The article was written by Connor Harrison from Binary Brokers (BBZ). BBZ makes an effort to educate their traders so that they can understand recommendations regarding binary options, international legislation, risk management and other issues related to trading.
In order to understand how the relationship between bitcoin and binary options works, we need to take a look at the history of financial trading. We should look at the evolution of money markets, financial markets and the different types of trading that we have today.
The financial markets have been evolving for thousands of years now. In earlier years you could have exchanged money with gold or silver quite easily. As time passed by this became impossible, and today you simply can’t get gold from the bank worth the money that you deposit in your account. The financial market on the other hand has for a long time now been accessible to only a few investors who have knowledge about them. This has brought about a unique relationship between bitcoin and binary options.
What is binary options trading and how does it work? This is a platform where you can predict how an underlying asset, such as Google, Amazon or AT&T, will behave. You pick a strike price and place a call or a put trade and after a specified time get a payout depending on whether you were right in your prediction or not. The good thing about binary options trading is that you can trade even if you have as little as $10. The payouts are usually in the range of 70-80% if you win and 0-15% if your prediction turns out wrong.
What is a bitcoin and how does it work? This is a form of electronic currency that was created by the pseudonymous Satoshi Nakamoto. It is created and held electronically and this makes it decentralized. It has features just like traditional currencies such as the dollar, euro and yen. The difference between bitcoin and the other currencies is that bitcoins can only be traded digitally and are not held or controlled by any bank. Unlike conventional currencies, which are based on gold and silver, bitcoins are based on an online mathematics app.
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How can bitcoin be merged into binary options trading?
We have already seen that both bitcoin and binary options are new ways of doing things that deviate from the conventional path. In recent years when bitcoin started becoming popular around the world and among traders, it started to be seen as an alternative currency on several platforms. This is where binary options came in.
Binary option brokers have for a long time been presenting their customers/ traders with conventional assets, commodities and currencies such as the AUD/EUR, JPY/USD, USD/CAD and so on. With the introduction of bitcoin, several brokers saw an opportunity for their traders and introduced them to their long list of tradable currencies. It is now common to find BTC/USD, BTC/EUR and so on among the currency options being offered by different binary options brokers.
The possibilities presented by trading bullish bitcoins
Bitcoin is generally bullish. It is almost impossible to find bitcoin going down in value even when put against a high performing currency. In most instances therefore, you will find that trading bitcoin against another currency is more on the bullish side than the bearish one. Here are the options you have when you decide to trade using bitcoin;
- As an investment currency – The first option is to open an account with a binary options broker and deposit bitcoins. Since bitcoins are now generally accepted as a mode of exchange, at least electronically, many brokers are willing to accept them as a currency when you are trading. You will therefore be able to place bitcoins just as you would place dollars in an option investment. You will stand to earn the 70-80% payout if your prediction is right or lose the bitcoins if your prediction was wrong.
- As an asset – The other option is to trade the bitcoins as an underlying currency. As a binary options trader, you are used to trading on underlying assets such as Google or Amazon stock as well as currencies such as USD/EUR and so on. In these trades, you never buy into the actual shares of the underlying company or had to exchange the actual US dollars with the euros but rather predicted the way their relationship will be. The same story applies with bitcoin. You will predict how it will behave in relation to the US dollar, Canadian dollar, franc or euro.
There are numerous benefits that you will enjoy as a trader once you decide to trade using bitcoin or when you pick it as an underlying currency.
These benefits of using bitcoins in binary option trading are:
- Bitcoins are decentralized unlike conventional currencies that are controlled centrally. Bitcoins are accessible from anywhere and there is no risk of being told that your bitcoins will only be available as and when the bank has cleared them.
- Setting up a bitcoin account is easy. All you need to do is access a bitcoin creating computer and start mining your bitcoins. As a binary options trader, you will also find the process of setting up a trading account easy because you can link it easily with your nominal account. This makes it easy for the deposit and withdrawal of your bitcoins to and from the binary options broker’s platform.
- When trading in bitcoins, you will notice that it is quite hard to find it going backwards in value. This means that in most instances, you can rightly predict that a BTC/USD will be bullish and hence place a call trade option. The only thing you need to beware of is to limit how much it can go up in your prediction.
The deposit and withdrawal of bitcoins from your binary options platform is quick and easy, even if some part of the overall system is offline. Moreover, there are no charges relating to bitcoin transactions.