Range Binary Option explained

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Range Trading Strategy

Binary Options Range Trading Strategy

Today, we shall examine another binary options trading strategy, which is exclusively used for trading the In/Out binary option, otherwise known as the boundary trades.

A boundary option is one trade option that gives four possible outcomes, depending on the broker that you are using. The trade outcomes are as follows:

a) Ends outside the range: Here the option is in the money if the price action is outside the selected price boundaries on expiry.

b) Ends inside the range: Here the option is in the money if the price action is inside the selected price range on expiry of the contract.

c) Stays between the price boundaries, in which case, the price action should at no time, breach any of the boundaries.

d) Goes outside the price boundaries: Where the trader needs the price action of the currency to breach the selected price boundaries just once to make a profit from the trade.

This gives the binary options trader ample opportunity to decide which trade is best for him at that point in time.

Trade Setup

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The first step in using this trading strategy is to decide on the range to use. Range trading works best when the market is consolidating or in other words, when the market is trading sideways and not trending. In a trending market, rising or falling prices make it impossible to predict a price floor or ceiling, thus severely blunting the trader’s ability to profit from this trade.

The best way to detect a range-bound market is to use an indicator that shows you exactly in what direction the market is trading. One such indicator is the Bollinger band. Invented by John Bollinger, the Bollinger band has a lower band, a middle band and an upper band. The upper and lower bands show the confines of price movement in a consolidating market. Take a look at the chart below to see the illustration:

Looking at this daily chart of the EURUSD, we can clearly see that between June 10 and 1 st September, the market was range-trading. The Bollinger bands reveal the range of prices between the price floor and price ceiling.

Once you have something like this showing on your charts, use your horizontal line tool to trace two lines as shown. You now effectively have the 2 strike prices you need for your boundary trade.

Trade Types to Execute

You can now decide on which of the four boundary trade option contract types to purchase, and set relevant expiry dates. Most brokers will allow a minimum of 7 days for expiry, so make sure that the period of consolidation will at least, exceed that time frame. If you use a daily chart like we did above in this example, you will be able to get enough time to set an expiry.

Final Note

The boundary trade is not the only binary option contract that you can trade with this strategy. You can also use this strategy to trade a Touch/No Touch option contract. The bias here should be for a No Touch option contract, taking time to set the price barrier either to the upside or downside, well outside the range of prices as demarcated by your price floor and price ceiling. This way, you are sure that the price action of the underlying asset has no chance whatsoever of coming close to your price barriers.

If you need the price action to breach the boundaries, you can adjust your price barriers accordingly to make this happen.

Binary Option

What is a Binary Option?

A binary option is a financial product where the buyer receives a payout or loses their investment, based on if the option expires in the money. Binary options depend on the outcome of a “yes or no” proposition, hence the name “binary.” Binary options have an expiry date and/or time. At the time of expiry, the price of the underlying asset must be on the correct side of the strike price (based on the trade taken) for the trader to make a profit.

A binary option automatically exercises, meaning the gain or loss on the trade is automatically credited or debited to the trader’s account when the option expires.

Binary Options Outside the US

Basics of a Binary Option

A binary option may be as simple as whether the share price of ABC will be above $25 on April 22, 2020, at 10:45 a.m. The trader makes a decision, either yes (it will be higher) or no (it will be lower).

Let’s say the trader thinks the price will be trading above $25, on that date and time, and is willing to bet $100 on it. If ABC shares trade above $25 at that date and time, the trader receives a payout per the terms agreed. For example, if the payout was 70%, the binary broker credits the trader’s account with $70.

If the price trades below $25 at that date and time, the trader was wrong and loses their $100 investment in the trade.

Key Takeaways

  • Binary options depend on the outcome of a “yes or no” proposition.
  • Traders receive a payout if the binary option expires in the money and incur a loss if it expires out of the money.
  • Binary options set a fixed payout and loss amount.
  • Binary options don’t allow traders to take a position in the underlying security.
  • Most binary options trading occurs outside the United States.

Difference Between Binary and Vanilla Options

A vanilla American option gives the holder the right to buy or sell an underlying asset at a specified price before the expiration date of the option. A European option is the same, except traders can only exercise that right on the expiration date. Vanilla options, or just “options,” provide the buyer with potential ownership of the underlying asset. When buying these options, traders have fixed risk, but profits vary depending on how far the price of the underlying asset moves.

Binary options differ in that they don’t provide the possibility of taking a position in the underlying asset. Binary options typically specify a fixed maximum payout, while maximum risk is limited to the amount invested in the option. Movement in the underlying asset doesn’t affect the payout received or loss incurred.

The profit or loss depends on whether the price of the underlying is on the correct side of the strike price. Some binary options can be closed before expiration, although this typically reduces the payout received (if the option is in the money).

Binary Options and Regulation

Binary options occasionally trade on platforms regulated by the Securities and Exchange Commission (SEC) and other regulatory agencies, but most binary options trading occurs outside the United States and may not be regulated. Unregulated binary options brokers don’t have to meet a particular standard; therefore, investors should be wary of the potential for fraud. Conversely, vanilla options trade on regulated U.S. exchanges and are subject to greater oversight.

Real World Binary Options Example

Nadex is a regulated binary options exchange in the United States. Nadex binary options are based on a “yes or no” proposition and allow traders to exit before expiry. The binary option’s entry price indicates the potential profit or loss, with all options expiring worth $100 or $0.

Let’s assume stock Colgate-Palmolive Co. (CL) is currently trading at $64.75. A binary option has a strike price of $65 and expires tomorrow at 12 p.m. The trader can buy the option for $40. If the price of the stock finishes above $65, the option expires in the money and is worth $100. The trader makes $60 ($100 – $40).

If the option expires and the price of the Colgate is below $65 (out of the money), the trader loses the $40 they put into the option. The potential profit and loss, combined, always equals $100 with a Nadex binary option.

If the trader wanted to make a more significant investment, he or she could change the number of options traded. For example, selecting three contracts, in this case, would up the risk to $120, and increase the profit potential to $180.

Non-Nadex binary options are similar, except they typically aren’t regulated in the United States, often can’t be exited before expiry, usually have fixed percentage payout for wins (whereas Nadex payouts fluctuate based on the price paid for the option) and may not trade in $100 increments.

Learn To Maximize Profits With Binary Options Explained

Welcome to Binary Options Explained, your one stop source for everything you need to know about an innovative way to trade the markets.

We believe that information is power and if you are looking for the power to trade binary options smartly, you’ve certainly landed at the right place.

Our site is loaded with all the information you need to trade binary options with simple, down to earth explanations minus any high tech jargon. This is where you will not only learn the fundamentals of binary options trading but find credible brokers, get access to loads of tips and free strategies, and lots more.

Binary Options Trading – A safe and easy trading option

It is important to understand what binary options is all about and how it works before you begin trading.

Many people shy away from this type of investment because they are misinformed or lack knowledge about it. However, they could be missing out on some profitable trades.

So let’s begin with a brief on what is binary options trading. Have a look at How to Trade Binary Options section to learn how to trade options.

    It is an investment vehicle that is the easiest to learn and understand. It’s that simple. The goal is to determine whether the value of a particular asset such as stocks, gold, silver, currencies, commodities and more will rise or fall within a specific period, which could be 60-seconds, 30-minutes, hourly, daily, weekly or monthly. If you don’t determine correctly you lose your investment while you stand to gain between 60% and 130% or more if you make the right call. For this reason, it is also known as All or Nothing options.

Easy Steps To Binary Options Trading

Binary options trading is one of the easiest ways to trade online, whether you are a beginner or an experienced investor.

There are three steps to each trade, which you can learn to follow and turn in a profit.

    The first step is to choose a good broker that trades in a variety of assets such as stocks, Forex, commodities, indices and more. Next is to select the expiry time (duration) of the contract. This can range from 60 seconds to an hour, a day or a week. The third step is to determine whether the value of the asset will move above or below a specified value and select the Call or Put option. If it is your first time it would be prudent to start small with $100 until you get a feel of the market. Choosing the direction an asset’s value will take is all you need to do in this type of trading. If you make the right choice you have the opportunity to earn returns of 70% to 95% and more, depending on the type of trade.

Why You Need To Find The Best Trading Account

Binary options trading opens you to a whole new world of fast paced trading. Most importantly, it can be used in various ways across a huge spectrum of markets and commodities. Therefore, it is prudent to find the best trading account to suit your needs as an investor.

    Some brokers focus on currency pairs (Forex) or commodities options or may limit the number of markets. Payouts may vary between asset classes to as much as 25% or more, which is another factor to consider when selecting a trading account. Investment limits also vary from as little as $1 per trade to thousands of dollars. So make sure to consider your budget and trading needs before you open an account.

The good news is that most brokers allow traders to open demo trading accounts. This is a great way to check if the range of markets and commodities and investment potential suits your style.

Find a list of credible binary options brokers with demo trading accounts right HERE.

Compare The Best Brokers At Binary Options Explained

Our experts are always hard at work sorting out the best binary options brokers that offer an array of services across the USA, UK, Europe and Asian markets. They touch upon a number of key comparison points that include and are not limited to:

    Licensing and regulation Trading platform reliability Payout percentages Minimum deposit permitted Variety of assets offered Available expiry times (60-second, 30-minute, hour, day, week, month etc) Bonus offers Minimum and maximum trade limits Types of options (Call/Put, Touch/No Touch etc) Availability of demo accounts Tutorials Banking methods, and lots more.

Benefits Of Binary Options Trading

If you are looking for a good start to trading there is no better way to gain an understanding of the markets than with binary options trading.

To begin with, it’s a simple and easy way to trade. You only need to predict the direction of an underlying asset over a specific period and wait for the expiry of the contract to determine if you have won or not.

Transparency: Binary options is one of the most transparent forms of trading where you know exactly how much you win or lose right at the beginning. The maximum you lose is only your initial investment.

Fast trading: The major feature of this type of trading is the pace at which trades are transacted. Short term trades range from 30/60-seconds to an hour, a day or more.

Significant payouts with high reward to risk ratio: The returns between 70% and 130% or more make it one of the most lucrative short-term trading options. If you invest $100 on a trade and the broker offers 90% returns, a winning trade will result in you getting your initial investment of $100 back in addition to $90 more.

Limited risk: The risk is limited to the amount you invest. However, most brokers offer a rebate between 10% and 15% on losing trades.

Why choose us

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Binary Option Trading Explained

Also known as digital options or fixed-return options, binary options belong to a special class of exotic options in which the payoff is either a fixed predetermined amount or nothing at all.

For the common high-low binary option, the trader buys a binary call option if he thinks the price of the underlying asset will go up above the current market price or if he thinks the underlying asset price will go down, then he will buy a binary put option. If his assessment is correct, he will receive a payout. Otherwise, he loses the initial investment.

As binary options have fixed returns, it doesn’t matter how high or how low the price of the underlying has moved past the strike price. The payout is also fixed and known prior to entering the trade. Also important to note is the fact that the payout for a successful binary trade is usually only about 70% to 80% of the investment put into the trade.

Binary options also typically have very short expiration times ranging from as fast as 60 seconds to just a few weeks.

Example of a Typical Binary Option Trade

A binary options brokerage is offering 85% payout for the binary call option on EUR/USD which is currently trading at $1.30.

After tracking the price movement of EUR/USD for the past hour, a binary option trader believes that the price will rise over the next 5 minutes and decides to invest $100 to purchase a binary call option on EUR/USD expiring in the next 5 minutes.

If EUR/USD goes up to say $1.31 five minutes later, the investment pays off and the traders earns a profit of 85% of his initial investment, which is $85.

However, if the price of EUR/USD drops down to say $1.29 instead, the trader will have lost his initial investment of $100.

Note that it does not matter whether the price of EUR/USD skyrocketed up to $1.40 or flash crashed below $1.00, both the profit and loss will be fixed at $85 and $100 respectively.

Continue Reading.

What are the Main Types of Binary Options?

Learn how the One-Touch, No-Touch and Range/Boundary binary options differ from the common high-low viety and how to trade them. [Read on. ]

What Assets can be Traded using Binary Options?

Many of the most popular financial instruments such as currency pairs, equities and commodities are available to trade using binary options. . [Read on. ]

Binary Options: Trading or Gambling?

Is binary option a legitimate financial instrument or just another form of gambling. [Read on. ]

Binary Options & Trading Robots: A Perfect Match?

Unlike humans, robots have no emotion and do not need to rest, so they can make a lot more trades than humanly possible, combined with perfect consistency. [Read on. ]

Is Binary Options Trading a Scam?

Learn how you can get scammed when trading binary options if you are not careful. [Read on. ]

How to Select a Binary Options Broker?

With so many scam brokers out there, before you learn how to trade, one must know how to separate the wheat from the chaff and find a trustworthy binary options brokerage. [Read on. ]

Binary Options: Calculating Breakeven Win-Rate for a Given Payout

How often does my trades need to be successful in order to be consistently profitable in the long run when trading binary options. [Read on. ]

Best Binary Options Brokers 2020:
  • Binarium
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  • Binomo
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