High returns on low investments with benefits to all, this is what binary option trading has come up as. The day traders are a happy lot with the introduction of binary option trading. Before we move on to how to make money with binary options it is very important to understand what is binary option trading and how it works.

The term binary is a term related to computers where it means two that is there are two digits one or zero. When the term binary is applied to financial trading, it means that the trading option has only two outcomes, either zero or one or more specifically all or nothing. Again this means that the trader either gets cash or nothing. Simply, binary option trading can be defined as the contract where the trader receives the predetermined amount of cash if certain specified conditions or the relevant price movement occurs and his contract ends “in the money”, at the end of the expiry time. If the contract ends “out of money” he is not liable to receive anything.

One must remember that though there is an element of risk associated with binary option trading, as with other instruments of trading, yet with proper planning and execution, a trader can make good profits. Here the traders do not have to predict the exact price to be able to get the payout. Even if the prediction is correct by a single tick, it leads to the contract being “in the money” and hence liable for payout.

Money making strategies with binary options

1. The pairing strategy: the use of the pairing strategy is capable of yielding high returns. As per this strategy, the traders pair up the ‘an’ in the money call and money put. If at the time of expiry, the spot price is between the two prices as mentioned in the contract, the trader still makes money as a nested position had been created by the pairing.

2. Binary options betting strategy: another common strategy that is applied by traders to make money with binary options trading is by the betting strategy. Here the trader expects a big movement in the market and hence makes a call or put option. The strategy of betting depends on the fact that people choose indicators that affect the market price in a big way and put positions on these indicators.

3. Hedge and double position: this strategy of hedging and double the position is very helpful in making huge profits for the traders. Under this strategy the traders pair the call with the put into a hedge and double position.

4. Stop-loss strategy: probably the most popular strategy followed by traders to make profits is the stop loss trading strategy. Though the strategy looks simple but it needs experience and expertise for proper implementation. The trader should be able to judge the correct time of stop loss. The strategy depends on many factors like:

• Trading vehicle: the success of the strategy depends on the market tool being used by the trader because each tool follows its own stop-loss strategy. This can be gauged from the fact that a stock trader looks for constant stop loss levels but an options trader can select a two dimensional stop loss strategy.
• Risk tolerance: the stop loss strategy of any trader depends on the capacity of the trader to bear risks. There are numerous traders in the market all having different temperaments and hence the strategy of risk tolerance depends on the personal preference of each trader.
• Behavior of the market: the behavior of the stock markets also has a bearing on the strategy being adopted by a trader. Volatile markets mean flexible strategies whereas quiet markets invoke tighter strategies.
• Trading style: the trading style of different traders is different and hence the stop loss strategy followed by these traders is different.

Bungee option strategy: this strategy is based upon the fact that binary option trading has only two possible outcomes and therefore the turnover is quick. High returns in quick time lure the traders to adopt this strategy and at times the trades offer returns as high as 60 to 70%.
Besides these strategies, the following are some of the tips that can be followed to make money with binary options:
1. Choice of securities: as a trader you must choose the companies that have been posting positive results. This means that if a sector is doing well, then the companies under the sector would do well.
2. Quantity over quality: under binary options trading, quantity is considered better than quality. This is because the traders have to just predict the direction of the price movement and are not concerned with the magnitude of the movement of the price.
3. Hedging: the simplest way to make money with binary options is by hedging. This means that if at a time before the expiry there is a favorable price movement, the trader should hedge his contract either fully or partially to lock in the existing profits .

You finally can open a real trader account with anyoption and earn up to 71% an hour !