Bitcoin Binary options are a simplified version of traditional options. Instead of estimating multiple details at once, binary options streamline the estimation process and allow an investor to make one decision: will an asset increase in price by a given date? Binary options limit loss potential, and are a great place to start for options beginners. They can be traded on FOREX, NADEX, and CBOE (Chicago Board Options Exchange). Investors can purchase options that expire several hours in the future, weeks, or months. Different than previous binary option offerings, the new service which is called Up Down processes payments and payouts in Bitcoin only.
Here is an overview of binary options and trading tips and pitfalls for beginners.
Binary options and Bitcoin Overview
Binary options function similarly to traditional options: investors can buy a call option — a prediction that an underlying asset’s price will increase, or a put option — a prediction that the underlying asset’s price will decrease. The price that binary options investor stands to earn is capped, however, unlike traditional options.
Binary options and Bitcoin can be bought as cash-or-nothing or asset or nothing options. A cash-or-nothing option awards the investor cash if their prediction of the underlying asset’s value is correct upon the exercise date. An asset-or-nothing option awards an investor who correctly estimates a price move the underlying asset itself upon the exercise date.
Select a Reliable Broker. Before you begin trading binary options, be sure to select a broker that’s within your price range, who you can trust. Traders can use a broker comparison site to evaluate which is best for them. First-generation binary options for bitcoin basically offer the BTC/USD currency pair as a trading vehicle. Second-generation brokers offering both bitcoin funding and bitcoin trading include UpDown, BTCOracle, and BeastOptions.
Calculate your probability of success. Before purchasing a binary options contract, it’s a good idea to estimate the percentage of time you must be correct to make money from the investment.
Observe asset value cycles. Before purchasing a contract, take a week to observe the cycles of price moves for the underlying asset you plan to purchase. Once you’re familiar with the hourly, and weekly price cycles, then you can make an assessment, and purchase a binary option.
Limit your initial investments. Binary options and Bitcoin trading are a zero-sum game: when one trader makes money, another trader loses money. When you make your first trade, only invest money you can afford to lose. Learn from the experience, and try again with expendable funds. Only invest large sums when you’re comfortable with your understanding of binary options.
Stay educated. Beginning traders should take a course on binary options, and read a book on the subject.
Consider trade tools and software. Trading software can help you calculate your win and loss potentials. Binary options software can also help beginning traders by sending them signals when prices change direction, or hit benchmarks.
Overconfidence. When traders begin investing in binary options, it’s easy for them to forget that they’re up against someone who wants to make money just as badly as they do. Beginners should start small.
Unwilling to re-evaluate an initial analysis. Throughout the life of a trade, investors should check the market’s movements, and reassess their initial estimation. Once an investor realizes that they’ve made a poor investment, they can sell to minimize a loss.
Over-trading. Sometimes, it’s too late to hedge a trade. When traders realize they will be out-of-the-money, often they’ll make several other investments in attempts to reverse their loss. Doing so can open them to more risk. Traders should avoid having an open position overnight to limit over-trading temptations.
Beginners should start slowly, educate themselves, and only put money in the market that they can afford to lose.