Can I make money trading Binary Options?
I rarely touch binaries but I know several people who actually are profitable long term. You CAN make money from binary options, but to do so you have to be better than you would be to make money from regular trading. This is because the bid ask spreads and the commissions are bigger than for the rest of the industry. I think that nobody is likely to be successful without a previous successful track record in stocks, FX, options or futures.
And even if you make money at least half of the binary brokers won’t pay you out, they are just in the money taking business, not the “paying out to you” business. So steer clear with a barge hole from unregulated outfits in Belize or such. It’s navigating a minefield, and truly expert trader territory. So you have a product where only experienced traders have a chance, being marketed to newbies. The results are predictable. If you want to be a binary trader, learn another type of trading first 🙂
Next you need a strategy. The problem is the bid/ask in binaries is so wide and the transaction costs so large that virtually any strategy you can think of that works in the real market is going to be badly suboptimal after the friction of paying the spread. Also, binary options brokers generally don’t allow you to place stop losses (because they don’t want you mitigating your losses, you are supposed to lose it all!), so you have to physically sit and watch your trades, or accept the odds and do “set and forget”. All this makes it incredibly hard to profit.
All is not lost, however. Let me lay some knowledge on you.
Binary options customers are universally the worst traders in the world. If sucking was an Olympic sport they would FUCKING DOMINATE. Almost to a man/woman they are looking to take a tiny stake and turn it into a great fortune, thru incredible leverage. They are all looking for the 10 bagger win.
If you want to actually make money from binaries, you have to do the OPPOSITE to these guys.
Instead of buying out of the money options for $9 hoping they close true at $100…. buy IN THE MONEY options that will close true 9 times out of 10, and try and pay $80 or less for them. That is a small but consistent edge, but you have to be doing win rates 85% or so, since your wins will be tiny and your losers huge. It is not a particularly pleasant way to trade, but I have seen the trading statements of several guys doing this, and they have horrendous drawdowns but are still net profitable.
How do you do this? Trial and error while paper trading. Say you are trading the FX and index options which expire every 2 hours. Wait until 40 mins before close (experiment with times). Find an in the money (above the strike price for a long) which is far enough above the strike price that you can be almost certain it will close true, and stick a limit order on this for $80.