A binary option is a fast and tremendously simple financial instrument which allows investors to speculate on whether the price of an asset will go up or fall in the future, for example, the stock price of Google, the USD/GBP exchange rate, the price of bitcoin etc. The time span can be as tiny as 60 seconds, making it possible to trade hundreds of times every day across any global market.

Before you place a trade, you know exactly how much you stand to profit if your prediction is correct. It is usually 70 to 90%. If you invest $100, you can expect to receive a credit of $172 to $195 on a successful trade. This makes risk management and trading decisions much more uncomplicated. The outcome of this is always a yes or no, meaning you win it all or lose it all, hence the name binary option. The major attraction is that the risk and reward are known to you in advance.

Option types

There are other different types of options available. All their outcomes have a binary result that is “yes or no”.

1. High/low or up/down

This is the most common and basic binary options. Will a price finish high or low than the current prices at the time of expiry?

2. Touch/No touch

The binary option has set levels, higher or lower than the current price. The trader has to foretell whether the actual price will touch those levels at any point between the time of trade and time of expiry. In this option, traders can close before the expiry time. If the price level is touched before the option expires, then the “touch” option will payout immediately irrespective of whether the price moves away from the touch level afterwards.

3. Ladder

These options behaved like normal up/down trade but instead of using the current strike price, the ladder will have a preset price level. Since these options typically need a significant price move, the payouts will often go past 100%.

How to trade/make money?

The following is a step by step guide to placing a binary trade:

Step one: choose a broke

Do your research and compare the different reviews of brokers to find the best binary trading site ideal for you.

Step two: select the asset or market to trade

Assets lists are massive and cover stocks, Forex, indices, commodities, or cryptocurrency.

Step three: select the expiry tim

Options can expire anywhere between 30 seconds and a year.

Step four: set the size of the trade

Always remember that 100% of the investment is at risk, therefore you must consider the trade amount very carefully.

Step five: click call/put or buy/sell

Will the asset value increase or fall? Some brokers label the buttons differently.

Step six: check and confirm the trade

Several brokers provide traders with a chance to make sure that the details are accurate before confirming the trade.

Regulations

Binary options are legal but the regulations around the world are different. Some of the major regulators currently include:

1. Cyprus Securities and Exchange Commission or CySec- Cyprus regulator
2. Australian Securities and Investments Commission or ASIC
3. Financial Conduct Authority or FCA- UK regulator
4. Commodity Futures Trading Commission or CFTC- US regulator

There are also other regulators operating in Malta and the Isle of Man. Other authorities are also taking much interest, now, in binary specifically and notably in Europe where its domestic regulators are interested to reinforce the CySec regulation. However unregulated brokers also operate. Some may be reliable, but a lack of regulation is a very clear warning sign for potential new customers.

ESMA

ESMA or European Securities and Markets Authority recently moved to ban the sale and marketing of binary options in Europe. This ban is only applicable to brokers regulated in Europe which leaves traders with two choices to keep trading. The first choice is that they can trade with an unregulated firm which is extremely risky and not advisable. Some unregulated firms are reliable and honest, but most are not. And the second choice is to use a firm regulated by bodies outside Europe. ASIC in Australia is a powerful regulator, but they will not be implementing a ban. This implies ASIC regulated firms can accept European traders.

Unfortunately, there is no third option. Although, traders who register as ‘professional’ are exempted from the new ban. It is only designed to protect retail investors. A professional trader can continue trading at EU regulated brokers such as IQ option. To know more about IQ option, please visit www.iqoptionmag.com/. To be categorised as a professional, an account holder must meet any two of the following three aspects:

1. Have assets worth €500,000 or more
2. Must have worked for 2 years in a financial firm and bagged experience of financial products.
3. Open 10 or more trades/quarter worth one €150 or more.

So, the answer to the question of whether trading binary options make money is yes. If the trades are carried out correctly then it can even, make you wealthy. There is absolutely no doubt on the fact that binary options are potentially profitable. Just make sure of a few basics including finding the right broker and adopting an effective strategy and never turn away from educating yourself about trading.