Binary Options is one of the simplest and most straightforward types of trading. All operations are done through the platform of the broker, which offers the trader Option contracts. The idea of trading Binary Options on IQ Option is to receive profits according to the difference between the buy and sell prices of an asset. However, Options trading is so simplified, that there is no need to actually buy or sell the asset – traders just acquire the Option for value change.
What are Options?
An Option is a contract, the subject of which is the direction of the asset price movement. Depending on the results of a deal, a trader receives a certain profit or loses the invested funds.
On the IQ Option platform, there are two kinds of Options trading: Binary and Digital. The Option holder makes a prediction regarding the underlying asset price direction (up or down) or the strike price it will potentially reach. If a trader’s prediction is correct, they receive a profit, otherwise they will lose the invested amount. Options can be traded on any device – a computer or a mobile phone, which makes them available anywhere in the world, where there’s Internet connection.
With Binary Options, the trader’s job is to choose the timeframe of the deal (expiration time) and make a correct prediction about the asset price change within that time. Let’s have a closer look at how to trade Binary Options.
How to trade Binary Options on IQ Option?
When trading Binary Options, a trader makes a prediction regarding the asset price movement and chooses the time of the deal execution. Once the time is up, the trader receives a profit (or loses the investment) according to the result. This is why Binary options are often associated with the saying “all or nothing”. Binary deals are easy to execute and the short timeframe makes this type of trading exciting and challenging.
Here is a step-by-step of how to open a Binary options deal on the IQ Option platform.
1. Choose the asset and expiration time on Binary Options
To open a deal, first choose an asset from the asset list. The platform allows to trade Options on currency pairs as well as stocks. You can base your choice on your own preference or the profitability that is currently offered on the asset. After that, choose the expiration time by clicking on the “Time” button. The expiration time determines the payout percentage – normally the shorter the expiration, the higher the payout (as it is more risky).
It is possible to choose an expiration from one minute to a week or even a month, depending on the availability set by the broker. When you click on a certain expiration time, you will see the expiration line (red) on the screen. The deal will automatically close once it reaches that line. The purchase timeline (white) shows how much time is left for opening a deal with this particular expiration time.
2. Choose the investment amount
On Binary Options, the minimum investment starts at $1. The investment amount will be deducted from your balance and returned with a profit in case the deal closes in the money. If the deal is in loss, the investment amount won’t be returned.
3. Choose the direction – Higher or Lower
Once you have decided on the expiration and investment, you need to determine whether the price of the asset will grow or fall. Once you have made the decision and you are ready to open the deal, click on “Higher” or “Lower”, depending on your prediction. You need to hit one of these two buttons before the “Purchase time” runs out, otherwise the white and red lines will shift to the right and the countdown will start over for the next expiration.
Once the deal is opened, you will need to wait until the end of the expiration time to receive the result. You can also click the “Sell” button for a running deal to close before the expiration time is up. In such a case, you will receive the “Profit after sale”.
Binary Options are extremely popular due to their simplicity – all you need to do is just decide on the price direction of the asset. The minimum investment is another advantage of this type of trading, as it starts at $1. The payout percentage is known in advance so the trader knows their potential profit in advance. In order to better understand how trading is done on Binary Options, let’s look at the following example.
For this example, we are choosing the asset GBP/AUD. The expiration time of our choice is 2 minutes. The amount of investment is $5 (using the Practice balance). We are utilizing the timeframe of 5 second for the candlesticks for such a short expiration time.
The market seems to be in a downward trend, however, it looks like a pullback is forming. With this expectation, we are clicking on the green “Higher” button and expecting the price to rise. Now it is just a matter of time to see the results.
The price bounces up and down, however none of the candles close below the opening price. Once the expiration time is through, the deal closes with the profit of $4.10 and the funds are credited to the Practice balance, where the deal was executed.
It is important to mention that on Binary Options, in case a deal closes at the same quote as it was opened, it is considered “equal” (no loss and no profit) and the funds get returned.
Once the deal is closed, you may click on the “New option” button and open a new deal, if you wish.
Expected profit vs Profit after sale
When a trader opens a deal on Binary options, there are two profit values displayed on the screen. Moreover, these two values can differ between them, which could be quite confusing. So what do these values mean?
When you trade on Binary, you open a deal with the expectation that the price will go up or down within the chosen expiration time. However, in case a trader wants to close the deal before the expiration (to cut losses or secure a certain profit), IQ Option allows traders to “Sell” the deal before expiration.
Therefore, the expected profit is the amount of funds that a trader would receive in case the deal closes at the expiration time. The profit after sale is the amount that the trader would receive if they close the deal manually, by clicking the “Sell” button.
The profit rate may be different for these two features, so in case a trader wants to receive the profit according to the payout percentage stated, they would have to wait until the end of the expiration. The expected profit rate might be lower, as it is an additional optional feature provided by the broker.
Is it possible to earn with Binary Options on IQ Option?
This question cannot be answered with one sentence, as in order to earn money with Binary, one has to study and practice a lot. Options are considered a high-risk type of trading due to the short timeframes. It can be quite challenging, as the trader has to make an assumption about the price development in a very short period of time and there is a high probability of losing the investment amount.
Options trading, though an incredibly simple concept, has to be approached with the necessary training and knowledge, as well as self-control over emotions. Traders have to implement technical and fundamental analysis, study the market and apply adequate risk strategy in order to manage possible losses. They have to react quickly, whilst remaining calm and assertive. Successful Binary traders know that there is no secret in gaining, it is strictly training and studying.
Binary Options can become a great trading instrument as they allow for many powerful strategies. They are quite uncomplicated in use and the mechanics of the instrument can be learned in seconds. However, traders that wish to improve their approach and achieve high results, have to take it seriously and be ready for a long-term and continuous practice.