Bitcoin Binary Options

Bitcoin binary options combine two financial components that have grown in popularity in the last decade. They offer portfolio diversification from more common trading assets and good returns for a low amount of capital. Of course, there are benefits and drawbacks to this style of investing, and profitability can vary based on your strategy. Use this detailed guide to learn how to trade bitcoin binary options. We also list the top BTC binary options brokers in 2024.

Bitcoin Binary Options Explained

Before learning how to trade binary options in bitcoin, it’s important that you understand how the key components of bitcoin and binary options trading function individually.

Bitcoin

Today, bitcoin (BTC) is recognised as the first major cryptocurrency to be traded on a large scale. Bitcoin was born as a data set housed on a blockchain. Blockchains are the basis for all the crypto coins currently traded and are essentially an encrypted transaction log that is highly secure. All trades are verified by users also known as miners who earn bitcoin for validating the encrypted transactions. As an alternative to bitcoin mining, a more common way to earn bitcoin is to trade the coin.

As with all cryptocurrencies, bitcoin is volatile in nature and its price can fluctuate significantly. When it comes to binary options vs bitcoin, binary options can offer a more stable and manageable style of trading than simply purchasing the bitcoin asset itself.

Blockchains

Binary Options

Binary options operate on a simple yes or no proposition. The components of binary options such as expiry times, profits and costs are all fixed, which means that there is no scope for incremental gains or losses.

Binary options are available on many different asset types including crypto, stocks, commodities, forex and many other financial instruments.

In a typical binary options trade, the investor will enter an agreement with the broker that an asset will reach a certain price. The trader can buy either ‘call’ or ‘put’ options depending on whether they believe the asset will rise or fall. If the investor’s judgment was right, then their trade will close ‘in the money’ and they receive a payout.

Bitcoin Binary Options Example

In bitcoin binary options trading, BTC is the underlying asset. Trading the asset is a “bet” on whether or not bitcoin’s market price will increase or decrease by the time of expiry. The timeframe for expiry can range from short-term periods such as 30 seconds all the way up to several weeks, which would be more aligned with swing trading.

Below is a worked example:

A new crypto investor believes that bitcoin is overpriced and the value of the token will fall from its open price of $50,0000 down beyond $45,000 before the end of the day. Therefore, the trader buys 10 ‘put’ bitcoin binary options which cost $10 per option, making a total investment of $100 due to expire at 11 pm. At the time of expiry, bitcoin is trading at $44,999 and the investor receives a payout as the trade has finished ‘in the money.’

When trading bitcoin binary options, brokers are essentially acting as bookmakers and trading this asset class is betting against the bookmaker. All brokers need to make a profit to stay in business, and therefore a solid success rate is required to offset the chances of losses.

Using Bitcoin Binary Options To Hedge

Bitcoin binary options can also be used to hedge positions on other binary options or different asset classes. Traders can buy bitcoin binary options which will expire in the money if the price of an asset moves in the opposite direction of their other position.

For example, a trader may buy some ‘call’ bitcoin binary options when they have a short position on BTC itself. If the price of the coin falls then the trader is in the money with the short and out of the money with the options.

Conversely, if the price of the cryptocurrency rises, then the trader is in the money with the binary options and out of money on the short.

In both scenarios, the outcomes have been hedged to reduce the impact of any loss. Note, brokers may not permit traders to enter into contradicting positions, so investors may need to open accounts on several platforms.

Benefits of Bitcoin Binary Options Trading

There are several advantages to trading bitcoin binary options:

• Easy To Track – Bitcoin binary options are restricted to a yes/no outcome, which means that there is no need for traders to regularly monitor their position.
• 24-hour Trading – Bitcoin and other cryptocurrencies are available to trade at all times. Similarly, most broker’s bitcoin binary options platforms will be open to trade at any hour.
• Various Timeframes – Investors can choose the expiration time and date of the option they wish to buy from the broker. Traders can adapt the binary option to suit their style and time commitments.
• Small Investment Requirement – When you buy bitcoin binary options instead of buying bitcoin itself, the financial commitment is much lower. Rather than having to buy large amounts of a volatile asset, with binary options the trader simply pays a small premium on each trade.
• Known Risk – If a binary options trade expires unsuccessfully, the losses are limited to the premium paid on the option. Unlike other asset classes, there is no risk of a margin call. Importantly, traders cannot lose more than what they paid for the option.

Drawbacks of Bitcoin Binary Options Trading

There are also some disadvantages to trading bitcoin binary options:

• Limited Number Of Brokers – Not all brokers offer bitcoin binary options. Therefore, some investors may have to sign up to multiple brokerages if they wish to build a diverse portfolio.
• Fixed Profits – The gains that can be realised from bitcoin binary options are fixed. The payout will never exceed what the trader agreed with the broker when buying the option. Unlike other asset classes, there are no incremental gains if the price goes higher than the expiration value.
• High Risks – bitcoin binary options payout rates can vary depending on which broker you trade with. Low payout rates such as 60% or less mean that traders would need to have a high success rate in order to make bitcoin binary options trading viable. Some of the top bitcoin binary options brokers will offer much higher payouts, however the likelihood of a trader winning such bets is significantly lower.

How to Start Bitcoin Binary Options Trading

1. Choose a Broker

Some traders may already have signed up with a broker that offers bitcoin binary options. If not, there are some key factors to consider:

Deposit & Withdrawal Methods

The best brokers offer a range of deposit and withdrawal methods that are affordable, secure and processed quickly. Most bitcoin binary options deposits and withdrawals can be made via debit cards, PayPal and many other forms of payment. Some brokers will even accept bitcoin itself.

Fees

High fees or charges can severely impact your profit margins. Most brokers will be transparent about their fee structure and what charges apply. You should consult the brokerage’s website before signing up, or ask any questions you have via the live chat service. Alternatively, see our broker reviews where we break down premiums and account charges.

Security & Regulation

When investing personal capital, ensuring that your funds are protected and secure is essential. Be wary of fraudulent companies pretending to be brokers that steal the deposits of bitcoin binary options traders. To protect yourself, be sure to verify that the broker is genuine by reading reviews or checking whether the broker is regulated by a reputable body such as the FCA.

Note, the UK regulator has clamped down on binary options trading platforms so investors may need to sign up with an offshore provider.

Other Features

Certain crypto binary options brokers will offer additional features like demo accounts, trading signals, educational resources, bonuses and other asset classes. Most brokers will provide this information on their website, and you should compare a few different providers to find the right provider for your needs.

2. Fund Your Account

Once you’ve signed up with your chosen broker, it’s important to be prepared with funds in your account. Like all cryptocurrencies, bitcoin is a volatile asset and you may need to move quickly to capitalise on sudden price movements.

3. Choose a Strategy

There are a variety of different contracts that traders can enter with brokers when trading bitcoin binary options. These include:

• Touch/No Touch – If bitcoin reaches a certain price before the expiry time, then the trade is closed out immediately and the trader receives a payout.
• Under/Over – This is the most common binary options contract: the trader’s bet with the broker is based on whether bitcoin’s price will be under or over a certain price at the expiration date.
• Boundary Options – The trader and the broker agree on a price range, and a bet is made on whether or not the trader thinks that bitcoin’s price will expire inside or outside of the range. Boundary options are also known as “in/out” or “tunnel” options.
• Ladder – With this binary option, the price of bitcoin must hit multiple incremental strike prices which are increasing or decreasing in value. Because of the price targets that must be reached, the payout on these contracts is typically higher than other contract options.

Note, not many bitcoin binary options brokers will offer all of these contracts. 

4. Enter The Market

Once you have funded your account and chosen your strategy, you are ready to trade. All strategies should be supported by your research and technical analysis. Being up to date with the latest market developments and bitcoin news stories will aid your decision-making process significantly. You should also implement risk management techniques in order to limit your potential losses and trade responsibly.

Should You Trade Bitcoin Binary Options?

Bitcoin binary options offer a unique and diverse way to trade cryptocurrency. Trading bitcoin binary options is easy to understand, highly accessible, and does not require a significant financial investment. While traditional bitcoin trading is risky due to the volatility of the asset, binary options are fixed to a time-limited yes or no outcome which helps to reduce the risk for investors.

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