The Method I'm Using To Trade Binary Options in 2023

Many of you already know me and know I'm a pretty awesome option trader.

I get incredible returns year after year.

But I didn't start out as a great trader, it took time and effort.

So to get this discussion started on binary options, I'll let you know I'm not an expert yet.

I'm still on a steep learning curve. So let's talk about my journey so far trading binary options!

As many of you know, I teach a lot of high school and college kids about trading in the market, but sometimes they're the ones teaching me.

The option world is constantly in flux.

Think of the last 13 years and all the nuances of trading that have come along.

When I started trading, there were only options which expired once a month on the third Friday of each month.

Then there were weekly options.

Not long ago, some of the indexes added options that expired three times per week.

And more recently, we have options expiring daily on more and more of the highly traded indexes.

In one of my classes, a student raised their hand and asked me to explain binary options.

Between you and me, I had no idea what to tell them because I knew very little except they had appeared on the scene, and were popular with the kids.

What I told them is we would cover it in the next class the following week.

Then I went home and I put my nose to the grindstone so I would sound somewhat intelligent in the next class.

I even started trading a few so I could experience how they worked.

What I'm sharing with you now is what I've learned about binaries.

And at the end, I'm going to issue a warning so stick around.

First, a binary option is a type of an auction contract in which the path depends entirely on the outcome of a yes no proposition - "Yes, I'm in the money" or "No, I'm out of the money" at least on the surface.

Binary Options are structured just like $100 bet on a sports team.

You buy the team you like and you sell the team you don't like.

A binary is just a simple yes or no trade.

The yes trade means you agree with the binary statement, for example, that the market will reach a certain level before expiration

The no means you disagree.

The pricing of a binary is between zero and $100.

The big difference between binaries and standard PUT and CALL contracts is the payout is either $100 or nothing at all.

You either win 100% or you lose 100%.

Hence the binary.

Unlike a bet on a sports team or horse race, where the underdog receives the better off the binary has a multitude of strike prices.

They have a variety of odds based on the current price of the underlying stock.

The cost depends on the strike you choose. The closer to at the money the higher the premium you pay.

It's like betting on the favorite to win in a horse race.

The favored betting odds are much lower.

Therefore the payoffs lower.

It is the least favorite horse who has the higher odds and the greater payoff if they win.

The same in binary options.

You could go way out of the money to buy your strike and pay just let's say $20.

And if you win you still get just $100 but the game is 500%.

If you buy something at the money, you're going to pay a lot more for that strike.

And the payout will still be just $100 which makes your percentage gain less.

Many binary options are traded outside of the US and are not regulated.

My advice is to stay away from them.

However in the US there are exchanges offering binary option trading, which are regulated by the Commodity Futures Trading Commission.

The NADEX is the first and largest of these as opposed to regular option trading.

It's possible to open an account for a very small amount - $250.

This is one of the reasons kids are trading binaries - their investment is smaller.

I opened my account for $1,000 and I now have a current balance of $1,760.

The greatest skill you need to trade binaries is the same one I emphasize in trading the market - learn how to anticipate market movements and understand candlestick charting.

So how do you trade binary options?

Well, I'm going to give you five easy steps.

How to Trade Binary Options

1) Know the Market Trends

2) Pick The Market You Want To Trade

3) Select a Strike Price and Expiration

4) Place Your Trade

5) Wait for the Expiration or Close Out Your Trade Early  

Consider the following tips for success in trading binary options.

Rules For Trading Binary Options

1) Do Not Risk Large Sums Of Money

2) Choose on asset to focus on instead of multiple assets

3) Study the news as it relates to your asset

4) Diversify your trades with various types of binary options

I'm still learning this skill set.

I told you in the beginning I was going to give you a warning about binaries.

Well, binary trading uses a lot of the same language as standard option trading, but they have slightly different context and meaning.

Binaries are risky. So practice, practice practice before jumping in with real money

At Investing Buddies we don't teach what we don't thoroughly understand ourselves. Binaries are something new for me, but give me six months of steady practice in all kinds of markets and I'll be ready to go.

I'm sharing this information now because I think it's important to be aware of the entire realm of possible trading styles. If I get really good at trading binaries, we probably will add them to our curriculum later this year.

In the meantime, you should check out all the Investing Buddies education. We're really good at what we do, but honest and upfront about what we don't know.

You will love our educational pathway because the pathway to success if simple and clearly laid out for you. 

Click HERE to take our options trading quiz and see where you are in your pathway to trading success!