Binary Options and Leverage

Everybody who tries financial trading will eventually discover the concept of leverage, and almost everybody will try to use it, sometimes massively.

It seems logical that if we are able to move huge amounts of Money we might win more Money and make a living out of trading. But that thinking is an illusion since the majority who try to leverage will end up losing.

Leverage Binary Options

The more they leverage the worst. And, it does not matter whether it is in futures, forex, CFDs, options or binary options.

All those instruments offer the possibility of leverage, whether directly or indirectly (stocks through CFDs, binaries or traditional options).

Forex brokers offer between 50:1 to 3000:1, as in the case of FXGlory, although it is more normal to be close to 100:1. In the United States, the maximum is 50:1 due to regulatory restrictions.

Futures brokers offer leverage up to 100 sometimes, depending on the instrument and whether we do day trading or not.

CFDs have different levels of leverage. We may find 5:1 for some volatile stocks, or 500:1 for some of the main stock indexes. The average should be around 50:1.

In these cases, the trader might choose not to leverage since we are talking about maximum allowed.

Traditional stocks offer 4:1 for day trading in the United States, being 2:1 for overnight trading.

Most brokers in Europe do not offer leveraged stock trading, although some of them do. Anyway, in Europe there are CFDs, where you can trade leveraged stocks easily.

However, there is one instrument that is supposed not to have leverage. That instrument is binary options and, despite the appearances, it uses a lot of leverage.

Broker with biggest leverage in the World

In practice, binary options brokers are the ones that offer the highest leverage in the market, by far.

Some people say that binary options are not leveraged, that “they are a different asset” because risk is limited, etcetera. But, in reality the offer huge leverage. That is to say, a guy who trades DAX binary options for a 60 seconds bet is using tremendous leverage.

Let us see an example:

We open a €1.000 account in a binary broker. We bet our $1.000 for the DAX to close over a certain price after 60 seconds. If the DAX ends up above the price, we win 800€, for instance (80% payout), and if we lose, we have to pay 1.000€.

A normal minute volatility in the DAX index is 8 points, for a 10650 DAX (02/10/2015). What is to say, in one minute period it is very likely that the DAX moves 8 points up or down. Those eight points equate to a 0,076% move. So, when the DAX moves 0,076% we may lose 100% of our binary options “investment”.

That would be equivalent to using a 1315:1 leverage.

Other example:

We can bet €1000 in the USDCAD, but in this case, we will use a 30 seconds bet, which also exist normally in binary options providers. If we chose 30 seconds bars and study their inherent volatility, we find that the price hardly moves more than two pips in average. That, for a price of 1.2480 is a 0,016% price of the asset.

We can bet our entire account (1000€) for any side of the market, either down or up. If we lose, our €1000 is gone. If we win, we make €800 or so.

Therefore, we can lose 100% of our account with a move of 0,016% of the asset, which means that we would be trading with a leverage of 6250:1 (100/0,016).

Binary options leverage

As you see, the leverage offered by binary option brokers is much higher than anything else you can find out there.

For instance, in forex, despite that there is some case with 3000 or 2000:1 leverage, they are an exception.

On the contrary, binary options brokers offer their 1 minute bets as their most popular product.

That means, we can use a binary options broker to make bets with a 4, 5 or 6 thousand to 1 leverage very easily. That makes binary option brokers, the most leveraged in the World.

And I do not think I have to add that no one is going to win in those one minute bets, I mean, not in the long run. Not in your wildest dreams.

Good luck and good trading.

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