Using TRADEqual for Binary Options

TRADEqual
TRADEqual. tradequal.com

If you trade (or are interested in trading) binary options, take the time to learn about how the TradEqual exchange changes the binary options world for the better. The purpose of this article is not to promote TradEqual. Instead, it is to inform readers about a different site for trading binary options.

Until now, the binary options market has always operated in an environment where the broker community dominates the markets and earns its money from traders' losses.

 Binary option brokers are motivated to establish the payouts (i.e., the cash that you receive when holding a winning binary option) so that the chances of your earning a profit over an extended period of time are small. In fact, they are so small that these brokers give you a cash bonus to open an account and trade. That practice is typical of online casinos, and not places where one traditionally invests money: stock or option brokers on Wall Street.

The bonus is conditional upon the trader making a minimum number of trades, placing a minimum number of dollars at risk. The practice of giving traders a signing bonus all by itself—has been a warning to me that the game is rigged.

It is a concern that TradEqual also offers a bonus, but it is smaller that other binary brokers and I hope it is merely a promotion to attract new customers.

TradEqual was established in 2015 by a team of expert traders from online trading companies.

Their stated aim is to revolutionize the binary options world by providing a global online binary options exchange based on a social trading network.

The platform is designed as a peer-to-peer network and is quite user-friendly. Every trader can either write or purchase a binary option. If your order is not executed immediately, then it goes into the Order Book where every other trader in the network has the opportunity to take the other side of your order.

There is no commission to buy or write an option, but the firm takes a 2% fee from the person who profits from the trade (i.e, if you lost, there is no additional fee or commission).

NOTE: Traditional stock options (i.e., the ones that I typically write about here) use a language that is a bit different from that used by binary option traders. That should not result in any confusion because the meaning of the terminology is pretty obvious (once you understand the basics). If necessary, here is a for traditional option traders and another glossary for binary options.

TradEqual states (in their press release) to be the first "real" exchange,  where traders are given the opportunity to trade with their peers. TradEqual acts as the middle-man and their sole job is to connect traders who use their trading platform. That is a big change because you no longer have to trade against the broker who owns and operates the marketplace. The press release calls this a game-changing disruptive force in the binary options trading world. Let us hope so.

Another plus is that you can exit a position prior to expiry instead of being forced to own the position until expiry time.

How Binary Options Work at TradEqual

The exchange is open for trading 24 hours each day, 6 days per week.

  1. The obvious first step is to pick an asset to trade. The exchange publishes a list of available assets
  2. Choose either bullish or bearish. You can bet that the market will be above (buy the call) or below (buy the put) the current spot price at the time that the binary option expires. What makes the options "binary" is that there are only two possible outcomes: The trader's prediction proves to be correct or incorrect. The first step is select the asset that you want to trade.
  3. Choose buy or write. When buying, choose the size of your investment $30 minimum), and the profit potential is listed as a percentage of your investment. A Typical value is ~84%. If that 84% payout is not high enough, then you can enter a limit order where you state the size of the investment and the required payout (again, as a percentage of the investment). That order goes into the order book. Every trader can see the top (i.e., best payout) 3 offerings. If no one is willing to write a binary that meets your requirements, then the order is canceled 5 minutes prior to expiry time.

    When selling (writing), choose the size of your investment ($40 minimum) and set the payout (as a percentage) that you will pay to the buyer if the prediction is correct. If other traders offer a similar option with the same expiry, the three options with the highest payouts are displayed in the order book (where every trader can see them).

    As far as trading strategies go, the typical binary option trader almost always buys put or call options. However, the new kids on the street emphasize that a trader can earn money by writing (selling options). This is the first mention (that I have seen) for a binary options site to offer an opportunity to write binary options. With traditional stock options, there is a lot of risk associated with selling options, but binary option writers always have a limited loss -- the specified payout. The payoff value of the option determines the maximum possible loss for the writer.
     
  1. The strike price is always the (spot) price of the index at the time that the trade is made. In other words, when you accept the current offer and buy the binary option, or accept the current bid and write the binary option, the strike is the spot price. When your order goes into the order book, the strike price is not yet known because the spot price is determined at the time that your order is filled (i.e., someone takes the other side of the trade). 

    Thus, when your order to write a call option (a bearish play is placed into the order book, all you know for sure is the size of the investment and the expiry time. The strike price has not yet been chosen (the strike is the spot price at the time that another trader completes the trade with you). Thus, do keep an eye on the market because market conditions may dictate that it is best to cancel your order.
  2. The expiry time is pre-set, and you cannot choose your own specific time. This practice is the norm throughout the options industry. Depending on the asset being traded, expiry times for binary options can be 60 seconds, 15 minutes, 30 minutes, or 1 hour.

Is It Better to Buy or Write?

Assume That You Are the Buyer:

Th typical payout of ~85% seems pretty low to me. Unless there is some market condition that makes you believe that there is a far better than 50/50 chance that your directional prediction will come true, you cannot expect to prosper when losing $100 when wrong and earning $83.30 (after 2% commission) when correct. It seems far better to be the writer. And that is one of the beautiful things about this new exchange: You have the ability to write options.

NOTE: It is important to understand the special risk that comes with placing an order in the order book. When an offer to buy or write sits in the order book, it may suddenly become advantageous to take the other side of that bid or offer. That would occur, for example, if a bullish or bearish technical indicator flashed a buy or sell signal. The risk is that someone would take your order before you can cancel. 

Assume That You Are the Writer:

When writing any option, you are creating something that did not previously exist.

The odds of coming out ahead are far better than for buyers. This time you can earn $98 while risking only $85. However, as with any limit order in the investing world, your order may never be filled and can remain in the order book until it expires. In other words, you may be unable to make your desired investment unless you accept a lower payout whey buying or offer a higher payout when writing.

Speculating

When discussing standard stock options, my emphasis is always on using options as risk-reducing tools. Sure options are used to place wagers or speculate, but option traders can earn good profits by not taking a big risk. I am not a true believer in using options to gamble.

The binary options trading world is so different because each option has only two possible outcomes: true or false. In other words, an event will or will not happen. That is the setup that works just right for speculators.

Other Places to Trade Binary Options

Most competing binary-option trading businesses do not have exchange trading. In other words, you, the binary trader, must buy and sell options by trading with the broker, or the "house."

I previously reviewed Cherry Trade, one of the places where traders deal with brokers and suffer the indignity of lower-than-necessary payouts for winning trades.

Nadex is one competitor that actually uses an exchange. Nadex has one special advantage over most competitors because it is a US regulated exchange, and that means there is far less chance of getting swindled. However, Nadex lacks the other advantages that come with TRADEqual.

Review

Although the exchange is too new to allow for a complete review, I like what I have seen so far. They have overcome the greatest impediment to a trader earning money: lack of peer-to-peer trading.

TradEqual's payouts tend to be better that those found elsewhere.

In addition to peer-to-peer trading, there are a few market makers vying for the trades. This competition makes the payouts larger (note to traditional option traders: think of this as a tighter bid/ask spread) than when trading with the broker websites. Everyone in the trading industry understands: when there are more traders entering the markets (whether buyers, sellers, or both), the game becomes more competitive and that gives everyone a far better chance of finding success for the simple reason that payouts are better.

TRADEqual offers an open social network where you can message other traders. I do not see any benefit to this because people do not usually want to communicate with their competitors. Yet it is being touted as an extra feature.

No commissions. Instead, a 2% cut of the winning trader's profit is taken.

Assets Available for Trading

This video helps to explain how it works, but do keep in mind that it is an advertisement, and not anyone's description of the exchange:

TRADEqual offer binary options on a variety of assets, including stocks (such as AAPL, FB, GOOG, MSFT), index futures (SPX, NDX, DJIA, and DAX), currencies and commodities.

Summary of Key Benefits (as written by TradEqual)

  • Intuitive and user-friendly trading platform for beginners and experts alike.
  • The best payouts in the market and significantly higher profitability for traders.
  • Guaranteed. - No conflict of interest between traders and the broker because payouts are determined only by the traders.
  • Dynamic and social trading community, where traders can share views, market trends, tips, and recommendations all within the platform's online chat rooms. 

If you are a binary options trader, it is worth your time to look at what they have to offer.