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Cryptocurrencies and binary options – faster and more profitable?
Cryptocurrencies, binary options are modern ways of obtaining speculative and investment profit. Consider the pros and cons of crypto and binaries, and how to make money.
The claim that we live in a very fast changing world has long been hackneyed. Another question is that people by nature are quite conservative, and it’s very difficult to get a person moving. But the changes that are taking place around, including in technologies for generating profit, are simply impossible to ignore.
Profit twice as fast
At one time, one of the favorite tricks of Sberbank employees was a quote from “Alice in Wonderland”: “You need to run as fast just to stay in place, but to get somewhere, you must run at least twice as fast.”
A couple of decades ago, trading was very conservative and looked more like a classic buy-and-hold investment. However, now there are products that allow you to get fairly quick profits based on classic trading rules.
Today we’ll talk about two tools that are suitable for extraction quick profit, – binary options and cryptocurrencies. The main thing to remember is that no one has repealed the laws of economics, and often such profits are accompanied high risk of loss of funds.
Yes, we will not argue that cryptocurrencies can be considered as a source of more conservative investment income. But we will be cunning if, with volatility so characteristic of crypto-exchanges, we will consider them only from the point of view of investment. We all start with binary options.
What is binary options?
The definition of a binary option is very simple, it can be found in almost any economic literature on derivatives or derivative financial instruments. We will give one of them.
Binary option – agreementin which the seller of the option is obligated to pay the buyer a certain amount if a negotiated event occurs by the time the option is exercised. If it does not occur, the seller of the option pays nothing to the buyer.
The event that occurs at the time the option is exercised can be absolutely anything. In general terms, this is the movement of the price of an asset selected by a trader above or below a certain price value.
It looks like this:
- the trader chooses a financial asset that is convenient for him. As in the case with other derivatives, such an asset can be currency pairs, the same cryptocurrencies, stocks, stock indexes, goods . In a word, almost everything.
- After choosing an asset, the trader indicates the amount – in fact, the price of the option, and the time during which the option will be valid.
- Then you need to correctly predict the direction of movement of the asset. As when opening a “long” or “short” position with exchange-traded instruments, in order to make a profit, the trader must correctly determine whether the selected asset will fall or grow.
- After the transaction, the price of the asset is fixed. Drawing an analogy with a classic option, this is the strike price.
- If by the time the option expires, the trader correctly predicted the direction of the price movement, then he receives a fixed percentage of profit to his option price. If he made a mistake, then the lost amount is 100% of the option price. Therefore, as in classical trading, the formula works here: higher risk – higher profitability, lower risk – profitability is also lower.
Making Binary Options Profits
In general, there are two options for correctly predicting price movements and, accordingly, making a profit on binary options.
- The first option involves active analysis of the market situation fundamental and technical methods for predicting short- and medium-term market behavior.
- The second option, in our opinion, is more popular among traders and involves the use of two main advantages of binary options – time and distance, which the price of the selected asset should “go through” (we will talk about these advantages below).
The second option is called trade “on the news”. The fact is that quite often the market reacts not to long-term macroeconomic forecasts, but to momentary events.
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We give a simple example of transactions on the news
The news on good economic growth in Russia (high GDP) will be positively received on the market. And traders are likely to buy the Russian ruble, which will lead to its growth against other currencies.
This movement can be very short-term and almost elusive for the layman. However, for a binary options trader, this can become a real “gold mine” (unless, of course, such a trader learns to correctly evaluate certain events).
News about economic growth, inflation, unemployment and other macroeconomic indicators are constantly published. The time of publication of such news is 99% known in advance and is reflected in special economic calendars. Using these calendars, traders carry out transactions with binary options, short-term working to increase or decrease the market – depending on their assessment of the situation.
Advantages and disadvantages of binary options in terms of profit
It is undeniable that binary options are a very controversial tool. But the same can be said about almost any financial instrument used in speculative trading. And before moving on to cryptocurrency, we’ll talk about the pros and cons of binary options. Let’s start with their negative sides.
Cons of binary options
High risk of capital loss
Yes, statistics are merciless. As well as in trading on the stock market, on the foreign exchange or on the derivatives market, there is a very high probability of losing your funds. The simplicity of binary options does not completely eliminate their riskiness, therefore, to think that they can be a source of “easy money” is, at least, naive.
Alas, there are plenty of tools for predicting the so-called price movement goals (for example, “fair price” in the fundamental or support / resistance level in the technical analysis). But time forecasting tools in both types of analysis are extremely few. Even correctly predicting the direction of movement of the asset, the trader may make mistakes over time, which is critical in binary options and may result in losses.
Lack of regulation
Indeed, the binary options industry in Russia is not regulated by anyone. This means that for a trader the issues of protecting their funds and frequently arising conflicts of interest “broker-trader” also come to the fore.
Pros of binaries
The simplicity and accessibility of the “mechanics” of binary options
To understand the principle of bargaining and making a profit, in fact, is not difficult. In addition, the range of assets on which binary options can be acquired is very wide: stocks of both Russian and foreign companies, any indexes and any currencies, etc.
Imagine that you wanted to buy shares in a company. Unfortunately, we must be prepared for the fact that the acquisition of securities will lead to associated costs. First of all, this is a commission. Binary Options Broker for the purchase and in some cases the depositary commission for accounting for securities. Binary options exclude such commissions, and your associated costs will be zero.
Yes, we remember that it is written by us in the shortcomings of options. But, on the other hand, it is also their dignity. What other financial instrument, in addition to binary options, will allow you to earn, for example, 100% of the invested amount in just one minute?
Trading “on the news”, which we spoke about earlier, suggests the possibility of using a very short reaction time of the market to macroeconomic events. For binary options, this is enough for you to earn.
If you have already been engaged in trading, then you probably know that your income directly depends on the distance that the price “travels”. But what if the asset, which you considered promising and acquired for your portfolio, moved only a couple of percent up? It is possible that this move will not even cover transaction costs.
In binary options, however, this is out of the question. The profit that the trader receives does not depend on the distance the price goes.
That is, if the direction of the asset’s movement is predicted correctly, the most insignificant price change in the direction necessary for the trader is enough.
Undoubtedly, the binary options industry will continue to remain attractive for both beginners and professional traders. But literally not so long ago, another product appeared that caused genuine interest among many people – cryptocurrencies.
Cryptocurrency Earnings Approaches
The cryptocurrency market, of course, has a number of features compared to more mature, mature markets: increased volatility, less liquidity, the ability to generate excess returns.
However, if we consider the general principles of profit-making, working with cryptocurrencies is not much different from investing or speculating in other assets.
Hold is not for crypto
Exist investment approach “hold” (or “holding”), in which the user buys cryptocurrency and “forgets” about it. It does not trade, but simply waits a long time until the asset grows in value. True, in the current realities, this is undoubtedly not the best strategy. The market is just starting to develop, and there are no guarantees that the coins will survive the price volatility.
A striking example is the dynamics of the reference bitcoin. After the most powerful growth in 2020, when in December its value exceeded $ 19, bitcoin sharply rushed down. Already in February 000, the value of the coin was only $ 2020.
Now imagine how the “holders” are now feeling who bought the coin at the peak price in December 2020 (unless they are Zen Buddhists, of course)?
Portfolio and rebalancing
The optimal solution for the investor is the creation of a cryptocurrency portfolio and its constant adaptation to market realities.
Due to fluctuations in digital money rates, the market situation is constantly changing. Therefore more it is beneficial to carry out regular rebalancing of the portfolio, adapting to the situation in the industry, than just keeping the asset for a long time.
Moreover, the more often the rebalancing occurs, the greater the profit. If you adapt the portfolio every day, yield will be almost five (!) times higherthan in the case of adaptation once a month. However, this scenario of working with digital money is not suitable for everyone. This requires large investments and professional knowledge and experience.
Another approach to profit from cryptocurrencies is trading or speculating on the difference in exchange rates. It is available for both beginners and professionals. And here the high volatility of digital money, complicating the life of an investor, will only help the trader.
With this approach, you do not need to deal with the physical purchase and storage of coins. Only need choose a brokerthat you trust, and spend some time researching and analyzing the market.
The advantages of this approach: the ability to trade every day, a low entry threshold and a wide selection of trading instruments – from classic margin trading of the “forex” type to digital options with fixed income. As they say, for every taste and opportunity.
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Financial Analyst Nikolay Dudchenko. Experience in the financial markets – since December 2006. During this time I tried myself in the stock and foreign exchange markets. It prefers long time frames and sometimes uses fundamental analysis when making decisions. Trading styles – swing and positional trading. Technical analysis – Fibonacci levels, wave and indicator analysis.
What is cryptocurrency trading
Cryptocurrencies such as Bitcoin and Ethereum are decentralised digital currencies on the blockchain.
Some of the things that cryptocurrencies have in common include:
- Decentralisation – The decentralised nature of cryptocurrencies means that no single government body or financial authority has control over them
- Blockchain technology – All cryptocurrencies use a variation of blockchain technology (a kind of public ledger) to score records of each transaction.
- High level of security – Each cryptocurrency transaction is secured through advanced cryptographic techniques that make it almost impossible to counterfeit
Trading cryptocurrencies on our MetaTrader 5 platform means taking a position on a cryptocurrency pair when you expect it to rise or fall in value so you can make a profit when your prediction is correct.
How to trade cryptocurrencies
Trade Bitcoin, Ethereum, and Litecoin pairs without owning them. Our cryptocurrency pairs quote a cryptocurrency such as Bitcoin against a fiat currency, such as the US dollar.
Similar to Forex trading, you must understand when to buy (or “go long”) and when to sell (or “go short”). In Forex trading, you’ll buy a certain currency pair if you think the value of the base currency will rise. The opposite is also true: you will sell a certain currency pair if you think the value of the base currency will fall.
The same concept applies to our cryptocurrency pairs.
Let’s compare the differences between buying and selling, using the BTC/USD as an example:
- You’re buying the BTC and selling the USD
- You expect the BTC to rise in value so you can sell it back for a profit
- Buy = go long
- You’re selling the BTC and buying the USD
- You expect the BTC to fall in value so you can buy it back at a lower price (and make a profit)
- Sell = go short
In a nutshell, when you go long on the BTC/USD with Binary.com, you are not purchasing bitcoin directly. Instead, you’re taking a position that the BTC/USD will rise in value whereby you will make a profit. If you go long on the BTC/USD and its value falls, then you will make a loss.
Cryptocurrency margin policy
Margin allows you to trade on leverage – meaning your existing capital can give you a much higher level of market exposure.
For example, if you wanted to purchase 100 units of a particular asset that’s trading at USD 50 per unit through a traditional broker, it would typically cost you USD 5,000 for this transaction.
However, with leverage you can purchase those 100 units at a fraction of the typical cost – depending on the leverage afforded to you by your broker or trading platform.
How to calculate margin
You can determine the margin for our cryptocurrency pairs by using the formula below:
For example, if you wanted to buy one volume of the BTC/EUR cryptocurrency pair at a price of USD 4831.400 and at a margin rate of 10%, the margin that you need to purchase one lof of BTC/EUR will be calculated as follows:
What’s a margin call and how is it applied
Equity is the sum of your balance and floating profit and loss (PnL). Margin level is the ratio of equity to margin. When that ratio reaches a specified percentage (usually 100%), your account will be placed under margin call. This does not affect your ability to open new positions; it serves to alert you that your floating PnL is moving lower. However, it is recommended to add funds to your account in order to keep your positions open. Alternatively, you may close losing positions.
What’s a stop out level and how is it applied
If your margin level reaches an even lower level (usually 50%), it will reach the stop out level where it is unable to sustain an open position. This will lead to some, or all your open positions being forcibly closed (also known as “forced liquidation”).
When your account hits the forced liquidation level, your orders and positions are forcibly closed in the following sequence:
- We delete an order with the largest margin reserved
- If your margin level is still under the stop out level, your next order will be deleted. However, orders without margin requirements will not be deleted
- If your margin level is still under the stop out level, we will close an open position with the largest loss
- We will continue to close open positions until your margin level becomes higher than the stop out level
Cryptocurrency contract specifications and commission scheme
|Symbol||Description||Lot size||Minimum volume||Volume step|
|BTC/USD||Bitcoin vs US Dollar||1||0.01||0.01|
|ETH/USD||Ethereum vs US Dollar||1||0.10||0.01|
|LTC/USD||Litecoin vs US Dollar||1||0.10||0.01|
|BCH/USD||Bitcoin Cash vs US Dollar||1||0.01||0.01|
|XRP/USD||Ripple vs US Dollar||1||100||100|
|DSH/USD||Dash vs US Dollar||1||1||1|
|EOS/USD||EOS vs US Dollar||1||1||1|
How to read the contract specifications table
Each time you open a position on a cryptocurrency pair, you can start with a minimum volume as indicated in the table above.
To learn more, read our Margin Policy that further explains our margin requirements.
Commission and swap scheme
|Symbol||Description||Commission per side trade||Swaps Long (per annum)||Swaps short (per annum)|
|BTC/USD||Bitcoin vs US Dollar||0.50%||-20%||-20%|
|ETH/USD||Ethereum vs US Dollar||0.50%||-20%||-20%|
|LTC/USD||Litecoin vs US Dollar||0.50%||-20%||-20%|
|BCH/USD||Bitcoin Cash vs US Dollar||0.50%||-20%||-20%|
|XRP/USD||Ripple vs US Dollar||0.50%||-20%||-20%|
|DSH/USD||Dash vs US Dollar||0.50%||-20%||-20%|
|EOS/USD||EOS vs US Dollar||0.50%||-20%||-20%|
How to read the commission and swap scheme table
Each time you send us an order, you are charged a commission, which is equal to the asset price multiplied by the percentage seen in the above table.
Partner With Us
In the EU, financial products are offered by Binary Investments (Europe) Ltd., W Business Centre, Level 3, Triq Dun Karm, Birkirkara, BKR 9033, Malta, regulated as a Category 3 Investment Services provider by the Malta Financial Services Authority (licence no. IS/70156).
Outside the EU, financial products are offered by Binary (SVG) LLC, Hinds Building, Kingstown, St. Vincent and the Grenadines; Binary (V) Ltd, Govant Building, Port Vila, PO Box 1276, Vanuatu, regulated by the Vanuatu Financial Services Commission (view licence); Binary (BVI) Ltd, Kingston Chambers, P.O. Box 173, Road Town, Tortola, British Virgin Islands, regulated by the British Virgin Islands Financial Services Commission (licence no. SIBA/L/18/1114); and Binary (FX) Ltd., Lot No. F16, First Floor, Paragon Labuan, Jalan Tun Mustapha, 87000 Labuan, Malaysia, regulated by the Labuan Financial Services Authority to carry on a money-broking business (licence no. MB/18/0024).
This website’s services are not made available in certain countries such as the USA, Canada, Hong Kong, Japan, or to persons under age 18.
The products offered via this website include binary options, contracts for difference (“CFDs”) and other complex derivatives. Trading binary options may not be suitable for everyone. Trading CFDs carries a high level of risk since leverage can work both to your advantage and disadvantage. As a result, the products offered on this website may not be suitable for all investors because of the risk of losing all of your invested capital. You should never invest money that you cannot afford to lose, and never trade with borrowed money. Before trading in the complex products offered, please be sure to understand the risks involved and learn about Responsible Trading.
In the EU, financial products are offered by Binary Investments (Europe) Ltd., W Business Centre, Level 3, Triq Dun Karm, Birkirkara, BKR 9033, Malta, licensed and regulated as a Category 3 Investment Services provider by the Malta Financial Services Authority (licence no. IS/70156).
In the Isle of Man and the UK, Synthetic Indices are offered by Binary (IOM) Ltd., First Floor, Millennium House, Victoria Road, Douglas, IM2 4RW, Isle of Man, British Isles; licensed and regulated respectively by (1) the Gambling Supervision Commission in the Isle of Man (current licence issued on 31 August 2020) and by (2) the Gambling Commission in the UK (licence reference no: 39172).
In the rest of the EU, Synthetic Indices are offered by Binary (Europe) Ltd., W Business Centre, Level 3, Triq Dun Karm, Birkirkara, BKR 9033, Malta; licensed and regulated by (1) the Malta Gaming Authority in Malta (licence no. MGA/B2C/102/2000 issued on 01 August 2020), for UK clients by (2) the UK Gambling Commission (licence reference no: 39495), and for Irish clients by (3) the Revenue Commissioners in Ireland (Remote Bookmaker’s Licence no. 1010285 issued on 1 July 2020). View complete Regulatory Information.
Binary.com is an award-winning online trading provider that helps its clients to trade on financial markets through binary options and CFDs. Trading binary options and CFDs on Synthetic Indices is classified as a gambling activity. Remember that gambling can be addictive – please play responsibly. Learn more about Responsible Trading. Some products are not available in all countries. This website’s services are not made available in certain countries such as the USA, Canada, Hong Kong, or to persons under age 18.
Trading binary options may not be suitable for everyone, so please ensure that you fully understand the risks involved. Your losses can exceed your initial deposit and you do not own or have any interest in the underlying asset.
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 78.6% of retail investor accounts lose money when trading CFDs. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Bitcoin a Bad Hedge Amid Rout, Roubini Claims
By Yasin Ebrahim
Investing.com – Bitcoin’s fledging status as digital gold has come under fire as the popular crypto continued to languish at near three-month lows after traders flocked to safety.
Bitcoin ( GDAXUSD ) fell 6.75% to $7,810 and remained close to session lows of $7,700, the lowest level since Jan. 10.
The selloff is “another proof that Bitcoin is NOT a good hedge vs risky assets in risk-off episodes,” claimed Nobel-winning economist Nouriel Roubini. “It actually falls more than risky assets during risk-off. So BTC is a (s—– s—coin) hedge in risk-off cases.”
Bitcoin has sold off more than 25% since Friday, with as much as $26 billion wiped from its market cap.
Still, there are some who continue back the popular crypto as a long-term bet.
“For those who have long term investment horizons, bitcoin is absolutely a buy during these dips,” Jehan Chu, co-founder of Kenetic Capital, an investor in blockchain startups told CNBC. “We can expect more of this volatility sparked by macro health and financial shocks, but ultimately long-term investments in the digital future and it’s key asset Bitcoin will be a winning strategy.”
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Dr. Nouriel Roubini: Central Bank Digital Currencies Will ‘Destroy’ Bitcoin and Other ‘Worthless Cryptocurrencies’
Earlier this week, Dr. Nouriel Roubini, one of the most well-known and harshest critics of blockchain technology and cryptocurrencies, wrote that central bank digital currencies (DBDCs), which the International Monetary Fund (IMF) chief, Christine Lagarde, had talked about last week, would bring the downfall of cryptocurrencies.
Dr. Roubini, who teaches economics at New York University (NYU) Stern School of Business, was writing about CBDCs in an article for the Guardian, and he was arguing that central banks should “issue their own digital currencies” to “replace a crisis-prone banking system” and “shut out cryptocurrencies.”
Cash Usage Going Down in Many Places
With the growing use of debit/credit cards (as well as Apple Pay and Google Pay, which are connected to them) and digital payment services such as PayPal, Venmo, and Square’s Cash App, as well as equivalents outside the U.S. (such as “Alipay and WeChat in China”, M-Pesa in Kenya”, and “Paytm in India”), there is less and less need for consumers to use cash, and in fact, in places such as Sweden, cash usage is quite rare, even when purchasing small value items such as magazines.
As Roubini correctly points out, these solutions are “still connected to traditional banks,” and none of them “rely on cryptocurrencies or blockchain.” But the following assertion is less easy to swallow:
“Likewise, if CBDCs are ever issued, they will have nothing to do with these over-hyped blockchain technologies.”
CBDCs Would Eliminate All Cryptocurrencies
Roubini says that policymakers considering the idea of CBDCs does not mean that they have accepted the idea that it is necessary for central banks to use the blockchain or any kind of cryptocurrency. Rather, he claims that “CBDCs would likely replace all private digital payment systems, regardless of whether they are connected to traditional bank accounts or cryptocurrencies.” In case you are wondering why Roubini thinks so, he says that it is because
- central banks already have “a centralised permissioned private non-distributed ledger that allows for payments and transactions to be facilitated safely and seamlessly”;
- by allowing individuals, corporations, and non-bank financial institutions to “make transactions through the central bank,” CBDCs would be able to alleviate “the need for cash, traditional bank accounts, and even digital payment services;”
- CBDCs would “immediately displace cryptocurrencies” since the latter are not “scalable, cheap, secure, or actually decentralised;”
- although some people may wish to use them in order to carry out anonymous transactions, Bitcoin is not that “anonymous”, and authorities are likely to “soon crack down on” privacy-focused cryptocurrencies that offer “complete privancy.”
It is hard to argue with parts 1, 2, and 4 of his reasoning. Part 3, however, is more contentious since there are both existing and upcoming cryptocurrencies that seem scalable, cheap, and secure, and mostly decentralized.
Rather unsurprisingly given the way he has expressed his contempt for cryptocurrencies (especially Bitcoin) in the past, Roubini seems excited by the idea of CBDCs eliminating “worthless cryptocurrencies.”
CBDCs Would Drive Financial Inclusion
Financial inclusion could be defined as “the pursuit of making financial services accessible at affordable costs to all individuals and businesses, irrespective of net worth and size, respectively.”
Here, Roubini is agrees with Coinbase UK CEO, Zeeshan Feroz, who said on 14 November 2020, as covered by CryptoGlobe, that CBDCs can help drive financial inclusion:
“Moreover, by transferring payments from private to central banks, a CBDC-based system would be a boon for financial inclusion. Millions of unbanked people would have access to a near-free, efficient payment system through their cell phones.”
What Would Happen to Retail Banks If CBDCs Take Off?
Roubini acknowledges that the “main problem with CBDCs is that they would disrupt the current fractional-reserve system through which commercial banks create money by lending out more than they hold in liquid deposits,” and that “f all private bank deposits were to be moved into CBDCs,” then “traditional banks would need to become ‘loanable funds intermediaries,’ borrowing long-term funds to finance long-term loans such as mortgages.”
He says that this means that “the fractional-reserve banking system would be replaced by a narrow-banking system administered mostly by the central bank,” which would be a good thing and would allow central banks to be “in a much better position to control credit bubbles, stop bank runs, prevent maturity mismatches, and regulate risky credit/lending decisions by private banks.”
He concludes by saying that although some challenging issues would need to be addressed, we should still be open to the idea of CBDCs since eventually “CBDC-based narrow banking and loanable-funds intermediaries could ensure a better and more stable financial system.”
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