What are binary options? Definition & explanation

Binary options are becoming more and more interesting and have become one of the most popular speculations on the financial market since they can be traded online in real time and with a large portfolio. Online platforms for binary options offer trading in foreign exchange and commodities, currency pairs and shares. Every trader can choose their preferred strategy and trade options in the short term or over a longer period of time. Trades on online platforms are even possible at weekends when the stock exchange is closed and bring particularly high returns.

How does binary options trading work?

With Binary options is about generating returns in speculative trading. The best known are put and down options, where the trader can speculate on a falling or rising price and achieve returns of up to 80% with the right result. However, it is also possible to lose the entire stake in the event of a wrong tip and only receive a credit of 5% of the stake back via the platform. To start trading, it is necessary to register on a platform.

As this is speculation with real money, the trader must verify his identity by showing that he is both the registered person and of legal age. Online trading with binary options is possible from as little as 5 euros per trade and many providers offer a free demo account that can be used to trade without real money but in real time and to learn your strategy.

Some platforms offer a bonus programme with which the trader can double his budget or increase it up to a percentage explained in the turnover conditions. In order to be credited with the bonus, a certain turnover is required, which varies from provider to provider, making the bonus programme hardly worthwhile for beginners or traders with a desire to place small stakes. Even though every trade can be concluded with a single click, dealing with binary options requires some knowledge and understanding of the stock market.

There are various strategies for this, of which trend following is one of the best known and most popular options. The trend following strategy shows in a graphical or percentage representation which price direction experienced professionals are betting on and which tendency they are predicting for a trade. Of course, trend following is no guarantee of a return, but it is the safest trading method for beginners and inexperienced speculators.

There is also the volatility strategy, which is particularly popular when markets fluctuate strongly. The hedging strategy is less popular, but is certainly an option for trading binary options.

Risk of profit and loss when trading with binary options

The return prospects sound tempting and are between 60 and 80 per cent for put & down trading. The percentage rating, which some providers even grant for put & down options alone up to 89%, is influenced by price fluctuations and the associated risk for the trader. The highest possible return is possible with One Touch options offered at the weekend. Here, traders can receive up to 380% of their stake as a return and bet from a stake of 50 euros. Here too, the higher the risk and the less likely the outcome, the higher the return.

Trading binary options can mean losing your entire stake, which is why you should choose your strategy carefully and attach great importance to professional financial management. Under no circumstances is it advisable to place your entire budget on one option, thereby increasing the chances of a high return but also the risks of a complete loss. It is best to split your budget and never bet more than 5% on one binary option, so that a loss also never exceeds 5%.

Simone Aescher

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Simone Aescher is the founder and operator of the successful crypto blog aescher-ai.ch.

After studying business administration at the Frankfurt School of Finance, she gained over 5 years of professional experience in the financial sector. However, her passion has always been the financial markets and investments.

In 2019, Simone Aescher finally turned her hobby into a career and founded her blog. She shares her in-depth knowledge of shares, ETFs, cryptocurrencies and much more.

As an active trader, Simone is constantly testing new brokers, robo advisors and trading apps. With her honest product reviews, she helps her readers to separate the wheat from the chaff.

With her academic background, many years of experience and practical expertise as an investor, Simone Aescher combines the ideal prerequisites for competently analysing and evaluating the financial markets.

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