To earn from stock binary options trading, you must have some knowledge of how stocks operate. On the binary options market, stocks are among asset derivatives that may be traded. A trader typically has access to hundreds of stocks because brokers offer several stocks from various stock exchanges worldwide.
Stocks from the 3 American exchanges, London stock exchange, and stock exchanges in Germany, Spain, and Switzerland, the Eurostoxx exchange (which includes stocks from Belgium, Netherlands, and other central European countries), as well as stocks from a few selected Middle Eastern exchanges, will make up a good spread.
As a result, traders now have access to an incredible range of stocks to choose from.
When Trading Stocks, What Elements Should You Consider?
Traders must be familiar with the aspects that affect stock price movement to trade stock binary options. The following are some of these elements:
If investors are concerned about the global economy, they will opt to hold cash rather than sell their stock holdings, resulting in a drop in stock prices.
A stock price will rise or fall in response to a positive or negative earnings report. What defines a positive or negative earnings report? Investors may regard a company declaring a loss in a favorable light if the loss is below the previous loss, resulting in greater demand and an increase in the cost of this asset.
Profits reported by a publicly traded firm, on the other hand, may not be seen favorably if they are lower than expected or underperform when compared to its rivals for the period.
Thus, the trader needs access to previous data to employ elements like earnings reports in stock binary options trading. Another disadvantage of using earnings in stock binary options trading is periodic and can only be utilized during earnings season.
Mergers And Acquisitions
Mergers and acquisitions are intended to strengthen the standing and performance of the companies involved, and they typically have a beneficial impact.
These can affect stock values in either a favorable or negative way. Increasing import charges on raw materials for a specific industry, for example, could erode profit margins and make it more difficult for impacted enterprises to compete against foreign goods.
Import tariff exemptions, on the other hand, could boost the profitability of the same businesses.
Types Of Options
The plain “Up/Down” trade is the most frequent binary option. However, there are several types of options. The only thing in common is that the result will be “binary” (Yes or No).
Here are a few examples of the various varieties available:
- Up/Down or High/Low is the most basic and widely used binary option. Will a price end up higher or lower than it is now at the time of expiration?
- In/Out, Range, or Boundary – This setting establishes a “high” and “low” value. Traders forecast whether the price will end inside or outside these levels (or “boundaries”).
- Touch/No Touch – They have pre-determined levels greater or less than the current pricing. The trader must anticipate whether the real price will ‘touch’ specified levels between the deal and the expiry period.
The deal can close before the expiry period with a touch option. If the market price is touched before the option matures, the “Touch” option will payout immediately, regardless of whether the price subsequently swings away from touch level.
- Ladder — These options work similarly to traditional Up/Down options. Still, instead of using the present strike price, the ladder will use pre-determined price levels (which will be ‘laddered’ gradually up or down).
These are frequently different from the current striking price. Because these options typically require a large price change, payouts can sometimes exceed 100% – yet both sides of the trade may not be present.
Step-By-Step Instructions on How to Trade
#1 Select A Broker
Choose the best binary trading website for you, use broker reviews and numerous comparison tools. In the past, options fraud was a big issue. Binary options were used as a new exotic derivative by fraudulent and unlicensed operators. Regulators have begun to act; thus, these companies are vanishing, but traders must still hunt for regulated brokers.
#2 Choose an Asset or Market to Trade
Assets include commodities, stocks, cryptocurrency, forex, and indices, among others. Take, for example, the cost of oil or the stock price of Apple. The number and variety of assets one can trade differs depending on the broker.
Most brokers offer popular assets such as key forex pairings like EUR/USD, GBP/USD, USD/JPY, and essential stock indices like the S&P 500, FTSE, and Dow Jones Industrial. In addition, commodities such as gold, silver, and oil are commonly provided.
Many binary brokers also allow you to trade individual stocks and equities. Although not every stock would be available, you will be able to choose from a pool of between 25 to 100 major stocks, like Google and Apple.
As demand dictates, these lists continue to increase. Every trading platform has a clear asset list, and most brokers create their entire asset list public on their website. This information, including currency pairs, is also available in our reviews.
#3 Choose an Expiration Time
Options can last anywhere from 30 seconds to a year.
The moment at which the trade is completed and settled is known as the expiry time.
The only exception is if a ‘Touch’ option has reached a pre-determined level before expiration. The time it takes for a trade to expire can range from about 30 seconds to a year.
While binaries initially had relatively short expiry durations, demand has resulted in a wide range of expiry times presently being offered. Some brokers even provide traders with the option of choosing their own expiration time.
Expirations Are Divided into Three Categories:
- Short Term / Turbo – Any expiry under 5 minutes is usually classified as short term or turbo.
- Normal – These can last anywhere from 5 minutes until the end of the day when the local market for such an asset close.
- Long-term – Any expiration that extends beyond the completion of the day is called long-term. The longest period of validity could be 12 months.
#4 Determine the Trade Size
Keep in mind that the entire investment is in danger; thus, the trade amount should be carefully considered.
#5 Select Call/Put or Even Buy/Sell
To see if the asset value rises or declines. Some brokers have different names for their buttons.
#6 Double-Check and Verify the Trade
Many brokers allow traders to double-check the facts before finalizing the trade.
While authorities were slow to react to the binary options initially, they are now beginning to control the market and make their influence felt. The following are the primary regulators at the moment:
- The Financial Conduct Authority (FCA) is the UK’s financial regulator.
- Cyprus Securities and Exchange Commission – the Cyprus regulator, frequently ‘passported’ across the EU under MiFID.
- Australian Securities and Investments Commission
Commodity Futures Trading Commission (CFTC)- United States regulator
Regulators can also be found in the Isle of Man and Malta. Many additional regulatory bodies are now taking a strong interest in binaries, particularly in Asia, where domestic regulators want to strengthen the CySec legislation.
While some unregulated brokers are trustworthy, the lack of oversight is a significant caution indicator for prospective new customers.
How To Begin a Trade?
Understanding basic concepts like strike price or even price barrier, settlement, and the expiration date will help you trade different binary options. Expiration dates apply to all trades.
When the transaction ends, the price action’s behavior, as per the type chosen, will determine whether the trade was profitable (in the money) or not (out-of-the-money).
Furthermore, price targets are crucial levels that the trader establishes as benchmarks for determining results. When we go over the different types of pricing objectives, we will see how they are used.
There are three different kinds of trades. There are numerous variations on each of them. There are three of them:
3. Touching/Not Touching
Let’s go through them one by one.
The essence of an Up/Down binary trade is to forecast whether the asset’s market price will finish up higher or even lower than the strike price (the chosen target price) before expiration.
The trader buys a call option if he anticipates the price to rise (the “Up” or “High” trade). He buys a put option if he thinks the price will go down (“Low” or “Down”). Expiry times as short as 5 minutes are possible.
Price consolidations (“in”) and breakouts (“out”) are traded using the In/Out type, often known as the “tunnel trade” or “border trade.” What is the mechanism behind it? To create a price range, the trader first selects two price targets.
He then buys an option to anticipate whether the price will remain within the cost range/tunnel till expiration (In) or if it will break out in any direction (Out) (Out).
Touch/ No Touch
This type is based on whether the price action has hit a price barrier. A “Touch” option is when the trader buys a contract that pays out if the market price of the asset bought touches the target value at least once before expiration.
The trade will be lost if the price action does not reach the price goal (the strike price) before expiration. The Touch is the complete opposite of a “No Touch.” You are betting that the underlying asset’s price won’t touch the strike value before expiration.
Investing Using Mobile Apps
Trading on your mobile device has never been easier, thanks to all major brokers now offer fully functional mobile trading apps. In addition, the majority of trading platforms have been created with mobile consumers in mind.
As a result, the mobile version of typical websites will be very close, if not identical, to the full web version.
Some brokers provide all three categories, while others only offer two, and others only offer one. Furthermore, some brokers impose limitations on how the expiration dates are specified. Therefore, traders are urged to browse the brokers who will offer them the most flexibility regarding types and expiration periods that may be specified to get the most out of the various types.
Trading stocks involves the buying and selling of shares of a company. Company ownership is shared out among individuals on the basis of their equity holdings in the firm. In addition to the portion of ownership reserved for the primary shareholders and company owners, there is a portion of equity that is reserved for trading in the secondary market; the so-called free float. This is the portion that is exchanged from one person to the other, usually on the basis of capital appreciation.
Stock Market Operations
Stocks can be traded on the primary market and the secondary market, and also in the binary options market. The primary market is where public offers are purchased. Trading stocks on the secondary markets is done on the floor of the various stock exchanges across the globe. Even stocks that are bought as public offerings will eventually find their way to the secondary market when investors are legally allowed to demobilize their stocks.
In the binary options market, trading stocks goes beyond trying to gain from the upward or downward movement of the prices. It involves trading the behavior of the stock in question:
- Will the price of a stock be range-bound or will experience a breakout within a particular time frame?
- Will the stock be higher or lower than a particular price after a few hours or days or weeks?
- Is there a price barrier that the stock is expected to touch within a particular time frame or will the stock miss out touching that price? Is the stock more likely to touch a price level more than another?
- Will a particular stock outperform its peers within a particular time? It is actually possible to trade the performance of a stock with another.
These are the questions that those who engage in the business of trading stocks in the binary options market seek to answer whenever they take up positions in the market.
The stock offered for trading in the binary options market will differ from broker to broker. There are brokers who will classify stocks according to regions, and there are those who will list stocks randomly. However, most binary options brokers will list the following stocks for trading:
- Major banking stocks like HSBC, Goldman Sachs, Barclays, Lloyds, Sberbank, etc.
- Telecom stocks such as France Telecom, Turkcell, etc.
- Petroleum marketing stocks such as Petrobras, Lukoil, Gazprom.
- Automobile companies such as Nissan, Toyota, etc.
Depending on where the trader is located, he may decide to trade stocks from a particular region or may decide to trade them randomly.
Procedures for Trading Stocks on the Binary Options Market
The first step a trader should take when the decision to trade stocks has been made is to open a trading account with a binary options broker. Most brokers in the binary options market listed on this site will accept $200 as minimum account opening balance.
Then follows the process of account opening via filling an account opening form, submitting a proof of address (utility bill or bank account statement) and proof of identity (national ID card or international passport) to get the account activated, commences.
Once the account is active, the trader funds the account and starts trading, using knowledge acquired about the trading process to buy and sell stocks.
In trading stocks, traders will basically be looking at factors that can trigger a sharp rise or drop in the price of a stock. For instance, events like solid earnings, a drop in losses following some pretty bad loss positions, a revolutionary product with great market potential or the appointment of a new CEO with a track record of pulling off impossible company turnarounds, are events that will spark demand and buying volume in an asset. When the reverse happens, investors will sell off the affected stock(s) and this will depress its price. Earnings reports alone can be a very profitable season for trading stock binary options once the trader has understood how to use the information that they provide. These events can be used to trade the High/Low option as well as the Touch/No Touch option.
Binary options provide an easier entry process into stock trading for beginners. So traders should identify which of the pathways would be most suitable for them when it comes to trading stocks.