If you are looking to start your trading journey, the first step is to find a broker that meets your needs. In this article you will learn all about how to trade on IQ Option: what kind of broker it is, what instruments are available, how to open a deal and how to calculate profits. Read on to find out all the crucial basic information.
What is IQ Option?
First of all, it is important to understand what kind of a broker IQ Option is. IQ Option is a broker that offers Binary and Digital options, as well as CFD-type trading on such instruments as Stocks, Forex, ETFs and Commodities. Each instrument has its own peculiarities which we will discuss in more detail.
You can start trading on the Practice balance, which is provided for free. It contains $10,000 of demo money, and it can be topped up as many times as needed, so you can never run out of practice money. Once you feel comfortable trading, you can make a deposit and switch to the Real balance to trade with your own money.
The minimum deposit to IQ Option is $10, while the minimum investment in a deal is $1, which makes it accessible for most traders. Let’s take a closer look at all the possibilities this platform provides.
One of the most popular trading instruments is Binary Options. This instrument allows you to make a prediction regarding the asset value: whether it will increase or decrease within the chosen expiration time. In case of a correct prediction, the trader receives profit according to the profitability stated at the moment of entry. If the prediction turns out to be wrong, the trader will lose the investment amount.
Binary options allow for profit up to 100% and offer different expiration time, depending on what is currently available on the platform. While the principle of binary trading is extremely simple, this instrument is risky. If you wish to learn more about it, you may find our article about binary options trading useful.
Quite similar to Binary Options, Digital Options also work on a “yes or no” principle. In case of a correct prediction regarding the price direction, a trader receives his or her profit. If the prediction is wrong, the deal is a loss. However, there is one peculiarity to digital trading: the strike price.
Strike is the price that, according to the trader’s prediction, the asset will reach by the end of the expiration time. If the strike price is reached, the deal is considered profitable, however, if the strike price was not reached, the deal is out of the money.
Digital options allow for profitability up to 900% and they are quite exciting, because they give you the opportunity to not just predict the direction, but estimate by how much the price might change. If you are a newcomer looking to learn how to trade on IQ Option, this instrument might be interesting for you. A full explanation on digital trading can be found in our ultimate digital options guide.
How to Trade on IQ Option: CFD-type trading
In order to understand how to trade on IQ Option, it is necessary to learn about CFD-type trading. CFD stands for contract for difference. It is a contract between the buyer and the seller, which stipulates that the buyer has to pay the seller the difference between the current price of the asset and its value at contract time.
The convenience of CFD trading is that it allows traders to profit from the price change on the asset, without having to actually own it. This means that the actual price of the asset does not matter: only the difference between the trade entry and exit is important.
This type of trading may be appropriate for those who wish to trade valuable stocks, but do not have the capital to purchase them. A trader will benefit from the price difference in case of a correct prediction, and in case of a wrong prediction the trader might lose the invested funds.
Forex, which is short for “foreign exchange”, is a global decentralized market for the trading of currencies. It is the largest and the most liquid market in the world and it allows traders to speculate on currency exchange rates.
The important thing to know about Forex is that it is always traded in currency pairs, for instance, EUR/USD. It means that the price of the first (base) currency, in this case EUR, is calculated in units of the second (quote) currency, USD. For example, if the rate for EUR/USD is 1.21, it means that one euro costs 1.21 US dollars.
To trade Forex on the IQ Option platform, simply find it in the list of instruments and specify the details — investment amount, leverage, as well as the stop loss and take profit levels. If you wish to learn more about trading Forex, check out our full guide on Forex.
Stocks & Commodities
Another instrument available for trading on the platform is Stocks. Stock trading is extremely popular among both beginners and more advanced traders. It is possible to choose from over 170 different stocks of various companies including the tech sector (Apple, Tesla, Microsoft, Amazon), food stocks (McDonald’s, Starbucks, Beyond Meat), banks, cosmetics and many more.
Commodities include Gold, Silver, Crude Oil WTI and Crude Oil Brent and can be found in the “Commodities” section of the asset menu.
An ETF (exchange-traded fund) is a type of trading instrument that combines a collection of securities (stocks, commodities, currencies, etc.) and often follows an underlying index. For example, S&P 500 ETF follows the well-known S&P Index. ETFs are traded the same way as stocks, but they offer more diversification, since they combine both risky and more safe assets within themselves.
Last but not least, you may find Cryptocurrencies in your traderoom. You can trade the standard crypto assets, or those with an assigned multiplier and an expiration time, for instance, Bitcoin x100, Ethereum x50 and so on.
While standard Crypto assets are traded just like Stocks: you may open a deal and keep it open for as long as you wish, Crypto with a multiplier has an expiration time, at which the deal will be closed automatically.
To truly understand how to trade on IQ Option, it is also important to learn how to calculate your profits. For all CFD based assets, the same formula of profit (or loss) is used. The formulae are stated on the IQ Option website and are used by experienced traders to estimate their returns. Read on to see two examples of deals and how the profit for them is calculated.
How to calculate profits for CFD deals?
Let’s take a look at an example of a CFD deal. The current value of Tesla stock is $631.857. A long (“Buy”) position with the prediction that the price will continue rising is opened at this quote. The investment is $100 and the used leverage is x10. Three days later, the deal is closed at the level of $671.595.
According to the IQ Option website, this is the formula for counting profits for a “long” position, when a trader clicks “Buy”:
(Closing price / Opening price - 1) x multiplier x investment
Using this formula, let’s calculate the outcome for this CFD deal.
(671.595/ 631.857 - 1) x10 x100 = 62,8
The profit for this deal comes down to $62,8.
For a “short” position, when a trader clicks on “Sell”, the following formula is used:
(1-closing price/opening price) x multiplier x investment
For instance, a “Sell” deal on GBP/USD was opened at the price of 1.37440. The trader used a multiplier of x50 and an investment of $10. The next day the trader exited the deal at the price of 1.36753. Let’s calculate the outcome of the deal.
(1 - 1.36753/ 1.37440) x 50 x 10 = 2,5
The profit for this deal is $2,5.
As you can see, calculating profits for your CFD deals is not complicated and it helps you double check the outcome you received.
How to start?
To start trading on IQ Option, you will need to access the website or simply download the app on your phone. Register an account and start with the practice balance, until you feel confident to switch over to the real account. You can try each of the instruments described above and decide what suits you best. Good luck!