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Binary options trading has surged in popularity over the past few years but there seems to be a lack of quality information for binary options traders looking to take advantage of the potentially high returns over short time frames binary options trading promises. The following guide is an independent look at the binary options market as it stands today and a useful manual for anyone considering trading binary options. From choosing a binary options broker to implementing various binary options strategies “The Essential Guide To Binary Options Trading” has it all. Also don’t forget to sign up for the FREE Binary Options Trading Course for updated strategies, hedging tips, trading recaps, and updated catalyst catcher event calendars, delivered free of charge to your inbox. Sign-up box located immediately to the right.  Enjoy and Happy Trading!

Selecting a Binary Options Broker

There are many binary options brokers available to choose from, all with varying features to appeal to different types of traders. The decision you ultimately make will likely depend on factors such as: assets available to trade (equities, commodities, indices, forex, etc.), minimum trade/deposit amounts, and advanced functionality amongst others. Derivstrategies endorses the following 4 binary options brokers: EZTrader, OptionBit, StartOptions, and Anyoption, as they all offer something unique from a value proposition. We suggest binary traders sign up for all 4 platforms.

Now you may be asking yourself why should I sign up with all 4 of these binary options brokers? Well to begin it’s free, so there really is no downside in registering. But more importantly, the brokers listed above typically offer significantly higher deposit bonuses than advertised on their sites for registered members. For instance, a few months ago I signed up with EZTrader to test out the platform and get comfortable with the functionality. The stated deposit bonus on the site was $100 for every $500 deposited. 20% is nice, but do you know what is much nicer than 20%……….45%! Within a week of signing up I got an email from my EZTrader account manager offering a $250 deposit bonus for an initial deposit of $550, much higher than the stated bonus on the website. The thing is you are never going to receive these types of deals unless you register, so go ahead and register and wait for an attractive deal before depositing your funds. We provide a summary of the 4 binary options brokers with a link to a more detailed review below:

EZTrader: Most known for its generous deposit bonuses and largest selection of binary option contracts based on US based stocks.

Click here for a detailed review of the EZTrader Trading Platform.

OptionBit: The lowest cost binary options broker on the market. Deposit as little as $50 and trade as low as $10 per contract.

Click here for a detailed review of the OptionBit Trading Platform.

StartOptions: Offers beginning binary options traders access to a free practice account to hone their binary trading skills.

Click here for a detailed review of the StartOptions Trading Platform.

Anyoption: The platform with the most advanced trading functionality, Anyoption returns 15% of capital traded for losing trades.

Click here for a detailed review of the Anyoption Trading Platform.

Employing an Asset Direction Strategy

Whether you are a chart technician or fundamental researcher, being able to predict the direction a given asset is going to move in very short time frames with accuracy in excess of 50% will help you tremendously in your binary options trading activities. There are several systems out there to choose from in terms of reading charts and researching companies. While we are clearly not experts in the underlying asset movement prediction game, we have found a free resource from our friends over at OptionsUniversity to be extremely useful in helping predict stock movement in short time frames. OptionsUniversity’s “Candlestick Secrets” explores candlestick charting techniques and explains how to utilize the techniques to pinpoint market turns — a very useful skill to have in binary options trading. Click HERE to receive your free copy of Candlestick Secrets along with a set of strategy flash cards and unlimited access to the online Candlesticks web tutorial.

For those seeking a more thorough, detailed binary options trading system you may want to consider the Striker9 binary options trading system, the first trading system designed specifically for binary options traders. The Striker9 system is advertised as producing winning binary options trades at over 80% and up to 90% of the time. There are currently 2 versions of Striker9: a Full Pro version (priced at $1,997) and a Lite version (priced at $197). Check out the Striker9 binary options trading system via the links below:

Striker9 Pro the Full Version Retails for $1,997

Striker9 Lite Retails for $197

Another tool we use to help predict asset direction for our binary options trades is the Binary Options Trading Monitor. The Binary Options Trading Monitor highlights traditional options trading of the underlying assets currently available on the leading binary options trading platforms. With a focus on short-term activity, binary options traders can use this intelligence to gauge stock sentiment and help assess potential stock movement in the coming weeks. A sampling of trades highlighted on the Binary Options Trading Monitor can be seen at the links below:

GE call buying and VIX put buying highlighted in today’s Binary Options Trading Monitor

JPM call buying and SLV put buying highlighted in today’s Binary Options Trading Monitor

Developing and Implementing an Effective Binary Options Strategy

Now that you have registered with a few binary options brokers and have selected an underlying asset direction strategy it is time to get down to the business of developing and implementing an effective binary options strategy. At the core of your binary options strategy should lay these 3 key tenets:

1. Focus: Concentrate on a handful of names and learn how they trade on a day in, day out basis. Getting to know your names on a more intimate basis should help you immeasurably in recognizing patterns and ultimately predicting direction.
2. Risk Management: Don’t risk more than you are willing to lose. The underlying characteristics of binary options trading (~70% gain for winners, ~85% loss for losers) clearly are not stacked in the binary trader’s favor. Thus properly sizing your trades is of utmost importance when seeking to become a profitable binary options trader.
3. Trade, Trade, Trade: A lot of new binary options traders look at the 70%/-85% split and convince themselves there is no way to win with those odds. These traders are not looking at the big picture. No one says you have to just trade once and then live and die with the result of that one initial trade. On the contrary, we suggest placing 1 or even 2 more trades on the same asset before expiration to construct a payout diagram with much better risk/reward ratios.

The most common 2nd trade hedge used in binary options trading is the one in which you first purchase a put or call, then if the stock moves in the correct direction you purchase the opposing put or call to lock in a “money zone”. This is illustrated in the graph below:

As can be seen in the graph, we first bought an Amazon (AMZN) call with a strike of $125 at 11:10 am. With shares of AMZN looking pretty volatile we decided to purchase an AMZN put with a strike of $126 immediately before the “lock-in” time of 11:45. So what does that do to our risk profile? No longer are we constrained by the [+70%, -85%] return profile, we now make 70% with shares of AMZN trading between $125 and $126 and lose 15% with shares of AMZN trading anywhere outside of that range. While the area of “moneyness” seems small, the risk of losing big has been significantly diminished.

The key to profitably trading binary options is knowing when to be aggressive (letting it ride) and knowing when to cut your losses and live to fight another day (place another trade).

Another alternative binary options strategy would be to purchase the complementary put or call using a lot size that is smaller than the original lot size. For instance say you initially purchased the AMZN $125 strike call for $100 and it is now 11:44 and shares of AMZN are trading for $126 like in the previous example. Instead of spending $100 to purchase the put hedge, what would spending $50 for the put hedge do to your risk profile? Let’s take a look:

As you can see, your max potential loss has increased in this alternative hedge structure (-33% vs. -15%), though still much lower than the basic 1 trade option max potential loss of -85%. In return for the increase in max potential loss, the area of profitability has widened significantly to include everything above the initial $125 strike. With shares of AMZN trading between $125 and $126 you would make $105 (70%) and with shares trading above $126 your total return would be $28 (19%). There are many ways to alter your risk profile by changing the lot size of the complementary trade. The goal is to find the profile most appropriate for your risk tolerance.

Utilizing the Binary Options Weekly

As mentioned earlier, we’ve published a trading course covering all items of importance for binary options traders. The Binary Options Trading Course is a FREE trading course preparing binary options traders by providing fresh binary options strategies, insightful binary options market commentary, key macro and stock specific catalysts on the calendar, trading recaps, and tips to boost your trading returns. A sampling of a few of the lessons is included in the links below. Sign up today by providing your name and email address in the Binary Options Trading Course signup box in the upper right corner.

Binary Options Weekly: How To Hedge Your Binary Option Positions

Binary Options Weekly: Risk Management of Losing Trades

Binary Options Weekly: A High Probability Options Expiration Strategy