 About Us We are a premier options trading platform that provides traders the ability to trade stocks, currency pairs, commodities and indices in the exotic options market. We have created an exceptional trading environment where anyone can trade binary options in a simple, smart way. Our unique trading platform is designed to be easy-to-use and gives traders unique money management features found nowhere else online. We also offer unique trading tools like Close and Extend, which give traders the option to close their options before the time of expiration or extend the time of expiration after having purchased the option. Our trading platform can be accessed from anywhere in the world 24 hours a day, 7 days a week. Our quality customer service professionals are available to assist with any question or query at every trading hour of the day, insuring that you have the highest quality trading experience. See you in the trading rooms and enjoy your trades! Binary Option Trading Lesson#1 22

23 Glossary Asset A stock, commodity, index or currency pair. Call (Above) Option An option that you purchase when you believe that the asset will rise above its current price by the time it expires. Current Price The last price according to real time data unless otherwise is stated. Digital Options The most popular and well-known type of option, also known as above/below option. With digital options the user must predict whether the price of the asset will move above or below its current price within a fixed time frame. Expiry Time (Time of Expiration) The time and date at which an option expires- the price of the asset in this time will determine the results of the trades, in-the-money or out-of-the money. Fundamental Analysis The study of the fundamentals of the asset, and how macro-economic factors could influence it s price movements. Binary Option Trading Lesson#1 23

24 In-the-money An In the money option is an option which based on the current market price would expire with a payout of 75%-81%. A Call option (Above/Below), is in the money when the current market price is higher than the strike price - the purchase price of the option. A Put option (Above/Below), is in the money when the current market price is lower than the strike price - the purchase price of the option. Out-of-the-money An out of the money option is an option which based on the current market price would expire without value. A Call option (Above/Below), is out of the money when the current market price is lower than the strike price - the purchase price of the option. A Put option (Above/Below), is out of the money when the current market price is higher than the strike price - the purchase price of the option. Put (Below) Option An option that you purchase when you believe that the asset will fall below its current price by the time it expires. Range Option With range options the trader must predict if an asset price will be In or Out of a predetermined range of prices by the time of expiration. Strike Price The price that an underlying asset must touch in order to be in-the-money or out-of-the money. Binary Option Trading Lesson#1 24

25 Technical Analysis Technical analysis is based on charts and statistics. Traders use technical analysis to predict the future movements of options based on their past performance. Touch Option With touch options the trader must predict if an asset price will touch a predetermined strike price before the time of expiration. Turbo Option A digital option, which lasts exactly 1,2 or 5,minutes from the moment of placing the trade. Binary Option Trading Lesson#1 25