Binary options present a simple choice to investors — yes or no. If you pick the correct choice, you win money. If you pick the wrong one, you lose a large percentage of your investment. The prospect of full transparency is very attractive to some investors who may prefer upfront terms on their investments. Unlike traditional options, you don’t have to worry about pricing in volatility, price manipulation or the other factors that may cause weird option price movements.
You can choose different accounts based on the type of trading you want to do. Here is a list of the most popular types.
The Virtual Account
Attribution: IQ Option Mag – Your virtual account will have all of the features of a real account. You just won’t use real money.
Before you begin investing in binary options with real money, a smart way to test your strategies is through a virtual account. A virtual account works the same way as a real account without real money. You can still invest and see what would have happened, but you do not win or lose actual cash.
Savvy investors use virtual accounts to test the veracity of the platform as well. Traders need to know the characteristics of a platform along with having a winning strategy. For instance, some binary options have expiration times of seconds. Reducing latency can mean the difference in a win and a loss.
The Low Minimum Account
If you are just getting into binary trading options, you may want to start with a low minimum account. Accounts with low minimums allow investors to exercise full trading privileges with a lower account balance than usual.
Standard accounts for binary options start at around $500. Anything lower than that is probably defined as a low minimum account depending on your broker. Other names for a low minimum account include the Micro, Basic or Beginner account.
You may give up access to certain privileges or investment opportunities if you are trading through a low minimum account. If your account balance stays under the minimum for regular trading, you may not be able to use leverage on the account. You may not be able to invest in certain high-risk opportunities or options with an extremely short time frame. Usually, once you upgrade your account or add more money to it, you can add those features to your repertoire.
The High Leverage Account
Some of the best binary options strategies involve using leverage, or borrowed money. Brokers can serve as your interim bank, providing you capital for trades above and beyond the capital you have in your account. Some brokers may call this leverage a “bonus,” but the concept is the same.
In some trading accounts, you will not be able to claim your bonus as cash until you reach a certain amount of trading activity. The activity volume is usually based on a multiple of the bonus. For instance, if your broker gives you $500, you will have to make 20 times worth of trades ($10,000) before you can claim the $500 as cash. Should you lose your account more quickly because you are leveraging up on trades, the bonus is forfeit.
The Exotic Trades Account
Exchanges can offer binary options on literally anything — you are not limited to following stocks or precious metals. Some of the best binary options may have nothing to do with financial markets at all. Exotic trading means that you can bet on the weather in Chicago a week from now or an interest rate announcement during a Federal Reserve meeting.
You may also have access to different option types using this account. Here is a list of the most popular types:
- High/low: The basic binary option that pays out if the strike price is higher than the current price at expiry
- In/out: The trader predicts whether a price will be inside or out of a certain range
- Ladder: Similar to high/low trades except that the option will use a staggered price instead of the current price to determine a payout
- Touch/no touch: The trader predicts whether an asset price will touch or not touch a certain level above or below its current price
Investing in exotic trades gives you the ability to use any direct knowledge you have about a certain subject. Keep in mind that a broker likely will not offer an option on a trade that it hasn’t researched extensively.
The Professional Account
Professional accounts are usually meant for sophisticated traders. These are traders who have high average account balances and keep multiple trades going at the same time. Although binary options are yes/no propositions on their own, professional traders may use them as hedges against each other. These strategies can be used quite effectively, but their misuse means the potential for huge losses.
Professional accounts also allow the highest levels of leverage. Leveraged accounts allow an investor to trade exponentially more than the account balance. Investors can lose more than the value of the account and end up owing the broker money in this scenario.
Pro investors also have access to the full range of trades. Depending on your trading style, you can participate in high-frequency trading or trading on any exotic premise your broker can dream up. Certain brokers may also offer personalized assistance with a professional account, including a concierge and access to proprietary educational materials.
Make sure that you are trading options through a reputable and properly regulated exchange. The feature set of your broker will likely affect the way that you trade.
Picking Your Type
Pick your binary options account types based on the type of trading you want to do and the size of your account. Make sure that the binary options trading software you choose executes your chosen trades properly. Although this kind of trading seems simple and transparent, there are a lot of moving parts to sync if you want a good chance of success.
Frequently Asked Questions
Q: What is the difference between options and binary options?
A: Traditional options track the price of the underlying asset closely. Binary options are known as “all or nothing” options because they offer only a binary win/lose scenario.
Q: Are binary options legal?A: Yes, binary options are legal in the U.S. as long as the exchange is regulated through the Commodity Futures Trading Commission (CFTC). Exchanges outside of the U.S. are not legally allowed to offer binary options to retail customers inside the U.S.
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