Cryptocurrency options. New Era of binary options?

As traders, we don’t need to necessarily understand everything about how crypto works, just like we don’t need to be a mechanic to drive our car. That said, it certainly helps to know a few things.

Cryptocurrencies are a form of payment that is stored and tracked digitally. Like paper money (which is also mostly digital now) you can transfer it to someone else, receive it, buy things with it, and convert it to other currencies – whether crypto or a fiat currency such as US dollars, pounds, yen, etc.

Cryptocurrencies trade on exchanges or through brokers, just like the British pound or US dollar. These are all free-floating currencies, meaning the price of the currency is set by supply and demand. Cryptocurrencies trade on exchanges like EXMO or Coinbase or through brokers, just like the British pound or US dollar.

If a lot of people want to buy a cryptocurrency, such as Bitcoin, but there are few sellers at the current price (who are only willing to sell at higher prices), then the price will rise as the buyers purchase the coins at higher prices.

On the flip side, if people want to sell, but there aren’t many buyers at current levels, the sellers will be forced to sell to people who are buying at lower prices, and thus the price will drop.

This is going on every second of every day, since cryptocurrencies trade 24 hours per day, seven days a week. Forex brokers aren’t open on weekends, so paper money or “fiat currency” only trades during the week.

Cryptocurrency isn’t backed by anything either. It is issued by technology or an algorithm, not a government. It has no value except for the value people give it.

People’s perceived value and utility for a cryptocurrency can vary wildly, as shown by Bitcoin’s price swings. It went from trading below US$400 in early 2016, to more than $60,000 in early to 2021, to below $30,000 in mid-2021, to over $65,000 in late 2021, to below $14,000 in late 2022.

By comparison, the US dollar has moved about 30% over the last five years. This is why it remains the currency choice for most international business transactions around the world: because its price remains relatively stable over time (relative to other currencies).

Those massive price swings are actually exactly what draw people to cryptocurrency trading. However, over the long term, if cryptocurrency is to be adopted as a viable and widely-accepted global payment method it will need to become more stable.

If you know the crypto value could be 10% different tomorrow, that will affect the price you pay for something, making it 10% more or less expensive. It is hard to operate a business or manage personal expenses with that type of uncertainty.

This in no way takes away from the potential profitability of trading cryptocurrencies. Even if Bitcoin and other crypto currencies were to become more stable, then they would still offer great opportunity, just like trading forex (US dollar, Australian and Canadian dollar, etc.) does for the people who trade that market.

If you think the price will be above the specified price at the specified time, this is a “call” option. If you are correct, you receive a specified payout, such as 80% of the amount wagered. If you are wrong, you lose the amount you wagered.

If you think the price will be below the specified price at the specified time, this is a “put” option. If you are correct, you receive the amount specified before you placed the trade. If you are wrong, you lose the amount you wagered.

Binary options can be traded on any asset with an active market, such as the EURUSD currency currency pair, a stock index like the S&P 500, or an individual stock like AAPL.

With a binary option, you aren’t actually buying or selling the underlying asset. If you buy a call on Bitcoin (thinking it will go up or stay above the specified price), you aren’t actually buying Bitcoin. You are making a bet with the broker on the direction of Bitcoin. You and the broker exchange money, nothing more.

In the US, NADEX is a regulated and authorized binary options exchange. With these options, traders are placing bets against each other, not the exchange/broker. When the option expires the winning party is paid out.The Chicago Mercantile Exchange (CME) is launching similar products which are legal in the US.

With the exception of the NADEX and CME exchange, foreign binary options are banned from soliciting US clients. Many European countries have also banned binary options because in most cases (except with NADEX) there is a conflict of interest between the broker and the client with little recourse if the client feels they have been wronged.

Most binary options brokers are unregulated, meaning they have no oversight by government or regulator organizations. If you decide to trade binary options, opt for a broker that is regulated.

“Where you want to be is always in control, never wishing, always trading, and always, first and foremost protecting your butt.” – Paul Tudor Jones

There are no fees with most binary options because the broker is making money off the difference between the amount you win when right and the amount you lose when wrong. In the US, the exchanges charge trading fees since they are not involved in the trade.

The most common type of binary option is called the high/low. You decide if the price will be higher or lower than the current price for a selected amount of time, such as 10 seconds, one minute, 15 minutes, one day, one week, and so on.

If you think Bitcoin will go up in the next minute, you’d buy a call that expires in one minute. If you think Bitcoin will be down over the next week, you’d buy a put option that expires in one week. Binary cryptocurrency options are quite flexible and allow you to profit whether the price of the cryptocurrency is rising or falling, within any time frame.

This is important to remember, because while some cryptocurrency will often spike up, they also often have sharp declines. When the price is falling, it’s the time to take advantage with puts. When the price is rising, profits are more likely with using calls.

“The biggest risk is not taking a risk. In a world that’s changing really quickly, the only strategy that is guaranteed to fail is not taking risks.” – Mark Zuckerberg

Binary brokers typically offer cryptocurrency options on the most popular coins, such as Bitcoin and Ethereum.

They may offer trading in some other popular coins, but if there isn’t a lot of interest in the coin/currency then it may not be tradable as a binary option. Not all brokers offer binary options on cryptocurrencies.

• Binary options have a fixed payout and risk; trading cryptocurrency does not. If you are correct on a binary options trade, the most you will make is 70% to 90% of the amount you wagered.

If Bitcoin were to go up 1000%, you would still only make 70% on the binary. If Bitcoin goes up 1%, you can still make 70% on the binary.

• Binary options have fixed risk, but you are wagering it all. Trading crypto directly is more flexible. With binary options you choose how much you are willing to lose. This could be $1 or $10,000. If you lose, it is all gone.

When you own Bitcoin, you can sell it any time for a profit or loss. You could own $100,000 worth of Bitcoin, but sell it as soon as you start to lose money. Alternatively, you could hold while it drops 50% – and now you are down $50K.

• Binary options have a negative reward:risk. On winning trades, you make less than what you lose on losers. This means you need to be right often to make money over many trades. With trading crypto directly, you control your profits and losses.

If you let profits run and cut losses quickly, your wins will be bigger than your losses. You don’t need to be right very often to make money.

• Trading crypto binaries doesn’t require having a crypto wallet or dealing with exchange rates. You make a wager in your account currency and you are paid out in your account currency. If you own actual crypto coins, you will need a crypto wallet.
• With binary options, you make a trade every few seconds, potentially making 70%+ or losing 100% of the wager on each trade. With trading actual cryptocurrencies, this would not be feasible due to the price movement not being enough to overcome the trading fees.

When dealing with any financial instrument, and especially crypto since it is a largely unregulated market, be on the look out for frauds, such as companies offer free bitcoins like Moon Bitcoins.

How can I buy binary options on cryptocurrency?

Find a binary options broker that offers trading on cryptocurrencies. If you expect the price to go up, you will be buying a call option. You don’t actually own the underlying cryptocurrency, but if the price goes up, you will receive a fixed payout from the broker.

How can I trade options on cryptocurrency?

In the US, the CME group offers option trading on Bitcoin futures contracts. Outside the US, binary options brokers provide binary options on various cryptocurrencies. In either case, you will need to open an account with a broker offering these services.

Who is the best binary options broker for cryptocurrency?

We provide a ranking of the best binary options brokers on our Binary Options Brokers page.

Where can you trade options on cryptocurrency?

Options trading on cryptocurrencies is limited in the US. CME group offers options on Bitcoin, but there isn’t much volume available. Outside the US, binary options are more popular for trading cryptocurrency movements. This requires opening a binary options trading account.

Do I need crypto storage if trading cryptocurrency binary options?

With a binary option, you don’t own the underlying asset. This means you are not required to have a crypto storage wallet for trading cryptocurrency binary options.

Which cryptocurrency options are better to trade? Bitcoin, Ethereum, Doge?

Money can be made with cryptocurrency options whether the price rises or falls. That means any coin could be suitable for options trading. That said, brokers will only typically offer binary options on popular and well-known coins.

Final Thoughts

Binary options on cryptocurrencies is still an emerging field. Both products have only gained popularity in the last decade. A few binary brokers offer binary options on cryptocurrencies, but many brokers have yet to take the plunge.

It may take some diligent searching to find a broker that offers binaries on crypto, and that offers the conditions and tools you are looking for. Binary options are simple in structure, but that doesn’t mean it is easy to make money.

A sound trading strategy is still required, especially since binary options require you to predict the market correctly more often than not because the amount you can win is less than the amount you can lose.