Pros and cons of binary options

  • Easy to set up

  • High potential return

  • You could make a profit fast

  • It is gambling

  • Losses can exceed any profits

  • You could lose money fast

Binary options companies do not charge you for making a trade, or charge a commission for using their platforms. Instead, they make a profit from the losses you make on trades.

Choose an account

You need to open an account, before you trade in binary options. To choose the right account, think about:

  • What the potential payout is

  • How much you want to trade at one time

  • How much you need to deposit to open the account

Open the account

When you have found an account, visit the company's website and register with them. You will need to give:

  • Your personal details, e.g. name and date of birth

  • Your contact details, e.g. address and email address

  • Your bank details, e.g. sort code and account number

Most companies ask you to make an initial deposit before you can start trading in binary options, such as 100.

Make a trade

To trade in binary options, you need to choose:

  1. An asset to trade: Such as gold or shares in a company

  2. A time limit: This is when your trade will end

  3. An amount to trade: Any profit you make will be a percentage of this

You then get to choose from two options:

  • Call: If you expect the market to go up

  • Put: If you expect the market to go down

You are then offered a potential return based on your trade, e.g. 180%. If you are right, you earn an 80% profit, if you are wrong you lose the money you traded.

You could cancel, or sell your trade before the time expires for a partial pay out, but not all companies offer this feature.

Binary option trade example

  • You want to trade on the currency pair EUR/GBP, when the rate is 1.29

  • The potential pay out is 78%

  • You trade 100

  • You choose a duration of one hour

Here are some potential outcomes after one hour, if you were to call and put based on the binary option trade above:

Call option

Rate at end of tradePay outProfit/loss
1.200-100%
1.280-100%
1.291000%
1.3017878%
1.4017878%

Put option

Rate at end of tradePay outProfit/loss
1.2017878%
1.2817878%
1.291000%
1.300-100%
1.400-100%