Crypto Binary Options
Crypto binary options are gaining momentum in the trading market, with many tokens reaching all-time highs in price and volume. Fortunately, binary options contracts are widely available on crypto platforms and exchanges and can be traded in a variety of ways. If you want to start investing, read on as we explore what cryptocurrency binary options are, their pros and cons, plus the best online brokers.
Best Crypto Binary Options Exchanges
What Are Crypto Binary Options?
Before making a crypto binary options trade, it’s important to understand what they are and how they work. Binary options trading involves speculating on the future price of an asset and placing a bet based on a ‘yes’ or ‘no’ outcome. A basic binary options contract requires setting a strike price either above (a call option) or below (a put option) on an asset. After a pre-determined expiry time elapses, the trader either wins his stake plus the profit or walks away with nothing.
Crypto binary options appeal to many traders because of their simplicity. Even without expert financial knowledge or grasp of trading jargon, these contracts are easy to comprehend. Compared to other forms of trading, capped losses will never exceed an investor’s stake and therefore offer a less punishing downside to an unsuccessful trade.
Many brokers offer crypto binary options contracts as well as other popular assets such as forex, commodities and indices.
Crypto Binary Options Contracts
Crypto binary options trading isn’t limited to just one type of contract. Some of the most popular variants include:
- Up/Down – As the simplest crypto binary options contract, traders speculate on how much the value of a coin may increase or decrease at the end of a set period.
- In/Out – This contract involves setting a price range with an upper and lower strike price. Traders then speculate on whether a cryptocurrency will finish within or outside of this range after the contract expires.
- Touch/Double Touch/No Touch – Traders predict whether a value will either touch or not touch a set price. Traders may favour these crypto binary options variants as they occur as soon a touch takes place (and therefore can close more quickly than other contracts).
- Ladder – The ladder binary options contract is unique in that it offers traders a scaling pay-out. In a ladder contract, traders set multiple levels for the price movement of a particular crypto asset after an expiry time. The lower ‘rungs’ on the ladder offer smaller returns, whilst the higher strike price generates greater profits.
Let’s take a look at an example of a traditional up/down crypto binary options trade, using the most popular token, Bitcoin, with a current value of $64,000. Let’s say that a crypto binary options broker or exchange offers a 40% return on a contract for Bitcoin to be worth $65,000 after 4 hours. A trader puts a $100 stake into the contract and will earn $40 on top of their returned $100 stake if the strike price is met. If not, the trader loses the $100 stake.
How Cryptocurrencies Work
Whilst it’s not essential for successful crypto binary options trading, having general knowledge of cryptocurrencies, can be helpful when formulating a trading strategy. The idea or purpose behind a particular coin will often have a strong effect on its value.
A cryptocurrency is a digital token, that, instead of being backed by reserves of gold or other physical assets, operates as a decentralised global currency. Most cryptocurrencies are exchanged peer-to-peer, with the price of traditional crypto tokens driven entirely by supply and demand. The first cryptocurrency to gain traction was Bitcoin, launched in 2009 and now accounting for around 40% of the total digital currency market cap.
Due to the lack of fundamentals in cryptocurrency, many traders regard coin values as reflecting a purer market. Crucially for crypto binary options trading, this also makes for a far more volatile market than traditional trading assets. Daily price movements of between 10% and 50% are not uncommon, even for high market cap coins. Binary options trading is perfectly suited to markets or assets with high volatility, and crypto certainly fits that bill.
Pros Of Crypto Binary Options
Here are some of the main advantages of crypto binary options trading:
- Round-The-Clock Trading – Unlike other binary options markets, cryptocurrency is available for trading 24/7. While stocks and shares, commodities and even forex have set regional trading hours, cryptocurrency exchanges run 24 hours a day, seven days a week. This is one of the biggest advantages of decentralised finance for binary options traders and a great reason to favour crypto.
- Greater Payouts Through Cryptocurrency – Some crypto binary options brokers offer contract stakes and payouts in cryptocurrency. For certain types of trade, this can potentially enhance profits or minimise losses. For example, if a trader places a successful call option on Bitcoin through BTC tokens, the rise in price that made the call option successful will mean that their profit is also worth more.
- A Volatile And High Volume Market – Over $100 billion in assets are regularly traded every day on the cryptocurrency markets, while daily swings in asset value can exceed 50%. Crypto market conditions make for an ideal binary options trading environment, with great rewards for traders who can predict significant price changes.
- Capped Losses Protect Traders – The downside of options trading on a highly volatile market is that quick and significant market fluctuations can easily make a serious dent in a trader’s finances. Choosing binary options trading when speculating on crypto protects traders from financial turmoil with capped and preset losses.
- An Abundance Of Choice – Cryptocurrency is unique in that hundreds of new assets are created daily. Leading brokers and exchanges frequently update their supported tokens, so clients have ample coins to choose from when trading crypto binary options.
- A Purer Market – As opposed to trading forex or stocks and shares, cryptocurrencies are free from fundamental influences. Tokens rely solely on supply and demand to determine a trading price. This can enhance the accuracy of technical analysis as well as heighten the volatility that binary options trading thrives in.
Cons Of Crypto Binary Options
Despite the numerous upsides of crypto binary options trading, there are some disadvantages to consider:
- Total Win Or Loss – Binary options trades are often referred to as all-or-nothing, due to their duality. Crypto is no exception to this rule. In crypto binary options, a near-miss of the strike price is worth absolutely nothing. In addition to this, there is no choice to close contracts early to take some profit or prevent total losses.
- Unpredictable Markets – While volatility is undoubtedly a positive and necessary condition for successful binary options trading, crypto markets are notoriously unpredictable. Due to the lack of fundamentals, asset prices can swing wildly in scenarios like a “pump and dump”, with reactionary trades compounding these movements.
- Capped Gains – While the capped losses of crypto binary options contracts will prevent a trader’s loss from exceeding their stake, the trade-off is that gains from successful trades are also limited. Crypto binary options only account for whether the strike price is met or not.
How To Start Trading Crypto Binary Options
If crypto binary options contracts sound like a great opportunity to generate potential profits, here is a guide to help get you started:
Choose A Crypto Binary Options Exchange
The first step for traders looking to start trading binary options is to decide on a platform from which to operate. There are several important aspects to consider when choosing a cryptocurrency broker or exchange. Here are a few of the most important:
- Trustworthy And Reliable – In addition to the safe-keeping of your funds and crypto assets, the best binary options brokers will be regulated, can demonstrate a strong track record, and are recommended by positive user reviews.
- Range Of Assets – The best crypto binary options platforms can offer up to 150 assets to choose from. Trading a variety of assets will allow investors to diversify their portfolios and execute a range of strategies.
- Binary Options Capability And Variants – While this may go without saying, make sure that a specific crypto broker offers binary options trading facilities. Not all jurisdictions allow binary options trading, so don’t forget to ensure this box is ticked before proceeding.
- Trading Platform And Software – An essential facilitator of successful crypto binary options trading is the platform and software a broker offers. Some crypto exchanges may offer a bespoke platform, whilst others may rely on third-party trading software. Traders should find a platform that feels intuitive and supports the graphing and trading tools needed.
- Minimum Deposit And Transaction Fees – Traders should take into account any minimum deposit limits or fees included in the broker’s terms. This may include charges applied to deposits or withdrawals from the platform.
Research The Crypto Market
While it is possible to make successful binary options trades without an in-depth knowledge of the crypto market, it is advisable for traders to first conduct some research on the coins they wish to trade.
This might include researching historical price patterns of coins and the market as a whole. Whilst past performance is not necessarily indicative of future results, traders can still use historical events, such as surges or crashes, to help make predictions as to what the market will do next.
Traders could also analyse the various ecosystems and philosophies of the different coins, as well as their original purpose at the point of introduction into the market. Knowing which coins have significant future ambitions and demand is crucial when judging future value.
With that said, it’s also important to keep on top of hype, news and updates surrounding a particular coin. You can often gauge market sentiment by following social media, news sites and even celebrity endorsements that may affect the crypto market.
Opening A Crypto Binary Options Contract
Once you have selected your preferred broker and conducted your research into the crypto market, it’s time to open a binary options contract. After creating an account with a crypto exchange and choosing your target asset, here are your next steps:
- Deposit your funds via bank transfer, credit/debit card, or an available online payment method. Some exchanges also allow traders to deposit via cryptocurrency.
- Select your preferred crypto token to trade and choose the binary options contract you wish to open. If you’re a beginner, you may wish to opt for a simple up/down trade to begin with.
- Set your strike price and expiry time, ensuring that you are balancing risk and reward. Typically, greater odds are offered on contracts with longer expiry times and higher price movements. However, it’s important to research other factors that may affect your crypto binary options contract.
- Now you can stake your contract. This will depend on the capital and risk tolerance of each trader, however, it is advised that you do not stake any more than 2% of your capital in any single trade.
- Wait until your contract expires and discover whether you have made a profit.
Tips & Considerations
- Regional Differences – Some jurisdictions limit or ban crypto binary options trading for their residents. In the US, an exchange-based system offers traders binary options odds instead of individual brokers, but some platforms are licensed to provide binary crypto options contracts to US residents too.
- Taxation – Some countries such as the UK currently consider binary options trading as gambling and therefore not liable to taxation. Other jurisdictions may require binary options traders to declare their earnings for tax. Due to this, before you start trading, it is worth researching or seeking advice to ascertain whether you’ll be exempt from tax.
- Demo Account – For traders who wish to practice crypto binary options before staking real funds, many brokers provide demo accounts. These demo accounts allow investors to trade virtual funds to test out binary options contracts on the crypto market.
- Sign-Up Bonuses – Many binary options brokers offer new customers a sign-up bonus for opening an account on their platform. These bonuses may come in the form of ‘no deposit’ or ‘deposit match’ bonuses and give traders the chance to increase their trading capital.
Final Word On Crypto Binary Options
Crypto binary options are an appealing form of derivative for many traders, due to their simplicity, capped risk, round-the-clock trading opportunities, and sizeable volatility. As the market continues to grow exponentially, binary options trading on cryptocurrencies can be potentially profitable. Choosing a top platform is imperative, as the best crypto binary options brokers and exchanges will offer a wider variety of coins, plus lower fees and more advanced technical tools.
When Can I Trade Crypto Binary Options?
An advantage of trading crypto binary options is that, unlike other binary options markets, cryptocurrency is traded 24 hours a day, seven days a week. This accessibility means that traders have greater opportunities for placing crypto binary options contracts, as well as more freedom when setting expiry times.
Can I Trade Bitcoin Binary Options?
Bitcoin is just one of the many crypto tokens available for binary options trading, with some platforms offering contracts on over 150 different coins. While some traders may be more comfortable with binary options trading on major coins like Bitcoin, Ethereum and Solana, many successful trading strategies involve the often greater volatility of the smaller market cap altcoins.
Do I Have To Pay Tax On Crypto Binary Options Earnings?
Whether a trader has to pay tax on their crypto binary options earnings will differ depending on their jurisdiction. Some countries consider binary options trading as gambling and therefore exempt from taxes. Other jurisdictions require traders to declare and pay tax on profit, so it is worth checking your local tax laws.
Can I Make Money From Crypto Binary Options?
Traders can potentially profit from crypto binary options trading, with many brokers offering over 90% returns on some contracts. However, whether a trader is successful at binary options trading depends on a variety of factors and can of course come with inherent risk.
Can I Automate Crypto Binary Options Trading?
Many traders utilise algorithms to automate crypto binary options. Using automation means faster contract creation, round-the-clock market monitoring and immunity from emotional trading. Preconfigured bots can be purchased by traders, while those familiar with programming may opt to create their own.