Featured Broker: ETX Capital - solid all rounder, tight spreads, charting & technical analysis (read review)
Compare Top UK Binary Options Brokers
Our binary options broker comparison tables show all the key information you need to know when opening a binary options trading account.
Compare the best binary option companies, accounts, platforms and welcome offers.
Created with Compare Ninja
How do binary options betting work?
Binary options are a form of speculating on financial markets. They a short term limited risk product that can be utilised to bet on short term price movements in indices, foreign exchange and fixed income markets.
They are described as binary options are there is only two possible outcomes, either an event happens where the bet closes at 100 or the event does not happen where it closes at 0.
A binary options broker will quote a price in between 0 and 100 based on what they determine to be the probability of the outcome. There will also be a spread between the buy and sell prices. The time scale of binary bets normally ranges ranges from 1 to 60 minutes but can in some circumstances be much longer.
An example of a binary bet would be in the FTSE would be as follows.
- The FTSE is trading at 6650
- The time scale is 5 minutes
- The binary option price is 6655
- The broker quotes 80 to 85 that the FTSE will still be above 6650 in five minutes time.
- If the FTSE is above 6650 the the bet closes at 100 if below at 0
- If a client buys at £1 @ 85 and the price is above the client makes £15 (£1 x 15 points)
- If the price is below the client loses £85 (£1 x 85)
The quotes are all based on trend and probability and generally all generated by computer algorithms. As the time scales are generally so short these is little time for human interaction from the brokerage side.
What are the risks and rewards?
One of the benefits of binary options trading is that your losses are limited to between 0 and 100 points based on your stake size. However, it could be classified as a high risk low return bet because the odds will never be in a customers favour. For instance, if an event looks probable the reward will be considerable less then if the market reverses. Inversely, if a customer were to always bet on higher risk side the risk reward ration is reversed. For example if a binary betting bookie is quoting 5-10 because an event seems unlikely and a customer buys at 10 and the market reverses then the potential profits at 90 points. However, this is generally an unlikely event. You can learn more about binary options trading here.
There is also a spread between the buy and sell price, which could be described as the binary option brokers edge. This is of course only true if all client bets net off against beach other. In reality binary options is really fixed odds betting so the brokers make money when clients lose money.
Puts and calls?!$#!!
Puts and Calls are the terminology used in traditional options trading. Binary options has been derived from options so the terms still loosely apply. A call is simply the right to buy meaning you think the market will go up if you are a buyer. A put is the reverse i.e. you think the market will go down and you have the right to sell.
With binary options it is much simpler, you either pick yes or no to an event and the prices settles when the time expires. Some brokers use the phrases put and call to make the product sound more professional. For binary options education see here.
Is it investing or trading or betting or what?
Firstly, binary options is certainly not investing. Because of the absolute nature of the product it can hardly be called trading either. The most appropriate label would be betting. Binary options are a form of betting on an event either happening or not happening.
The regulation of binary options brokers
There is some confusion in the industry as to who actually should regulate binary betting. Most binary options brokers seem to be located in Cyprus and use variants of the local Cyprian authorisation to operate in different domains. It is expected that at some point binary options betting will be regulated in the UK by either the FCA or Gambling Commission.
Binary options welcome bonuses
These are fairly standard across most binary betting brokers. Binary options welcome bonuses generally work on getting a percentage of your initial deposit as a bonus once you have placed a certain amount of trades or bets.
For example a 100% bonus on a £100 initial deposit would result in getting a further £100 in bonus funds. There are of course the usual terms such as not being able to withdraw bonus amounts and a time limit to claim them. In order to claim you will have to bet an equal or greater amount that you will be receiving so take them with a pinch of salt.
Can you actually make money binary options?
As with any financial product binary betting is there as a mechanism to speculate on price movements. Whether or not you make money is totally dependent you your ability to predict the financial markets. So the answer is yes you can make money if you call the market right. You can also lose money if you call it wrong. Even though binary betting is predicated on either yes/no outcomes it should be noted that the odds of winning are not 50/50.
The odds will always be stacked against you. Even though there is an element of skill involved when comparing it to online gambling it is more like online poker than an online casino.
Converting currency and forex hedging
If you don’t want to speculate on the markets using binary options, but just want to convert one currency to another and send it abroad you need a currency broker. You can compare the top ten forex brokers for speculating or see the difference between a forex broker and a currency broker here.
Top Four Spread Betting Brokers
Created with Compare Ninja