Delve into Bitcoin Binary Options trading, a fusion of binary options and cryptocurrency that gained prominence in the 2010s. As a relatively recent investment tool, acquiring thorough knowledge is crucial for traders navigating this innovative market. So, let this be your guide about trading Bitcoin binary options.
Most Important Facts About Trading Bitcoin Using Binary Options:
- Bitcoin binary options involve a binary outcome—traders either receive a predetermined payout or lose a portion of their equity based on the correctness of their prediction regarding Bitcoin’s price movement.
- Essential components include the underlying asset (Bitcoin), strike price (anticipated market level at expiry), and the expiry date, which typically ranges from 10 seconds to 5 minutes.
- Traders can be ‘in the money’ (correct prediction) or ‘out of the money’ (incorrect prediction). Bitcoin binary options offer return rates of about 70-90%, with the potential for higher payouts with more complex options.
- The trading journey involves developing a profitable strategy, selecting a suitable broker, signing up, depositing funds, and executing trades while managing risks.
- Strategies such as trend-following, reversal trading, news trading, price action trading, and hedging are employed by binary options traders to speculate on Bitcoin’s price movements.
What are Bitcoin Binary Options?
A Bitcoin binary option has an ‘all or nothing’ proposition. A standard option is where traders have the right but not the obligation to trade BTC before the expiry date.
Meanwhile, depending on their prediction, BTC binary options traders receive a predetermined payout or forfeit a portion of their equity. Thus, it’s referred to as ‘binary’ since there are always two known outcomes with no in-betweens.
The basic elements of any binary options trade include:
- The underlying asset: In this case, it’s Bitcoin (BTC) paired against another market, usually the US dollar (USD) [BTC/USD).
- The strike price: Represents the level that a trader believes the market will be below or above by the expiry time.
- Expiry date and time: The expiry periods for binary options are typically much shorter than traditional options, ranging from 10 seconds to 5 minutes on average.
As a side note, some brokers provide variable binary options, where speculators can cut losses or take profits before the expiry parameter.
A trader is said to be ‘in the money’ if their bet is correct and ‘out of the money’ if they were correct. Bitcoin binary options have a return rate of about 70-90% (which can go up to 500% with more complex binary options and requirements). This means you can gain 70-90% of your bet or lose the entire amount.
Let’s cover a simple binary options trade involving Bitcoin: an up/down or call/put. Assume that the BTC price was $50,000 at 10h15, and you were confident that it would be worth $50,020 (the strike price) five minutes (the expiry time) later.
This means the bias is bullish, equaling a call or up option. Let’s assume the broker offers a 70% payout, and you risk $100. If BTC is above the strike price before or by the expiry time, you will earn $70. Yet, you would lose the entire $100 if BTC was below the strike price before or by the expiry time.
Here is another example. Let’s say, this time, you decided on a put or down option, where you believed BTC would move from $50,000 to $49,990 (the strike price) in the next minute (the expiry time). Let’s also assume the same reward of $70, and you risk $100.
If BTC is below the strike price before or by expiry, you will earn $70. Yet, you would forfeit the entire $100 if BTC was above the strike price before or by the expiry time.
How to Trade Bitcoin with Binary Options: Step-by-Step Process
How do you go from start to finish when trading Bitcoin binary options?
1. Having a Profitable Strategy
While most traders immediately jump to signing up with a broker, the work should begin much earlier.
The process is fast-tracked if the trader has experience with another traded asset like forex, stocks, or crypto. Otherwise, beginners should spend time building their skills and choosing the best strategy.
Ultimately, each strategy comes with its pros and cons. It boils down to personal preference rather than one strategy being better. What’s crucial is having a strategy with a profitable track record over a minimum of one year. This is where demo trading is necessary, so you don’t have to commit real money as you tweak and experiment with different trading styles.
Traders should also consider their disposable income before signing up with a broker. Given the highly speculative nature of online trading, you should only dedicate money you can afford to lose in line with your trading plan.
2. Picking a Suitable Binary Broker
Assuming you are ready to tackle the live markets, choosing the best binary broker is the next step. A trader may already have an option from their demo trading experience. Otherwise, here are three good choices to observe:
- Welcomes International Clients
- Offers High Payouts: 90% – 97%+
- Professional-grade Platform
- Swift Deposit Process
- Enables Social Trading
- Provides Free Bonus Incentives
- Min. deposit $10
- $10,000 Demo
- Fast Execution
- High Profit up to 95%
- Fast Withdrawals
- Free Signals
- Supports Automated Trading
- Regulated Broker
- Multiple Platforms
- Fast Personal Support
- MetaTrader 5
- High yield 90%+
- Welcomes International Clients
- Offers High Payouts: 90% – 97%+
- Professional-grade Platform
- Swift Deposit Process
- Enables Social Trading
- Provides Free Bonus Incentives
- Min. deposit $10
- $10,000 Demo
- Fast Execution
- High Profit up to 95%
- Fast Withdrawals
- Free Signals
- Supports Automated Trading
- Regulated Broker
- Multiple Platforms
- Fast Personal Support
- MetaTrader 5
- High yield 90%+
Pocket Option
Pocket Option is among the most popular binary options providers that began operating in 2017. It’s a broker regulated by the Mwali International Authority with millions of customers in over 95 countries.
Traders can trade over 100 assets in commodities, forex, indices, shares, and crypto for an affordable $5. Moreover, no commissions apply for deposits and withdrawals, with the luxury of using e-wallet, bank, mobile, and crypto-based payment options.
Another perk of Pocket Option is its competitive payout rate, up to 218% per trade. Finally, the broker also has social trading for a more passive investing method of copying the positions from successful binary options traders.
Quotex
Quotex is a newer Seychelles-based binary options platform first launched, describing itself as an ‘Innovation Platform for Digital Asset Trading.’ It provides a decent maximum payout of 98%, which users can earn from trading over 410 individual assets in stocks, commodities, forex, and indices.
Quotex’s minimum deposit begins at $10, with plenty of funding and withdrawals. A demo account and integrated signals are available for those seeking to build effective strategies.
Deriv
Deriv is one of the most complete derivatives providers, established in 1999. It’s a broker regulated in multiple regions like Malta, Malaysia, the British Virgin Islands, and Vanuatu.
Deriv provides CFDs, multipliers, and binary options for forex, derived indices, crypto, commodities, stocks, and exchange-traded funds. The broker provides among the highest types of options (9).
Like Pocket Option and Quotex, Deriv has a reasonable starting balance of $5-10, which can be funded with many payment methods.
Given the provider’s longevity, it excels in the number of trading platforms offered, like MT5, cTrader, and several proprietary platforms. Deriv is also the go-to broker for traders interested in creating bots.
Our Tip For Binary Traders:
(Risk warning: Your capital can be at risk)
3. Signing up for Your Trading Account
The next step is to sign up with a broker for a trading account, which you can do with any internet-enabled device. Yet, it’s always recommended to use a desktop or laptop due to having a wider screen. This helps you to understand everything regarding the process and providing personal data.
Clients need to input information like their name, phone number, and country of residence. They must create an account with their preferred email address and password.
Finally, before verification, traders must submit their proof of identification and address documents for KYC (Know-Your-Customer). Depending on the company, this entire process can take a few hours to a day (in rare cases, longer).
4. Deposit Money into Your Trading Account
Thankfully, users are spoilt for the many payment options they can choose. Still, you’ll want to choose the cheapest and fastest ones so you can start trading right away. The best option is to use a general cryptocurrency like Litecoin and Dogecoin or stablecoins like USDT and USDC.
Alternatively, card and e-wallet choices are accessible and reasonably fast. As stated earlier, traders should invest disposable funds due to the high-risk nature of binary options. Finally, always double-check that you are funding the right payment details.
5. Begin Trading and Manage Your Risks
Now comes the hard part: when you start trading live binary options. This should be manageable of a stage for a well-prepared trader. One should be most attentive at the live stage, as mistakes have irreversible consequences.
Traders should be confident of each binary trade they enter before clicking those order buttons.
Moreover, you should note the following tips:
- Use appropriate position sizing (experts advise to risk no more than 1-2% of your trading account).
- Carefully look at the risk-to-reward of each binary position.
- Don’t revenge-trade.
- Don’t over-trade
- Always keep a calm and neutral state of mind regardless of the outcome.
- Set a daily loss limit
- Consider hedging and diversifying your trading capital into other assets.
- High returns
- Fixed downside
- Quick profits
- Simplicity
- Low trading capital requirements
- Potential rebates on losing trades
- Poor risk-to-reward ratios
- Capped upside
- Limited demo trading
- Susceptibility to financial malpractice
What are the Types of BTC Binary Options?
Let’s briefly go over the popular ones here.
Up/Down
As mentioned earlier, this is the simplest, most basic kind of binary option (also referred to as a high/low or call/put). The question is whether the market will be higher or lower than the strike price by the expiry time.
In/Out
We now get into a slightly more complex binary option (also known as a ‘range’ or ‘boundary’). This option predicts if the price remains in or out of a predetermined range (a ‘high’ or ‘low’ figure) or boundary before the expiry time.
Unlike a standard binary option, it pays slightly better, with many brokers providing up to a 100% payoff.
Touch/No touch
Touch/no touch is another sophisticated binary trade. The aim is to speculate whether the market will touch or not touch a pre-specified value before the expiry time. It’s worth noting that traders receive their payout even after the price moves away from the touch level afterward.
Touch-based binary offers better returns for your stake, which can reach up to 300% of your investment.
Ladder
Finally, we have the ladder binary option, which is the most complex (but can offer a substantially higher payout). The ladder aims to forecast the market breaching several preset progressive ascending or descending levels away from the strike price.
The less popular binary options include:
- Option Builder, where traders can customize their binary option’s expiry time, level of time and potential payoff.
- Pair options, where traders trade based on one asset’s best performance (within a certain class or sector) against another.
What are the Pros and Cons of Bitcoin Binary Options?
Let’s briefly cover the good and the bad of trading Bitcoin binary options.
Pros:
- High returns: Bitcoin is a volatile market that can move favorably for traders in many cases. This factor aligns with the general attraction of binary options.
Fixed downside: Traders are guaranteed not to exceed a set loss amount regardless of market conditions (unlike markets that use stop losses).
- Quick profits: The expiry times for binary options are short, allowing traders to book their gains faster than other markets. It also permits them to place many positions throughout the day.
- Simplicity: Binary options are more straightforward to understand than other markets, given that they have a binary outcome.
- Low trading capital: Many brokers require an affordable minimum deposit of $5 or less for traders to speculate in Bitcoin binary options, equaling a lower barrier to entry.
Rebates on losing trades: Some binary options brokers reimburse traders a portion of the bet if it loses.
Cons:
- Bad expectancy: Binary options have a poor risk-to-reward (RR). The generally accepted RR ratio is 1:2 (i.e., a 200% payout). Meanwhile, the average reward with standard binary options is often less than 100%. This means traders must win many positions to ‘break even’ and compensate for their losses.
- Capped upside: While it’s advantageous that binary options come with a definite downside, the profit potential is always limited.
- Poor or no regulation: Binary options and Bitcoin operate decentralized. This makes them susceptible to all sorts of financial malpractice.
- Limited demo trading capabilities: Most binary options are known for providing demo accounts that expire after a few days or a certain number of positions. Thus, traders have less time to test their strategies. Other brokers may also skip the demo stage.
Short-term trading is more challenging than long-term trading, making it more speculative. The lower expiry times can encourage overtrading or irrational trading as traders have less time to make the best decisions.
What are Common Strategies to Trade Bitcoin Binary Options?
Here are all the popular strategies binary options traders can use to speculate on Bitcoin.
Trend-Following
Experts agree that following the trend is often the safest market trading method, including binary options. The tricky part is deciding when Bitcoin will trend up or down before placing your trade.
Understandably, many elements are at play, involving a combination of technical and fundamental analysis.
The main downside is that Bitcoin can range or move sideways, making a trend less likely to happen.
Reversal Trading
Trading reversals is, of course, the opposite of chasing trends. This method is typically riskier but can yield impressive results under certain conditions. Similar to trend-following, traders combine technical and fundamental analyses to predict when Bitcoin is likelier to move in the opposite direction.
News Trading
Since Bitcoin is the talk of the town in digital currencies, traders can expect several news events related to the project. These are often blockchain updates, new market variations of the asset (as with the recent approval of a Bitcoin exchange-traded fund), or anything significant.
News events are more short-lived than trend-based positions. So, traders have to be a lot quicker and follow the news closely to react to them in the best way.
Price Action Trading
This trading style relies on exploiting numerous candlestick patterns. A popular system is the Pinocchio or ‘pin bar.’ The pin bar refers to Pinocchio’s nose, which has a long wick and a small body.
Other patterns include the hammer, shooting star, engulfing candle, hanging man, and many others.
Hedging
Hedging is a risk management strategy that can produce profits depending on the trading parameters. It involves a trader applying two opposite trades on one financial asset simultaneously. Essentially, it’s ‘playing both sides’ to gain something regardless of the result.
The binary options trading industry can convince less skilled traders who want to make plenty of money quickly without working hard to set up shop as a trader. These are the most likely traders to be scammed.
So, in the case of Bitcoin, you place a call and put a binary option simultaneously. The trader could profit if their favorable position has a bigger trade size than the opposite. Alternatively, the net result can also be zero, meaning the trader has neither lost nor gained anything.
Conclusion
Binary options are a unique way of trading the world’s most traded digital currency. However, they are not for the faint-hearted due to the predictive risks and challenges of having a high win percentage.
As with any financial instrument, the most successful are those who have dedicated their time to finding an edge. This guide should be enough for new binary options traders interested in a cryptocurrency like Bitcoin to start their journey.
Most Asked Question:
Are Bitcoin options and Bitcoin binary options the same?
No, these are different. Regular options work on having the right but not the obligation to trade Bitcoin at a specific strike price before expiry (along with paying a premium). Meanwhile, a binary option is more of a bet with a straightforward two-fold outcome.
How do brokers make money on Bitcoin binary options?
Brokers charge fees and commissions for each binary option made by traders. These vary depending on the provider and the account type. Typically, brokers levy a fee per trade or charge a percentage of the amount for the position.
Are Bitcoin binary options easier than other markets?
Binary options are beginner-friendly compared to standard crypto and stock trading. Yet, like any other traded asset, having a winning strategy and being consistently profitable is challenging.
Should you trade Bitcoin binary options?
The risk of ruin or the potential to lose money in Bitcoin binary options is similar to other traded assets. Yet, the inherently low risk-to-reward ratio makes binary options trickier. So, it’s a less attractive financial product. However, it can be a supplementary choice for traders who succeed in a market with better returns.
Are Bitcoin binary options legal?
In many countries, they are perfectly legal. Yet, some nations have banned binary options and/or the use of Bitcoin in any capacity.
