DeFi Binary Options

Decentralised finance (DeFi) has led to the establishment of online exchanges and digital tokens, attracting budding binary options traders. This 101 guide to trading binary options on DeFi networks covers what DeFi is and how it impacts binary options traders, as well as the major assets available to trade. Additionally, this tutorial provides tips for using DeFi platforms to trade binaries, along with a list of the best DeFi binary options brokers for UK investors and trading gurus.

What Are Binary Options In Decentralised Finance?

Binary options are a type of financial contract that enable traders to speculate on the change in price of an asset. Traders may prefer to use a decentralised platform to trade binary options due to the benefits associated with blockchain technology, and the opportunities to speculate on tokens like Bitcoin, Ethereum, Chainlink and Dogecoin.

This is especially true for those interested in trading binary options in the United Kingdom, as FCA regulations make it difficult for local brokers to offer binary options contracts. UK traders must, therefore, use unregulated brokers or offshore platforms to trade DeFi binary options contracts.

Importantly, DeFi protocols offer many benefits, including efficiency and high liquidity mining. Traders and miners work together to create a balance between making money and ensuring a safe and efficient platform. This is often called “trustless-trust.”

Binary Options 101

Binary options are derivatives, often dubbed “all-or-nothing” options due to their nature. For example, will the value of Bitcoin increase or decrease over the next 12 hours? Based on the outcome of the option, you either lose your entire stake or make a profit.

DeFi Binaries On Spectre

The characteristics of binary options stem from the definition of the word “binary”, meaning you make a choice between two alternatives: in this case, a “yes” or “no” statement. Whether your chosen option is correct is what determines your profit or loss.

A “call option” essentially means that the trader predicts that the price of a derivative product or asset will increase above a certain price, which is called the strike price. With a “put option,” the trader is betting on the price of an asset or derivative product decreasing below the strike price.

The profit earned by the trader will vary depending on the type of DeFi binary option in question. For example, a “touch/no touch” binary options contract has a smaller payout compared to a “high/low” contract.

In media and news, binary options solutions are known for their high-risk, high-reward nature.

DeFi 101

Decentralised finance began in 2009, when developer Satoshi Nakomoto established Bitcoin, the first digital currency, and its accompanying decentralised blockchain. The “blockchain” is essentially a digital ledger that keeps a record of all transactions made on the network.

The DeFi blockchain is revolutionary compared to physical ledgers in the form of books and folders, as it allows users to make anonymous transactions without the need for a third-party such as banking institutions. Additionally, the open-code nature of the blockchain means that anyone can read and verify the authenticity of the network, which adds another layer of safety and security.

Ethereum was established in 2014, and uses blockchain technology to introduce smart contracts which carry out a task on the web when certain conditions are met. Smart contracts, as well as the launch of non-fungible tokens (NFTs) and the Decentralised Autonomous Organisation (DAO) by the end of 2017, redefined what could be achieved by DeFi technology.

DeFi networks can be used for lending and borrowing money without losing custody over the asset, using stablecoins to trade digital assets like NFTs, and making profits via flash loans and easy crypto-insurance. More recently, decentralised exchanges have begun to enable traders to trade DeFi binary options contracts too.

PWC UK stated DeFi has experienced surges of growth of nearly 6,600%, from having $400 million total value locked in March 2020, to over $55 billion in March 2021, while showing similar upward trends during 2022 and leading into 2023.

Example Trade

The fundamentals of binary options trading remain the same on both centralised and decentralised exchanges.

Let’s assume that the price of one KuCoin Token (KCS) is £50.00. A binary options call contract has a strike price quote of £50.30 and an expiry of tomorrow at 2.00 pm. If a trader purchases this contract for £40 and the price at the expiration time tomorrow is above the strike price, they will receive £110.

The maths shows that this is a £70 yield for one unit of KCS. If the price is still below the strike price or falls, then the trader will lose their £40 initial stake.

Defi Assets Available For Binary Options Trading

Almost any digital token can be traded with binary options if the exchange or DeFi platform you choose offers it. Some of the most common assets to trade are tokens like Ripple (XRP), Bitcoin (BTC), and KuCoin (KCS), plus foreign exchange (forex), company stocks, and indexes.

Additionally, there are two types of DeFi binary options contracts that can be traded on these assets: American-style and European-style. American-style binary options are defined as the contract being able to be exercised at any point before the expiry date, whereas the latter can only be exercised at expiry.

DeFi binary options can be traded on any blockchain or decentralised exchange (DEX) that supports it. This includes Synthetix, Ethereum, and UniSwap. Most DEXs are available through Ethereum. Among the top decentralised exchanges and platforms that offer DeFi binary options trading are Spectre.AI and Cryptobo.

Digital asset binary options are predominantly available on DeFi networks. However, Spectre.AI offers many different types of instruments, including traditional forex pairs, and CFDs on commodities, stocks, indices, bonds and digital currencies.

Getting Started With DeFi Binary Options

Find A Suitable Broker

Find a broker that is decentralised and offers DeFi binary options. You will need to choose a brokerage or platform that is not based in the UK, as British brokers do not offer binary options contracts. Before you trust any DeFi binary options brokers with your funds, check the website of major regulators as they have blacklisted some known fraudulent exchanges.

It’s important to check the DeFi binary options trading and non-trading fees charged by the exchange. These fees are typically a lot cheaper than centralised exchanges due to the automated nature of the network.

Many decentralised exchanges are international, and have customer service phone numbers and/or email addresses that are monitored 365 days a year, 24 hours a day, and 7 days a week. Some DeFi binary options exchanges are only open 24/5, as some positions tend not to be allowed to stay open over weekends.

Other variables to consider include what payment methods they accept, such as eWallets for digital currencies or stablecoins. This will differ depending on the blockchain the exchange/program is affiliated with. Additionally, some DEXs may be available to download via a mobile app for DeFi binary options trading on the go.

Other things to consider when comparing exchanges include minimum deposit requirements, whether they offer a demo account, the trading platform that is used (e.g. MT4 or NinjaTrader), and whether they offer DeFi binary options trading bonuses.

Also look for DeFi binary options brokers that offer secure logins, cheap withdrawals and information on yield curves and protocols. And avoid brands that claim they can make DeFi binary options millionaires without any investment.

Develop A Strategy

By following a solid volume or other strategy, you can minimise the potential for loss when trading DeFi binary options. Ensure that you follow a strategy that matches your trading style and appetite for risk.

The best way to make successful trades is by following trends and keeping up to date with relevant news, as economic events can serve as indicators for price movements. The zigzag indicator, for example, enables traders to follow a trend, measure long-term movement and eliminate any anomalies, which is important as some asset prices fluctuate every 2 minutes.

With the candlestick strategy, you use candlestick charts to understand the open, close, high, and low prices of a security or commodity within a time frame. Like the zigzag indicator, it enables traders to gauge the trend that price changes are following.

If any existing strategies do not match your DeFi binary options trading style, you have the freedom to mix different components to curate your own. This can involve using any price curve or graph you like, opening multiple positions simultaneously as a form of hedging, or using multiple exchanges.

Buy A Binary Options Contract

The process for buying a DeFi binary options contract involves:

1. Choose an asset
2. Choose an expiry time
3. Choose a trade amount. Often you have two options: Size %, where you enter the percentage when prompted, or investment, where you enter the amount you want to trade. Be aware of any minimum trade requirements
4. Choose the direction of the price movement you are projecting. On Spectre.AI the options are colour-coded, so green for up movements and red for down
5. Once your chosen contract expires, the results will show up on your dashboard

DeFi Binary Options Trading Tips

• Consider staking – This is the act of “locking up” a portion of your digital assets for a period of time and being paid in rewards, which are usually additional tokens. Earning from staking vaults works in a similar way to earning interest on a savings account in a traditional bank. Always ensure that you are staking your digital currencies with a verified, trustworthy DeFi binary options trading platform.
• Do your research – Make sure that you research any DEX before you trust them with your funds. You should also take necessary precautions before making any investments. Be wary of deals or offers that seem “too good to be true”. You can also consult TradingView which has detailed charts and graphs of price movements.
• Check how DeFi binary options brokers or exchanges are regulated – This will vary from blockchain to blockchain and depending on the trading zone. For example, Spectre.AI is regulated by St. Vincent and Grenadine Financial Services Authority, as it is located in the Caribbean.

Are DeFi Binary Options Good Or Bad?

DeFi has opened up new ways to trade binary options, providing an added layer of efficiency in a market where regulations differ drastically between countries. Blockchain technology also makes DeFi binary options trading cheaper, as it eliminates the need for many third parties or expensive fees.

As it is a novel form of trading in a highly regulated market, there are not many decentralised brokers that offer binary options in the UK. Therefore traders wishing to trade DeFi binary options will have to utilise international decentralised exchanges, such as Spectre.AI, our top pick in 2024.

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