Lesson 1. Title: What are trading strategies for binary options and why are they needed 


Binary options are possibly the simplest investment tool to learn. On top of that, they are quite profitable. Even a novice may multiply investments with the use of options in a short period of time. At the same time, all this cannot be accomplished without a well-defined plan. To be successful in binary options trading, you must first build an efficient trading strategy.

In the introductory lesson, we will remember the basic features of binary options. You will also learn why trading strategies are needed and how an effective action plan helps to engage in profitable trading.


In this lesson you will learn: 


The principle of operation of binary options 

A binary option is an investment tool that is an electronic contract for the purchase of some underlying asset with a predetermined expiration date (execution time). One of its main features is the previously known transaction income. Unlike trading on the foreign exchange market, when trading binary options, you always know the amount of profit you can get. The projected income is determined in advance and indicated in the platform terminal by the broker (platform).

The contract's outcome is summarized at a specific period, known as the expiration of the option. You can manually select it from a list of options provided by your broker. The time required is determined by the type of electronic contract and the trading platform used. Pocket Option, for example, allows you to select a time period ranging from 1 to 30 minutes.

Your purpose in the binary options market is to forecast the direction of the underlying asset's price movement as accurately as possible. The price at the contract’s expiration time has a crucial value. By this time, the option may either become more expensive or become cheaper. On very rare occasions, the price does not change — with this state of affairs, you do not lose, but you also do not earn the money spent on the purchase of an electronic contract. The funds will simply be returned to your account in full.

Therefore, in order to earn money on an option, an investor needs to correctly forecast the movement direction of the asset value at the time of execution. Imagine you guess that Apple shares will lose value in the next 60 minutes. If your guess is correct, you will earn money. Otherwise, you will lose the funds invested in the purchase of the binary option.

In our introductory course “Learning the basics of binary options trading from scratch” you can learn in minute detail about the features of this investment tool.


The difference between the binary options market and Forex 

Before studying trading strategies, you need to consider the main differences between the binary options market and Forex. Take a look at the distinct features of these types of trading: 

1) Different contract types 

The Forex market allows you to conclude only one type of contracts. Indeed, you can trade CFDs, currency pairs or securities, but all these are variations of one tool — a Contract For Difference (CFD). Let's assume you purchased a currency pair, after which it increased in price — in this case, the benefit is the difference between the purchase and sale price.

There are various types of electronic contracts on the binary options market. Here are the most popular ones:

2) Terms of transactions 

In the Forex market, all contracts are indefinite — in other words, they do not have an expiration date. This means that after the transaction is concluded, you can simply wait for the moment when the asset value reaches the price you need.

While working with binary options, you know the terms of contracts in advance. Each of them has a certain duration. You cannot buy an option and wait for the right price for years, like in the foreign exchange market.

3) Recommended investment for trading

In the foreign exchange market, it is almost impossible to profitably trade with a small start-up capital. The lower your initial investment, the higher the leverage — borrowed money for trading, which you have to borrow from a broker at interest, thereby significantly increasing the risks.

In the binary options market, you can effectively trade even with tiny investments. It is enough to deposit only 50 USD into the account. The high profitability of binary options allows you to increase profits much faster than on Forex. 

4) Trading risks 

The risks in the foreign exchange market are much lower compared to the options market. While working on Forex, you can complete the transaction ahead of time in order to avoid major losses and save at least part of the investment. In case of failure, the trader will not lose the entire amount. With proper trading on the foreign exchange market, it is nearly impossible to reset the balance.

In the binary options market, the situation is completely different. Having made an unsuccessful transaction, the trader will lose all the funds invested in it. Only in some cases, the platforms return part of the amount to the account in the form of an incentive. Considering the above, effective binary options trading is impossible without a working trading strategy.


What is a trading strategy? 

A trading strategy is an algorithm of actions that an investor follows in the course of his activities. It includes rules that must be followed to make a profit. Both beginners and experienced traders need a trading strategy, regardless of how many hours a day they are willing to devote to the binary options market. Otherwise, you will simply lose money!

A trading strategy describes the criteria according to which the investor should open transactions. Signals, indicators, technical analysis figures and other tools will not help you if you enter the market chaotically. First of all, it is always necessary to follow the trading plan.

Indeed, no one prohibits you to open trades after each signal that seems convincing to you. Nevertheless, the result of such trading will surely disappoint you. By performing such actions, you will never achieve a stable result, even if you are lucky at first.

If you want to systematically multiply your money, then you will have to select a trading strategy that you understand, which will answer the following questions:

When deciding on a trading strategy, always rely on these questions. Besides, do not forget to adjust it to your needs. There are a huge number of ready-made strategies that can be found online. You should learn how to disassemble and personalize them for yourself, and not blindly copy extraneous developments.

Having gained enough experience, you will determine which tools are the best for you. Each trader has his own trading style. By testing different approaches and methods, you will see which strategies, indicators and figures of technical analysis are suited for you and demonstrate the greatest effectiveness.


What is a trading strategy used for? 

How exactly do trading strategies allow you to make money on trading? The main factors are listed below: 


How to select the best trading strategy? 

As mentioned earlier, each trader has his own trading style. There is no universal strategy that would ideally suit everyone — moreover, they constantly have to be updated and adjusted, because the market does not stand still. First of all, the choice depends on what type of analysis you plan to use.

Here's what you need to know to select a trading strategy: