Binary Options Trading

What Are Binary Options?

Traditional binary options are a type of financial contracts where the outcome is binary: your either profit and get a pre-defined payout or you lose the entire stake. The traditional binary option is based on a simple yes-or-know question, regarding the price of an underlying asset or product. For classic High/Low binary options, the question is: will the price of the underlying thing be higher (High Option) or lower (Low Option) than a certain point when the option expires? With a traditional binary option, there’s no sliding scale of results. If your prediction is correct at the moment the contract expires, you get a fixed return. If not, you lose the entire amount you staked. For readers who want more background before diving deeper, Binary Options Net offers detailed explanations and educational material about how these contracts work in practice.

Today, it is also possible to find non-traditional binary options online, and they can work quite differently than the old-school binary options. The popularity of binary options trading caused the trading platforms to branch out and create many different types of binary options, so it is important to really know the terms and conditions of the contract you are interested in before you put any money at risk. Some contracts marketed as binary options does not even have a binary outcome; they are just called binary options even though losing only part of the stake or earning only part of the full payout is possible in addition to losing it all or getting paid in full.

Binary options are a type of derivatives, but they are not traded on the open market

Just as with other derivatives (e.g. futures and forwards) binary options contracts don’t involve buying or selling the underlying asset. You’re not taking ownership of 100 shares in Apple or 10,000 units of Canadian dollars. You’re only placing a time-limited bet on how the price of the asset will develop.

How a Traditional High/Low Binary Option Works

Each trade begins with you picking an underlying asset or product, such as the price of WTI crude oil, the world price for gold, or the S&P 500 index.

You then set an expiry time, which can often be anywhere from 30 seconds after confirming the purchase to several hours into the future, or even longer, depending on the platform.

You must also decide how much you want to risk, and make the directional call, before confirming the purchase of the binary option. Now, all you can do it wait until it expires, to find out if you will get paid or lose it all. If you’re right when time runs out, the platform pays you the fixed percentage return. If you’re wrong, the stake is gone.

Example:

1. You pick gold as the underlying asset.
2. You set the expiry time at 30 minutes after purchase.
3. You enter how much you want to risk: $100. For this binary option, the payout is 80%. It means that if your prediction comes true, you will get your stake back ($100) + an 80% profit ($80).
4. The question is: Will the gold price be above or below the current price of 3,337 USD per troy ounce when the option expires? You believe it will be higher, so you pick High as your direction.

Now, you just wait. With a traditional binary option, there is nothing to do once the option has been purchased. You can´t place a stop-loss or take-profit order.

After 30 minutes, the option expires. If the gold price is now above 3,337 USD, you get $180. If it is not, you lose the $100.

The return is always fixed before you purchase the option, and how far the price moves in your favor doesn’t matter. The gold price could go through a record breaking rush and reach 4,000 in half an hour, and you would still only get your promised $180.

What if the gold price is exactly 3,337 USD per troy ounce when the option expires? How this will be handled vary between the different platforms. Make sure you check the terms and conditions of the option before you make a purchase. With some, you get your stake back (but no profit). With others, you lose your stake, since your prediction was Higher and the price was not Higher.

Timing and Final Price Are Everything

With a traditional High/Low binary option, everything depends on the expiry moment. What happens before that doesn’t matter. The price can move wildly during the contract, but only the closing value at expiry decides the outcome.

This setup favors precise timing. You don’t need the market to trend far, you just need it to cross a specific line, and you need it to be on the other side of that line when the option expires. That makes binary options highly sensitive to market noise and random price fluctuations, especially when the lifetime of the contract is ultra-short. Being generally right isn’t enough. You can predict a market direction correctly but still lose if the move comes too late or too early. There’s no reward for being close.

If you don´t like this particular set-up, other binary options are available. They are not as common as the traditional High/Low options, but they do exist and many platforms offer them for a wide range of underlying assets. One example is the Touch Binary Option. With this option, the underlying price only has to touch the per-defined price level at any time during the lifetime of the option for you to get paid. It is a good choice in a volatile market where you believe the price will go up or down by a certain degree soon, but are unsure about where it will be exactly in the moment when the option expires.

Known Risk, Fixed Outcome

One feature that draws traders to binary options is the clear structure, especially for the traditional High/Low binary options. Before you place a trade, you already know what you stand to gain and what you stand to lose. There are no surprise fees, no sudden changes in margin, and no partial losses. You don´t have to make any decisions once the position has been opened, which means you can not fall prey to fear (and close a position prematurely) or greed (and keep a position open for too long). All this inflexibility can make money management easier, at least in theory. In reality, it also makes risk management more difficult, e.g. because you can´t use stop-loss orders to cut your losses, and you can´t close a position early to realize a profit if you sense that the market is about to take a turn for the worse.

With a classic binary option, the math is simple and there are only two possible outcomes. For some traders, that’s part of the appeal. But it also means there’s no flexibility once a trade is active. You can’t close early, change your position, or scale out. All aspects of the trade are locked in from the start.

No Ownership

As mentioned above, binary options are derivatives They are only used for speculation, and they are typically short term or extremely short term. You’re not investing in the long-term performance of a company (buying stocks), lending money to a government (buying government bonds), or betting on the overall strength of a currency in relation to another one over time (forex investments). If you actually buy and own stocks you could get voting rights and possibly also dividend payments. If you bought bonds, there would be interest payments. But, with actual ownership also comes ongoing exposure to market risk. With a traditional binary option, each trade is self-contained and ends fairly quickly, at the predetermined time, resulting in either a profit (of a predetermined sized) or a loss (of a predetermined sized), based only on the decisions you made at the time of the purchase.

Binary Options Tend to Be Short-Term

While it is technically possible for a broker to create a binary option of any length, most binary options platforms and binary options traders focus on short term and very short term contracts. It is not difficult to find platforms where you can set your binary option to expire 30 seconds into the future, which is extremely short term even by day trading standards.

The short lifespan of each investment can make binary options trading feel more like a rapid-fire decision process than a slow, calculated investment strategy, and that is actually part of the attraction for many traders. It removes the waiting, the complexity, and the deep analysis. But it also encourages impulsive behavior and makes it easy to lose control of your risk. If you have any history of problematic gambling, this type of short-term financial risk taking can trigger bad behaviors, even if we call it “trading” instead of “gambling”.

Binary Options Brokers

The term binary options broker can cause confusion, because a standard binary options broker for retail traders will not connect you to a market where you will trade against other traders. Instead, the binary options broker will both give you access to the trading platform and be your counterpart in each trade. When you win, the broker loses, and vice versa. Your broker controls pricing, trade execution, expiry calculation, and payout structure.

This configuration is not unique to the binary options world; there are many stock brokers, forex brokers, etcetera who act as market makers by being the counterpart to their client´s trades. The difference is that if you are trading stocks, forex, etcetera, you don´t have to use this model if you don´t want to, because other alternatives are available. You can for instance pick a broker that will route your orders directly to third-party liquidity pools.

How Binary Options Brokers Make Money

Traditional stock brokers, even the ones who act as market makers, tend to earn a majority of their money from spreads and/or commissions. Binary options brokers earn money primarily through your losses. When you lose, they keep your stake. When you win, they pay out from their own balance sheet.

Example: When you stake $100 on a binary option and lose, that $100 goes to the broker. When you stake $100 on a binary option and win, and the broker pays out $180, they’re giving you back your $100 stake plus an $80 profit. That $80 comes from the broker. You did not profit by selling something to another trader.

Binary options brokers never pay full 100% profits on winning trades. Typically, they offer contracts where the payout is in the 70%-90% range, which means you are are risking $100 to win $70–$90. Each time you lose, you lose 100% of the stake. Each time you win, you profit considerably less than 100% of the stake.

The house edge means you need to win considerably more than 50% of the time to simply break even. Since there is such a significant house edge built into the very structure of the binary option, many binary options brokers are very eager to encourage high-volume trading, even for novice retail traders. Statistically speaking, the more trades you make, the more this mathematical edge plays out in their favor. This is why you often see brokers encouraging frequent trading through bonuses, bonuses with a high turnover requirement, trading contests, time-limited promotions, and get-rich-quick schemes.

Platform Design and Control

Binary options traders typically have their own proprietary trading platform (sometimes a white label solution). This give them increased control and makes it even more difficult to find someone to complain to if the broker turns out to be shady.

The broker controls every aspect of the trading environment:

• Price feed
  Brokers can use external data feeds or aggregate pricing in-house. They can manipulate prices in small ways that are difficult to detect, and even more difficult to prove. With binary options, even small discrepancies can swing a trade all the way from 80% profit to 100% loss for the trader, so a shady broker does not need to adjust prices by much to prevent you from getting that big win.
• Strike price The strike price can be rounded or adjusted slightly from what the live chart shows. This routine can even be included in the terms and conditions.
• Expiry time
  Once the trade is active, the countdown begins. The broker controls the countdown and what price is recorded at that exact moment.
• Payout ratio
  The fixed return percentage for a winning trade is called the payout ratio. This varies by broker, asset, and market condition.

Trade Execution

When you click to place a trade, there may be a delay, sometimes a full second or two, before the order is confirmed. In fast-moving markets, this matters. If the price spikes or drops during that gap, your entry can land at a worse level than you expected. This is called slippage, and while it’s common in all markets, binary options give no room to recover from it, and with a traditional binary option, you can´t decide to exit the trade early to minimize the damage.

Some brokers apply a buffer or delay intentionally to prevent certain strategies, like scalping or bot trading. Others simply don’t have the infrastructure for faster execution. Either way, traders need to account for the fact that the timing might not be exact, even when the interface looks fast.

Features Can Vary A Lot Between Brokers

Brokers aren’t identical. Some are for instance geared towards trading strategies based on fast and frequent trades, while others offer longer lifespans and higher ceilings Some have more asset choices, and some have a larger variety of different binary options, e.g. Touch, No-Touch, Rage, and Ladder.

Here are a few examples of features that are good to compare before you pick a broker.

• Minimum trade size
  This is usually between $1 and $50, depending on the broker. If you start out with a small bankroll, as most of us do, it is important that you can make very small trades. Otherwise you will be putting to many of your eggs in the same basket.
• Expiry range
• Most brokers offer contracts lasting from 30 seconds up to several hours. If you want longer or shorter than this, your selection of brokers will be smaller.
• Trade types Some brokers offer only high/low binaries. Others include other types in their selection, such as one-touch, no-touch, range, and ladder options.
• Early close
• Some platforms allow traders to close a trade before expiry, usually at a reduced payout and only during certain conditions. It makes it possible to include a rudimentary form of stop-loss / take profit routine in your trading strategy.
• Rollovers and doubling
  Some brokers will allow you to extend a losing trade (rollover) or double down on an open position (doubling).
• Demo accounts
  Free Demo Accounts are useful for practicing and seeing if you like the platform. Only some brokers offer them.
• Account levels
  Some brokers have a tiered account system. The higher tiers are usually tied to higher deposits and higher turnover. Such accounts can get various perks, such as higher payouts on certain options, faster withdrawal processing, and better deposit bonus conditions.

The quality and usefulness of the various features vary. Some are genuinely helpful and may align well with your particular trading strategy. Others are distractions or gimmicks meant to keep users engaged and trading more often, or entice a person to pick a certain broker even though the broker´s overall offering is far from stellar.

Deposits and Withdrawals

Binary brokers often accept deposits via cards, bank transfer, mobile payments, and e-wallets. Some even allow cryptocurrency transfers.

The funding process is usually fast. Withdrawals tend to be slower and often come with additional steps and conditions, such as identity verification, withdrawal processing fees, and minimum withdrawal limits that are higher than the minimum deposit limit.

Bonuses

Bonuses are common. These are usually deposit-matching offers, giving you more to trade with. Many binary options brokers will give you a big bonus on your first deposit, and then smaller bonus offers now and then to entice you to make additional deposits. They know when your account balance is low or when you haven´t traded in a while, and will send you offers to entice you back.

Bonuses come with strings attached, and the terms and conditions can be both arduous and opaque.

Many bonus offers require the trader to hit a certain trade volume (e.g. 30x the deposited amount) before withdrawals are allowed. In some cases, accepting the bonus locks the entire account, preventing any withdrawals until the specific terms are met. This means it is not only your bonus money that are locked; your deposited money and any profits are locked as well.

Always check the terms before accepting a bonus. In many cases, it’s better to decline the offer, especially if the broker doesn’t clearly explain the conditions.

Pricing Transparency

Because binary options don’t go through centralized exchanges, there’s no public pricing log. Traders can’t verify expiry prices against a standard feed. You have to trust that the broker’s price feed is accurate and fair. Some brokers publish their data sources. Others don’t. And even among those that do, the execution price and the chart price may not match perfectly. This disconnect becomes especially important on short-term trades of a binary nature, where a single pip or cent can flip the result.

In practice, any dispute over a close call, such as a trade that finished just on the edge of profit or loss, tend to come down to your claim vs. what the broker says the price was, and you can´t strongarm the broker to agree with you. If the broker is not licensed by a strict financial authority (and it is probably not, because they tend to stay away form retail binary options brokers), recourse can be difficult. You can bring the case to the police (for fraud) or open a civil suit, but successfully going down these routes tend to be difficult if you have picked a broker that is operating from a lax jurisdiction on the other side of the world.

Regulation

Many of the stricter financial authorities known for strong trader protection have banned brokers from selling binary options to retail traders (non-professional traders). Typically, the bans are constructed to target the brokers, not the traders. In many of these countries, a retail trader who uses a foreign binary options broker is not breaking the law. However, if you chose this path, it can be very difficult for your national authorities to help you if something goes wrong, since you have picked a broker that is based outside their jurisdiction. International cooperation between authorities can also prove complicated when traders pick brokers who deliberately base themselves in countries with a lax attitude towards online trader protection.

How Binary Options Brokers and Binary Options Trading Are Regulated

It Varies A Lot Between Different Jurisdictions

Binary options regulation vary a lot between different countries and jurisdictions.

• In some countries, binary options are treated as legitimate financial instruments and fall under the supervision of national financial regulators.
• In some countries, binary options are legal and regulated, but brokers are no longer allowed to sell binary options to retail traders (non-professional traders).
• There are countries where selling binary options to retail clients is still permitted, but so severely restricted that all the standard binary options platforms have left the market.
• Some jurisdictions classify binary options as gambling products. This can either result in them being outlawed, or that the broker must obtain a gambling license instead of a financial services license.
• Some countries have no specific regulation pertaining to binary options, and the legal situation can be unclear due to a lack of legal precedents.

This situation leaves binary options brokers operating under very different sets of rules depending on where they’re based and licensed. Their target audience will also matter. A foreign-based binary options broker is for instance not allowed to market their services to retail clients in the United Kingdom even if this type of advertising would be legal in the broker´s home country.

How Regulated Brokers Operate

If you are a retail trader (non-professional trader) looking for a way to carry out short-term market speculation online, using a binary options broker is not the only way to do it. In many cases, it might be a better idea for your to pick another instrument, such as Contracts for Difference (CFDs) or Exchange Traded Funds (ETFs), if it means you can use a broker that is properly regulated in your neck of the woods.

When a broker is regulated with a strict financial authority known for its stringent trader protection, it can bring many advantages for the trader. This can be especially important for small-scale hobby traders, who may lack the resources required to take on a big legal battle with an international broker on their own, and therefore need the muscles provided by a powerful financial authority.

Examples of rules that strict financial authorities tend to include as a part of their trader protection:

• Mandatory client fund segregation This means that brokers must keep customer money segregated from company funds. This reduces the risk of misuse, and it is also important if the brokerage company would become insolvent, since it is much easier for clients to get their money back if it has not been mingled with company funds.
• Transparent pricing sources
  Price feeds must be declared and come from reliable third-party providers.
• Minimal capital requirements There can be minimal capital requirements for starting and maintaining a brokerage company.
• Audited financials
  Brokers are required to submit to regular audits, showing things such as solvency and financial stability.
• Clear risk disclosures Clients must be shown upfront how the instruments work and what the risks are. Specific risk disclosures can be required for specific instruments, and for leverage.
• Withdrawal rights
  Brokers are not allowed to refuse to process withdrawals unless there are legal reasons.
• Leverage caps Leverage is typically capped for retail clients, e.g. a maximum of 1:30. This is to prevent non-professional traders to take on a lot of leverage.
• Mandatory Negative Account Balance Protection If your account has Negative Account Balance Protection, it can never drop below zero, even if a leveraged trade goes against you. This means you can not end up owing the broker money due to leverage.
• Bonus Restrictions Bonus offers to retail clients are typically banned or heavily restricted. When permitted, they must come with very clear terms and conditions.

With a strict financial authority that takes trader protection seriously, the rules are not just there to look good – the authority will actually supervise the brokerage companies and can take enforcement actions.

If a broker acts unfairly, you can report it directly to the applicable financial authority. The financial authority will typically offer some type of conflict resolution service, and they can also, if they find it warranted, open an investigation into the brokerage company. If a broker is doing something sketchy, such as stalling your withdrawal request, mispricing trades, or being opaque about terms and conditions, you want someone in your corner that is both willing and able to act.

Brokerage companies that violate the rules can be warned, fined, suspended, or shut down. That enforcement power is what gives regulation meaning. Without it, the rules are just suggestions.

Reputable financial authorities will normally also have strong working relationships with the rest of the criminal justice system, which is helpful when there is criminal activity at play, such as outright fraud. You can of course always contact the police directly yourself, but for many small-scale traders, it is easier to go via the financial authority and follow their advice on how to proceed.

Why Is Regulation So Important?

Regulation is always important when you pick a broker, but it can become especially important when your broker is also your counterpart in your trade, since this creates an inherent conflict of interest.

Binary options brokers will normally not be the kind of brokers who simply send your order on to a liquidity pool. You will not be trading against other traders on an open market; you will be making bets against your broker. When you win, your broker loses money, and vice versa. This is a strong conflict of interest, and we know from the past that many brokers have abused it.

Without proper supervision and rule enforcement, it is very easy for binary options brokers to manipulate the situation to their advantage. The broker controls the platform, pricing, payouts, execution timing, and dispute resolution. When there is no accountability, things can go very wrong.

Examples From Around The World

In many countries, regulators have restricted or ban brokers from selling binary options to non-professional traders. These rules began to pop up in the 2010s, when binary options had developed a poor reputation due to their association with fraud, loss concentration among retail traders, and repeated abuse by sketchy online platforms targeting inexperienced traders.

Typically, the bans do not make it illegal for the ordinary consumer to buy a binary option. Instead, the burden falls on the broker, who is not permitted to sell the binary option to a non-professional trader. In some countries, the marketing and offering of binary options to non-professional traders is also banned.

Here are some examples from around the world.

• Israel
  Once a center of binary options operations, Israel passed a full ban on the industry after widespread international scams were traced back to firms based in Israel. The ban took effect in January 2018.

• The European Union ESMA (the European Securities and Markets Authority) put a temporary ban on the marketing, distribution, and sale of binary options to retail investors in the EU, effective from July 2, 2018. The idea was to give the membership countries some time to evaluate the situation and put their own rules in place. Many countries did so quickly, often by turning the ESMA rules into national law, with or without modifications. ESMA ceased renewing the temporary ban in 2019. Today, binary options are regulated at the national level, and all of the membership countries have some type of restriction in place to protect retail traders.
• The United Kingdom
  When ESMA enacted the temporary ban (see above), the United Kingdom was still a part of the European Union, and it was also one of the first members to enact their on binary options ban. After Brexit, the ban remained in place. The applicable authority is the Financial Conduct Authority (FCA). For readers interested in how binary options are treated in the UK, BinaryOptions.co.uk provides region-specific information, resources, and guidance.
• Canada On the national level, there is a ban in place that prohibits brokers from selling binary options with a maturity of less than 30 days to retail investors. This ban, implemented by the Canadian Securities Administrators (CSA), aims to protect retail traders from the risks associated with binary options, particularly those with short timeframes. Even though long-term binary options are technically legal, pretty much all binary options brokers targeting retail traders want to focus on short-term contracts and not run an operation with month-long contracts only. Today, long-term binary options are not readily available to retail investors in Canada because registered retail brokerage firms typically lack the necessary permits for offering them.  Note: Each one of the Canadian provinces have the legal power to enact even stricter binary options restrictions if it wants to.
• Australia
  The Australian Securities and Investments Commission (ASIC) prohibits the sale of binary options to retail traders. ASIC banned the sale of binary options to retail clients on April 1, 2021, with the ban taking effect on May 3, 2021. The ban was implemented as a product intervention order and has been extended until October 1, 2031.
• The United States The United States treats binary options as financial instruments and requires that they be traded only on certain regulated exchanges. The Commodity Futures Trading Commission (CFTC) and the National Futures Association (NFA) oversee all such activity.

Offshore Brokers

When a broker is based in one country, but chiefly (or exclusively) targets clients in other countries, we call it an offshore broker. While many financial authorities around the world have banned brokers from selling binary options to retail traders, it is still very easy for retail traders to find offshore brokers online that will happily take them on as customers.

The offshore brokerage firms are usually registered in jurisdictions where binary options are not just legal (completely, or when only offered to traders in other countries), but where the financial authority is known to be either openly laissez faire or simply have no muscles when it comes to enforcing the rules.

Popular broker bases include small Caribbean nations, parts of Eastern Europe, and some parts of Asia. Many of these brokers do not have any real operations in that jurisdiction; it is just their formal address. They can deliberately create a situation where the company is based in Country A, the owners are in Country B, the management team is in Country C, the day-to-day operations are handled in Country D, and money is hidden throughout the world. This makes it hard to go after them, even when they are committing fraud or actively targeting retail traders in countries where that is prohibited.

It is also worth noting that some “licensed” brokers are not licensed by an actual financial authority; they have simply bought a license from another company or made something up. Such licenses often mean nothing. They don’t come with inspections, reporting standards, or consumer protection mechanisms. In many cases, they’re self-issued or completely fabricated.

Be aware of brokers who have a reputation for:

• Setting their own pricing models with no transparency.
• Canceling trades arbitrarily, especially trades that would have been very profitable for the trader.
• Stalling withdrawals, or outright refusing to process withdrawal requests without legal reason.
• Failing to properly communicate about how a frozen account can be redeemed
• Adding hidden conditions to bonuses and others promotions.
• Avoiding legal responsibility by hiding behind shell companies and complex, multinational structures.

When a broker regulated by one of the stricter countries acts improperly, traders have access to formal complaint systems. They can file with the regulator, and in some countries, access ombudsman services or investor compensation schemes. But when an offshore broker in a lax jurisdiction broker goes dark, there’s little that can be done by a trader on the other side of the world, especially when the company is a shell entity with no real assets in the country where it is registered.

Verify

If a broker claims to be based in Country A and licensed by Financial Authority XYZ, always verify if it is true or not, and what it entails. Anyone can put wild claims on their site and in their promotional material; you need to verify directly with the applicable company registry and financial authority. Major financial regulators typically maintain public databases of authorized firms.

Note: If the license is from a jurisdiction and financial authority with no history of actually enforcing retail trader protection rules, it’s likely not meaningful.

Self-Regulation and “Soft” Oversight

Some brokers that operate in legally gray zones claim to follow internal codes of conduct or submit to industry bodies. These efforts are mostly marketing. Without binding legal standards, they don’t offer much protection when push comes to shove. Some brokers offer third-party audits of their price feeds or payout processing, but unless those audits are enforceable and tied to a regulatory agency, they should be treated as promotional tools.

Alternatives to Binary Options

Binary options are fast, ostensibly simple, and very high risk. With a traditional binary option, you’re either right at a specific time and get paid a fixed amount, or you lose your entire stake. There’s no partial win, no recovery, and no flexibility once the trade is active. For some, that’s the attraction. But mathematically and psychologically, it is not without its drawbacks. If you’re looking for a way to speculate on market moves but want more control and the ability to employ sound risk-management techniques, there are several alternatives available, each with a different risk profile, trade mechanics, and market access. Even more importantly, many of these alternatives are approved by strict financial authorities, which means that it will be much easier for you to find a broker that is mandated to operate under strong trader protection rules and will be punished if it violates the rules.

Binary options simplify some aspects of market speculation, but that simplicity comes at the cost of flexibility, control, and in many cases, transparency, as it has become difficult to find brokers that both offer binary options to retail trader and are obligated to follow strict trader protection rules. Before you decide if binary options is your thing, it is advisable to look at some of the alternatives and evaluate them as well. Each of them come with their own structure, risk profile, and learning curve, and how suitable they are for your preferences and your particular trading style will vary.

There’s no single best replacement for all possible cases, since best alternative depends on what you’re looking for and what you find appealing with the binary options. Want quick results, but with more control? Look into forex trading and Contracts for Difference (CFDs). Do you enjoy complexity? Learn real options and futures trading. Would you actually prefer slower, longer-term exposure with lower risk? Actually building a portfolio filled with stocks, mutual funds and ETFs could be better for you.

Spot Forex Trading

Forex (foreign exchange) trading involves buying one currency and selling another. Unlike binary options, forex trading is continuous and you can close a trade whenever you want, scale in or out, and apply well-known risk management tools like stop-loss and take-profit orders.

Spot forex trading is often done with leverage, meaning a trader only takes some of the money for the trade from their own account and borrows the rest from their broker. Leverage will boost both profits and losses, and it is very important to not use leverage before you fully understand how it works and have adjusted your risk-management strategy accordingly. To explore broker options and learn more about choosing a platform, Forex Brokers Online offers comparisons and reviews tailored to different types of traders.

The global forex market is the largest and most liquid of all the financial markets by a wide margin. (In addition to spot trading, you can also use various derivatives, such as forex options and forex futures.)

Key differences between binary options and spot forex trading:

• No fixed expiry. Suitable for anything from day trading and swing trading to position trading and longer-term investments.
• Variable profits and losses (it is not all or nothing)
• More control during the trade, e.g. by using stop-loss and take-profit orders
• Tighter spreads (especially for major currency pairs), but often more complexity
• Heavily regulated in most countries, you can pick a supervised broker

Contracts for Difference (CFDs)

Just like binary options, CFDs are derivatives that allow traders to speculate on the price movement of underlying assets and products, e.g. stocks, indices, commodities, and currencies. You never own the underlying asset and this can help keep costs down.

You can go long (buy) or short (sell), just like with binary options. Unlike binary options, you can exit whenever you choose and the outcome is not binary. If the price moves slightly in your favor, you can decide to exit and earn a small profit. If it moves against you, you can decide to exit and cut your losses.

Since it is so easy to go either long or short with CFDs, and they are available for so many underlying assets and products, CFDs are sometimes used to hedge other trades.

Like forex, CFDs are typically leveraged. Leverage will boost both profits and losses, and it is very important to not use leverage before you fully understand how it works and have adjusted your risk-management strategy accordingly. Many of the stricter financial authorities have caps in place, limiting how much leverage a broker is permitted to give a non-professional CFD trader.

CFDs are widely used by retail traders in Europe, Asia, and Australia, but banned for retail traders in some regions like the U.S.

Options (Not Binary Options)

Standard options contracts give you the right, but not the obligation, to buy (call option) or sell (put option) an asset at a predetermined price on or before a set expiry date. They’re much more complex than binary options and require an understanding of concepts like strike price, premiums, implied volatility, and Greeks (delta, theta, etc.). In exchange, they offer more control over risk and reward.

Call options and put options can be used for speculative trades, hedging, or income strategies. You can buy options or write (sell) them, and strategies can range from comparatively simple to very advanced.

Why many traders like options:

• Partial profits and adjustable exposure
• Tradable on regulated exchanges and through regulated brokers.
• You can manage trades during their lifespan
• Many strike and expiry combinations

The downside is that learning curve. They’re not as beginner-friendly as binaries, but they’re much more versatile.

Futures Contracts

Futures are standardized agreements to buy or sell an asset at a set price on a specific date. With an option (see above), only one of the contractual partners (the writer of the option) is obligated to honor the option. With a futures contract, both parties are bound by the contract. Futures are highly standardized because they are traded on exchanges and used heavily by institutions.

Futures carry substantial risk due to leverage, but they offer direct access to major markets and real price discovery. Unlike binary options, futures require margin, have variable outcomes, and can result in large gains or losses. They’re not suited for beginners, and you will probably need to open a special futures account with your broker to get access to futures trading.

The typical futures trader has access to a lot of capital and is an expert at risk-management. Futures are often used by institutional traders for longer-term and shorter-term strategies, and for hedging large portfolios.

Stocks

Instead of using derivatives to speculate on stock prices, you can buy and sell stocks outright. If you go for exchange-traded stocks, you can expect high liquidity and tight spreads, and there are many well-regulated brokers to chose among with different types of fee structures for stock trading and speculation.

Many stock traders use both short-term and long-term strategies. If you become a successful day trader or swing trader, you probably want to start putting at least some of those profits into a long-term stock portfolio that can grow over time; maybe even one that will pay you dividends.

ETF Trading

Exchange-traded funds (ETFs) are similar to mutual funds, but the fund shares are traded on an exchange in a manner very similar to exchange-traded stocks. With a classic mutual fund, shares are typically only bought and sold once a day, at the end of the trading day. If you go for ETFs instead, you can buy and sell fund shares throughout the entire trading day. This is a good fit for traders who like the fast-paced world of binary options trading, but want something that is more well-regulated, and where it is possible to employ sane risk-management routines.

And ETF will give you exposure to a group of assets, e.g. stocks, commodities, or real estate. Some ETFs are broad, while others are much more niche, e.g. only U.S. tech stocks or only exposure to the gold price.

Spread Betting (UK and Ireland)

Spread betting is a product available chiefly in the UK and Ireland, because it offers certain tax advantages there. Spread betting allows traders to speculate on price movements without owning the asset. Profit or loss is calculated based on how far the market moves in your favor or against you, multiplied by the stake per point. It is very similar to using a financial derivative for speculation, but it is called betting. The major sites for spread betting will offer many underlying assets, especially for the categories stocks, currencies, commodities, and indices.

Prediction Markets

Prediction Markets are open markets where you can place bets on the outcome of various events. Prediction markets are chiefly famous for offering bets on much more than just the price movements of financial assets. You can for instance bet on political elections and sport events.

They are built on peer-to-peer matching, and prediction markets can give a strong indication of what the (betting) crowd thinks will happen. Prediction markets are also known as information markets, decision markets, and event derivatives markets. In recent years, cryptocurrency-based prediction markets have become available.