Is Binary Options Demo Trading the Wrong way

Best Binary Options Brokers 2020:
  • Binarium
    Binarium

    Best Binary Options Broker 2020!
    Good Choice for Beginners!
    Free Trading Education, Free Demo Account!
    Get a Sign-Up Bonus Now!

  • Binomo
    Binomo

    2nd in our ranking!

Binary Options Using Demo Account

You will learn about the following concepts

  • Why start trading with a demo account
  • How can a demo account help you
  • Overusing a demo account can be bad for you
  • Money management & demo accounts
  • Examples

Why a Demo Account?

We have talked about demo accounts and why it is important to have one at an earlier stage of our tutorial. Let us say it again – in short, demo accounts are completely free and are considered as one of the best ways to improve your trading skills and to test different trading strategies. Generally, demo accounts are the same as real money accounts, but one difference is that you will be operating with virtual/demo money instead of real money.

Almost all binary options brokers allow trading with demo accounts, but on some rare occasions you may come across a broker, that does not support them. This is why it is important to always check the features offered by your broker.

Best Forex Brokers for United States

How Can a Demo Account Help You?

If you are a beginner, then using a demo account is strongly recommended. First of all, demo accounts are a great way to learn how to use the trading platforms supported by your broker. This way you can get to know every part of the platform without risking real money. You will learn how to execute trades and how to take advantage of the more advanced options features offered by the trading platform.

Demo accounts are also a great way to test new strategies or learn how to trade different types of binaries. In our tutorial we shall discuss touch/no touch options, boundary binary options, call/put options, so using a demo account can give you the opportunity to learn all about these financial instruments without risking any money.

Overusing a Demo Account Can Be Bad For You

Although many experts recommend trading with a demo account, you should not do this for too long. When using a demo account, you do not risk real money, so it is very likely that you will forget trading involves risk. Many traders use demo accounts in the wrong way and place trades they would not risk placing when trading with real money. This is why if you are planning to use a demo account, you should trade as if you were risking your own money – operate with smaller amounts, manage your account properly and never underestimate the profit/loss that a trade may generate.

If you do not use your demo account well, then it is very likely that you will do so when you start trading with real money. Always analyze every trade and never make a hasty decision, because this is the way you are supposed to behave when trading with a live account.

Money Management & Demo Accounts

Money management is the art every trader needs to master. However, this can rarely be done with the help of a demo account, especially if you are not patient enough and are not used to following a strict list of trading rules. The reason why most traders cannot learn how to manage their money properly while working with a demo account is, because they are trading with virtual money and they assume that it does not matter whether they will lose thousands, or not. This is why many traders make a mistake by using their demo accounts to trade with enormous amounts of money. For example, if you are planning to deposit $500 in your account, then try operating with just $500 in your demo account. This way you will make the trading experience more realistic and learn how to control your money.

A Guide to Trading Binary Options in the U.S.

Binary options are financial options that come with one of two payoff options: a fixed amount or nothing at all. That’s why they’re called binary options—because there is no other settlement possible. The premise behind a binary option is a simple yes or no proposition: Will an underlying asset be above a certain price at a certain time?

Traders place trades based on whether they believe the answer is yes or no, making it one of the simplest financial assets to trade. This simplicity has resulted in broad appeal among traders and newcomers to the financial markets. As simple as it may seem, traders should fully understand how binary options work, what markets and time frames they can trade with binary options, advantages, and disadvantages of these products, and which companies are legally authorized to provide binary options to U.S. residents.

Best Binary Options Brokers 2020:
  • Binarium
    Binarium

    Best Binary Options Broker 2020!
    Good Choice for Beginners!
    Free Trading Education, Free Demo Account!
    Get a Sign-Up Bonus Now!

  • Binomo
    Binomo

    2nd in our ranking!

Binary options traded outside the U.S. are typically structured differently than binaries available on U.S. exchanges. When considering speculating or hedging, binary options are an alternative—but only if the trader fully understands the two potential outcomes of these exotic options.

Now that you know some of the basics, read on to find out more about binary options, how they operate, and how you can trade them in the United States.

U.S. Binary Options Explained

Binary options provide a way to trade markets with capped risk and capped profit potential, based on a yes or no proposition.

Let’s take the following question as an example: Will the price of gold be above $1,250 at 1:30 p.m. today?

If you believe it will be, you buy the binary option. If you think gold will be below $1,250 at 1:30 p.m., then you sell this binary option. The price of a binary option is always between $0 and $100, and just like other financial markets, there is a bid and ask price.

The above binary may be trading at $42.50 (bid) and $44.50 (offer) at 1 p.m. If you buy the binary option right then, you will pay $44.50. If you decide to sell right then, you’ll sell at $42.50.

Let’s assume you decide to buy at $44.50. If at 1:30 p.m. the price of gold is above $1,250, your option expires and it becomes worth $100. You make a profit of $100—$44.50 = $55.50 (minus fees). This is called being in the money. But if the price of gold is below $1,250 at 1:30 p.m., the option expires at $0. Therefore you lose the $44.50 invested. This called out of the money.

The bid and offer fluctuate until the option expires. You can close your position at any time before expiry to lock in a profit or a reduce a loss, compared to letting it expire out of the money.

A Zero-Sum Game

Eventually, every option settles at $100 or $0—$100 if the binary option proposition is true and $0 if it turns out to be false. Thus, each binary option has a total value potential of $100, and it is a zero-sum game—what you make, someone else loses, and what you lose, someone else makes.

Each trader must put up the capital for their side of the trade. In the examples above, you purchased an option at $44.50, and someone sold you that option. Your maximum risk is $44.50 if the option settles at $0, and so the trade costs you $44.50. The person who sold to you has a maximum risk of $55.50 if the option settles at $100—$100 – $44.50 = $55.50.

A trader may purchase multiple contracts if desired. Here’s another example:

  • NASDAQ US Tech 100 index > $3,784 (11 a.m.).

The current bid and offer are $74.00 and $80.00, respectively. If you think the index will be above $3,784 at 11 a.m., you buy the binary option at $80, or place a bid at a lower price and hope someone sells to you at that price. If you think the index will be below $3,784 at that time, you sell at $74.00, or place an offer above that price and hope someone buys it from you.

You decide to sell at $74.00, believing the index is going to fall below $3,784 (called the strike price) by 11 a.m. And if you really like the trade, you can sell (or buy) multiple contracts.

Figure 1 shows a trade to sell five contracts (size) at $74.00. The Nadex platform automatically calculates your maximum loss and gain when you create an order, called a ticket.

Nadex Trade Ticket with Max Profit and Max Loss (Figure 1)

Best Binary Options Demo Accounts

Binary options are one of the simplest ways to invest in the financial markets. All it takes is a demo account to get started.

Damyan Diamandiev
Contributor, Benzinga

Binary options are one of the simplest ways to invest in the financial markets. It’s a preferred way of trading among investors, especially beginners. However, “easy to do” is not enough to be successful. You’ll need to test your success on a free binary options demo account. If things work out there, then you can switch to trading with real money.

Quick Look: The Best Binary Options Demo Accounts

  • IQoption
  • Binary.com
Table of contents [ Hide ]

What are Binary Options Trading Demo Accounts?

A demo account is a practice trading account which works just the same as a real money account operates. You can test your strategies and success with virtual money on demo accounts. Free binary options demo accounts contain real price moves, so you can check to see if your trading system works without putting your financials at risk.

You’re likely to have access to all available financial assets and all trading tools, just like in a real account, but the “money” in the account is virtual. Also, you can change the amount to adapt to a real-case scenario.

Example: You want to start trading binary options with $5,000 but you are not sure of your strategy.

Solution: You open a free binary options demo account with a broker. You change the virtual amount of money in the account to $5,000. Then you are ready to go same as if you have opened a real binary options account.

Why Use a Demo Account for Binary Options Trading?

The first step you’ll take toward actual trading is to open an actual demo account. There are a few main reasons why you should start by using a demo account.

  • Get used to the interface. Most likely, you’ll open a demo account with the broker you’re considering for real money trading. A demo account with this actual broker will get you used to the interface you’ll use once you’re trading with real money. That way, when you start with real money, you’ll know the functionality of the platform you’ll use.
  • Practice. If you’re a beginner binary options trader, you’ll need to practice the order-opening process. Call and put binary options can be challenging, so play around with the expiration of the options. Learn how to adapt to different situations on the market using news announcements and financial data releases.
  • Test your strategy. Prepare a strategy. To figure out the signals you will use to buy binary options, you’ll need to test and optimize your strategy without risking any money. And you can do this forever until you find out whether your strategy is working.
  • Test your money management skills. You’ll need to trade only small parts of your bankroll to avoid bankruptcy. Let’s say you want to deposit $3,000 for trading. You decide that you want to invest $1,500 in each of your trades. If you fail two times in a row, you will go bankrupt.

Question: How likely are you to fail or go bankrupt?
Answer: Very likely. You can avoid this by putting small parts of your bankroll in each trade, say, 1%. This way, you will need to be wrong 100 times in a row to go bankrupt.

If you trade successfully on a demo account, then you can consider switching to a real money account. Apply the same strategies there and you are likely to get the same results.

What to Look for in a Binary Options Trading Account

Your broker research should start before you open the demo account, and the characteristics to look for are listed below.

Regulated Provider

Be sure to target only regulated brokers. A regulated broker is subject to the law of the country of regulation. After all, you’re giving your money to somebody, and if a dispute arises, you want to make sure that it gets resolved fairly.

Longevity

Most scam brokers get shut down after a year or two. If a broker has existed for many years, it is less likely that this broker is a fraud.

Positive Online Reviews

Check out what people think of the broker you’re considering. Check for ratings, Google the company’s online reviews. Search for something that may trigger an alert.

Number of Tradeable Assets

A good free binary options demo account will have many tradable assets available. You don’t want to practice on an account that offers you only three currency pairs. Look for diversity. Diversified portfolios are the more secure way to go as you count on many institutions.

Friendly Interface

Your trading platform needs to be simple, straightforward and easy to understand. If you don’t feel comfortable with the demo account interface of a broker, change the provider. You won’t want to trade real money when you don’t like a particular interface.

Set of Trading Tools

The trading tools are a must for every good demo account for binary options trading. The more tools available, the better. After all, these tools will help you build your trading approach.

Dedicated Support

All reputable brokers offer dedicated support. Some companies even offer 24/7 support.

Red Flags to Watch Out for in a Binary Options Demo Account

Here are the most common red flags to look for when looking for a binary options broker.

Lack of Regulation

Do you have doubts about the regulation of a broker? Better find another one. Maybe the broker is subject to regulation in a less-developed country, or the regulatory body of that government is at a very low level. How likely is that it resolves a dispute in your favor? How likely is that it has a system for resolving such disputes? If this is the case, then you might want to approach another broker.

Chart Discrepancies

It’s always good to compare the charts of the different brokers. They need to look the same. If one is not the same as the others, then somebody might be manipulating these charts. You need to avoid market manipulation.

Online Money Disputes

Google to see if the broker has open money disputes, a major red flag. If it’s blocking withdrawals, you’re likely to find information about this on the internet.

The Best Binary Options Demo Accounts

Check out these top-notch binary options demo accounts.

2. IQoption

IQoption’s Key Facts

Regulation: CySEC (Cyprus)
Existence: 5 years
Tradable assets: 49; currency, companies, gold
Interface: Very simple and user-friendly
Trading tools: Decent amount
Support: High – 24/7

IQoption’s demo account platform. Source: IQoption

As you see, the IQoption’s platform is pretty simple. Furthermore, it offers a mobile app platform, which is even easier to use. The order execution is good and you can do plenty of trades for seconds.

You can switch between different charts. The default chart you will get is a line chart. But you can switch to a Japanese candlesticks chart a bar chart or a Heikin-Ashi chart. You can also change the colors of the charts.

In the left panel you have few buttons:

  • Total portfolio – shows all your current positions
  • Trading history – contains all your past positions
  • Chat & support – you can chat with the support or in channels with other traders
  • Leader Board – keeps track of the best traders with biggest profits
  • Market analysis – news and analysis from different providers
  • Video tutorials – you can watch all type of informative videos here
  • Help – gives you a hand with administrative and general questions

At the bottom of the chart, you can pick a different time frame. Note that you can also change time frames by scrolling with the mouse.

You can choose between a rich set of trading tools. Some of these are:

Different types of lines:

  • Rays
  • Trends
  • Horizontal and vertical lines
  • Fibonacci levels
  • Moving averages
  • Bollinger Bands
  • RSI
  • MACD
  • Parabolic Sar
  • Alligator Indicator
  • ATR
  • ADX
  • Ichimoku Cloud
  • Momentum Indicator

There are even more indicators on IQoption. Honestly, they are not that much. But still, your technical analysis will be well supported.

2. Binary.com

Binary.com’s Key Facts

Regulation: British Isles, Malta
Existence: In operation since 2000, regulated since 2020
Tradable assets: 57; Currency, indices, commodity, volatility indices
Interface: Very simple and user-friendly
Trading tools: A rich set of indicators
Support: Decent

Binary.com’s demo account platform. Source: Binary.com

The platform of Binary.com is also simple. It consists of two parts, the upper part for trading and the lower part that contains the chart. These two parts might be a bit confusing as it is hard to look at both of them at once. If you zoom out your browser, you will make it work.

You can regulate the chart time frames from the bottom of the chart. You adjust a horizontal scroll, which shows what part of the chart you are covering.

Binary.com is not that rich on resources as IQoption. But they still have the most needed resources available. A disadvantage is that they only have line and dotted charts available. They don’t have Japanese candlesticks or bars, which might limit your analysis.

But on the other hand, they have plenty of indicators – more than 100. They also have chart templates. So, you can very easily save your template and apply it to another chart.

Final Thoughts

Demo accounts are a great solution for testing purposes, but you still need to do your research. Fraudulent brokers exist are only looking for ways to make you deposit funds. Even if you win money, they might not let you withdraw your profits. Follow the steps above to avoid scams, too.

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Best Binary Options Brokers 2020:
  • Binarium
    Binarium

    Best Binary Options Broker 2020!
    Good Choice for Beginners!
    Free Trading Education, Free Demo Account!
    Get a Sign-Up Bonus Now!

  • Binomo
    Binomo

    2nd in our ranking!

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How To Start Binary Options Trading 2020
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