How to Trade OTC Binary Options – Strategies & Tutorial

Trading OTC binary options is alluring for retail traders because it’s often seen as “where the pros are at.” However, traders need to consider a few points when looking to trade binary OTC, and here, a disciplined strategy and careful journaling are crucial for success. Pocket options (another name for binary options) are risky, and traders must adopt a specific strategy to profit from binary options. Many traders move to OTC to get their desired deals.

What Does OTC Mean?

OTC stands for ‘over the counter,’ an acronym that denotes the legacy business equivalent of ‘walk-in trade.’ OTC transactions are party-to-party transactions not hosted by exchanges but rather by a deal between you and the brokerage. 

What Are OTC Binary Options?

Like all binary options, OTC binary options have a given strike price and a specific expiration date and time. You’ll be seeking to profit from various instruments’ price fluctuations in the global markets.

OTC binary options usually have a fixed payout (and loss risk) and are offered by the broker rather than posted on an exchange. Forex pairs, stocks, commodities, and indices are the most common instruments traded.

OTC binary options bear very little resemblance to traditional options per se, as their payouts, fees, and risks differ, as well as the associated liquidity architecture and the trading strategy demanded.

If you bet correctly on the direction the market will move, you’re paid a fixed return regardless of whether the move was substantial or minimal. If you wager incorrectly, you typically lose everything you put into the trade.

OTC binary options need to be understood clearly because you might find that although they come with a known risk and reward, a myriad of strike prices, multiple expiry dates to choose from, and without commissions, the payouts from your winning trades can be less than your losses on losing trades, making for a very dangerous playing field that demands strict discipline.

Are OTC Options the Real Market?

No. A broker offers OTC binary options, not an exchange, based on algorithms or calculations between the order book and prices. 

While conventional high-low/fixed-return binary options are the most common binary options, several other types exist. 

Importantly, an OTC binary option’s strike price and expiration date aren’t standardized, meaning participants can define their own terms. There is also no secondary market with OTC binary trading.

Pros and Cons of OTC Binary Option Trading

Steps to OTC Binary Options Trading

Create a trading account

Get on board with a reputable OTC broker (Pocket Option or Quotex are two legitimate brokers that also issue binary option signals) and create your trading account).

Most modern brokerages have substantially streamlined their account opening procedures, so signing up should be smooth.

Deposit money or begin with a demo account

Either deposit the funds you have set aside for trading, or in most cases, brokerages will allow you to trade with a demo account without a deposit after account opening until you feel confident enough to risk capital.

When you start entering live trades, begin trading cautiously and steel yourself for losses that will inevitably be part of the learning curve.

Analyze the markets

This is an ongoing process, as you’ll analyze the markets constantly. Smart binary traders might have a very short trade timeline, but they do their homework beforehand.

Analyze trends and happenings connected to trades you’re looking at to understand the fundamentals and maverick ticks that can influence your profitability once you’re in a trade.

Place the trade!

With binary options, once you place a trade, all that’s left is to wait for the result. It’s an either/or scenario that asks for no further management from traders once they enter the trade. A call makes money when the market trades above the strike price when the option contract expires. A put makes money when the market trades below the strike price at expiration.

Best OTC Binary Option Strategies

Establishing an effective personal strategy for trading OTC binary options typically takes time, as your personal preferences, predispositions, and ultimate goals must settle into your strategy and produce results.

This journey can be shorter or longer depending on whether you use available tools (signals)－some traders (usually those who have traded forex pairs and will be trading binary options using forex instruments) prefer to apply their existing strategy. In contrast, others will employ binary options signals generated by their chosen signal service.

The key to success in OTC binary trading is developing an accurate market view. These four small words are not always simple to understand or maintain. However, they will allow you to spot good opportunities or signals and steer clear of those you feel are doubtful.

In the OTC binary options trading world, traders will encounter terms like no-touch, one-touch, and double-no-touch options, all of which brokers offer. The nature of the option can, to some extent, determine the strategy adopted, but a binary option strategy will, by and large, accommodate most binary option types offered by brokers.

Following trends

Arguably, the most common OTC binary strategy, trend following, is a commonsense approach. You’re tracking current price trends for the underlying assets of your trading options.

For example, if precious metals are rising because of inflation (as they typically do), you’ll take a call option on gold or silver. If precious metals are taking a knock, you’ll trade a put option.

Although a simple strategy, it’s not that straightforward to apply. Trends don’t follow smooth upward or downward lines but zig-zag constantly in their journey.

Candlestick charts are a great aid here, as they depict the asset’s low, high, opening, and closing prices supporting your options contract. They are arguably the best way to limit the risk of a contrarian price movement when your contract expires.

The 60-second strategy

Trading one-minute expiration binary options is akin to scalping in the forex markets, except you’re severely limiting your exposure, and you can gain a far higher reward than the penny movements scalpers can earn. 

The 60-second strategy allows you to make a substantial volume of trades in a day and, if combined with a small, cautious wager on each, can prove very effective for disciplined traders.

Here, technical indicators (support and resistance levels) are key to successful trading. Once paying dividends, factoring moving averages into the strategy can further enhance profitability, eliminating more of the small yet unanticipated price fluctuations from your calculations.

The strategy works well in markets that aren’t broiling (not tumultuous), i.e., when price levels remain between resistance and support. In the event of a price breakthrough, smart 60-second traders will wait until markets stabilize again before reapplying the strategy.

Hedging strategy

Many employ the strategy of placing a call and a put on the same option, which has its genesis in the betting arena, where punters bet on both teams to hedge against losses.

This strategy, also known as “pairing,” eliminates many risks of OTC binary trading. You make something regardless of the outcome. Like the “something,” however, lies the rub.

The crucial component in hedging is calculating whether you’ll come out ahead by pairing, failing which you’ll be bleeding money and out of the game sooner rather than later.

Although this sounds easy enough, extrapolating payout percentages and ultimate profit can be frustrating when faced with a guaranteed loss on one of your options. While the strategy resonates strongly with some traders, others find it defeating, and its successful application demands a certain mindset or predisposition.

OTC Trading vs Real Market Trading

If we compare binary options only to trading real options (as example components of the real market), several differences become apparent. 

• Conversely, trading OTC binary options offers greater flexibility than trading more regulated exchange-based instruments.
• OTC binary options also allow you to capitalize on upward and downward swings quickly.
• Since OTC is essentially a decentralized market, broker costs are competitive and as low as possible, voiding many standard charges of exchange trading.
• OTC pocket options are simple in architecture and easy to understand, and many brokerages facilitate access and depositing.
• Strategies exist to minimize losses and maximize gains, and professional signal providers also benefit many traders.
• Exposure and potential loss or reward are known upfront, time frames are typically short, and binary option trading can be brisk and profitable.

However, there are some downsides to OTC binary options, and many still feel their cons far outweigh their benefits.

• The short expiration on binary options limits profits, whereas classic options don’t.
• OTC binary options can’t be traded as real options can, and they are unlisted instruments with which you’re trading against your broker.
• Payouts are a percentage less than 100%, whereas losses are 100% of the money you invested, making for a game of numbers where you hope your signaled trades pay out substantially more than half the time.
• The very short expiration period typical of binary options eliminates the potential for real analysis, and many traders scoff at the notion of decent analysis in OTC binary options trading, claiming it to be nothing more than a casino.

Conclusion: Should You Trade OTC or Not?

Yes. That’s the short answer. Regardless of what and how you trade, every trader can benefit from a foray into the OTC markets.

A survey of online forums reveals that while many commentators are bitter about the marketplace, many others (those who maintain a disciplined and limited trading approach!) are making money trading OTC binary options. 

OTC binary trading is speculation, and in any speculation, there are approaches and accompanying tools that heighten success. The broad take is that those who expect gradual net growth and manifest the discipline to chip away at it with a tight trading strategy experience success.

OTC binary options trading, and indeed any OTC trading, will not resonate with everyone. Still, every trader should investigate the arena to determine whether it appeals and pays, capitalize on the time value of money, and attain their overall investing goals.

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