Choosing the right binary options expiration is extremely important in trading. The main factor influencing this action is your trading strategy , which provides for a certain frequency of buying binary options according to emerging signals. When purchasing a Call or Put option, the trader determines the expiration time, or the time interval during which the digital contract is valid. At the end of this period, the transaction is automatically closed. Expiration time is not just an ordinary option, it is something that significantly affects your potential profit from trading.
It is the expiration that distinguishes binary options from the Forex market and therefore it is very important to understand how to choose the right expiration time for a binary option.
Content:
- What is expiration time in binary options;
- Types of binary options expirations;
- Turbo (expiration from 30 seconds to 5 minutes);
- Ultra-short (intraday trading);
- Short-term (expiration from 1 day to 1 week);
- Medium-term (expiration from 7 to 30 days);
- Long-term options (expiration from 1 month to 1 year);
- How to choose the right expiration time for a binary option;
- Selecting the optimal expiration time for a binary option;
- The relationship of strategies and timeframes with the expiration time of binary options;
- How is the expiration time of a binary option and the timeframe related?
- Relationship between expiration and trading strategy;
- Conclusion: how to choose the right expiration time for a binary option.
What is expiration time in binary options
The expiration of binary options is understood as the period after which the transaction will be closed with a certain financial result. For example, if the expiration time is set to 15 minutes, then after this period of time the transaction will close automatically and the trader will know whether the bet will be in the money or will be unprofitable. Expiration may be longer, and some brokers allow you to trade options with expiration from 1 day to several months. It is important to understand that the choice of expiration time always occurs before concluding a transaction.
Different types of binary options allow the trader and investor to choose the most suitable expiration time. Specific options are available in your broker's trading platform :
More often, traders use the minute expiration time of binary options in trading, but there are many other periods:
- seconds (30 seconds);
- minute (1, 2, 3, 5, 10, 15, 30, 45 minutes);
- hourly (1, 2, 3 or 4 hours);
- daytime (1 day);
- weekly (1 week);
- menstruation (1 month);
- quarterly (3 months).
Types of binary options expirations
Each broker has its own trading conditions, and accordingly, expiration dates may also differ. There are short-term deals and contracts lasting 30 days or even more. Each type has its own percentage of profitability, because the degree of risk is completely different.
Novice investors usually pay little attention to the time factor, not understanding its impact on the final result. This issue begins to be considered more carefully much later, when they have already gained some experience in the financial markets.
Also, depending on the expiration period of binary options, they can be divided into:
- Turbo . Expirations that do not exceed 5 minutes, and most often last 60 seconds (1 minute) or less. Binary options with such a short expiration should only be used by experienced traders, since it is very difficult to predict price movements in such a short period of time.
- Ultra short . Valid for 1-24 hours. The optimal period is from 1 hour. It is worth trading them when choosing an appropriate strategy that takes into account the features of this type of options. Effective forecasting is made difficult by the fact that the initial data is minimal.
- Short term . Cover a period from a day to a week. It is advisable to close all positions no later than Friday. Unexpected events are likely over the weekend that will significantly affect price fluctuations.
- Medium term . Lasts 7-30 days. Trading signals must be filtered and confirmed from multiple sources. Also, the analysis takes into account the entire complex of factors affecting the price.
- Long-term . An area dealt with primarily by professional players, including large financial institutions. The validity period is from a month to a year or even more. The trading conditions for them differ significantly from other types of options. For example, the minimum bid amount is much higher than for other contracts. When modeling the future situation on the market, all fundamental factors are taken into account, for example, the political situation, the actions of oil companies, and the like.
The expiration of binary options also directly depends on its type. An American option is a more flexible instrument that allows you to reduce the expiration period for a bet already made. This is very convenient if a trader sees that he has made a mistake and wants to close the position as quickly as possible. European binary options do not provide such an option.
Some brokers offer clients another important feature - extending the closing time. If an investor is confident that the price will definitely reverse and reach the desired level, he simply selects this option, increasing the chances of making a profit.
Next, we will consider each of the types of binary options expirations in more detail.
Turbo (expiration from 30 seconds to 5 minutes)
The expiration time for these options ranges from 30 seconds to five minutes. This time interval is used only by experienced traders, since trading in such a limited period requires serious moral, psychological and professional preparation. This type of trading is known as binary options scalping . And traders working with turbo options are called scalpers.
The advantages of this type of trading include the ability to conclude a large number of transactions during one session, since such transactions are completed very quickly. Turbo options allow you to receive an increased percentage of operations, which is paid by the broker. But such trading is associated with great risk. When working in such a limited time frame, market noise inevitably arises, which prevents indicators and other tools from giving the correct signals.
Among traders who trade turbo options, the Martingale method and the Anti-Martingale method are popular. This option helps you get more profit, but also requires a larger deposit:
Ultra-short (intraday trading)
In this trading format, they work with binary options, the expiration time of which is from 1 to 24 hours. The advantage of this type of trading compared to the previous one is that in this case traders receive more tools for conducting qualitative analysis due to the fact that they can track price changes over a longer time period. This makes it easier for traders to predict changes in price direction by reducing the impact of price noise and being able to more accurately determine the trend . In addition, day trading traders can more effectively use:
- indicators;
- trend analysis;
- support and resistance levels ;
- graphical analysis ;
- candlestick analysis ;
- Price Action .
Brokers in the case of intraday trading set a relatively high percentage of profit on the transaction:
Short-term (expiration from 1 day to 1 week)
In such trading, traders also use an extensive arsenal of tools described above, however, in the case of such long expirations of binary options, special attention should be paid to the tools of technical and fundamental analysis. When all parameters are taken into account, traders are able to make a fairly accurate forecast.
It is worth noting that with this form of trading, restrictions are introduced on the number of transactions made during one session, since when buying an option with an expiration time of 1 day, you will no longer be able to make transactions on this trading asset and will need to wait until it closes.
Trading with such binary options expiration dates is chosen by users who seek to reduce the number of unprofitable operations. This happens due to the fact that when choosing the price direction, the trader also focuses on the news background, which allows him to determine the current mood of the market:
Medium-term (expiration from 7 to 30 days)
Trading with such expiration of binary options differs from the previous one only in length. In terms of analysis, everything remains unchanged here and the main emphasis should be placed on fundamental factors, which must be confirmed by technical analysis and trend. It is also worth noting that only experienced traders use such expirations:
Long-term options (expiration from 1 month to 1 year)
Only experienced traders who understand the peculiarities of the functioning of the market also work with such binary options, since expirations in this case range from 1 month to 1 year. You can place orders with such a long expiration period if you have a large budget.
The disadvantages of this trading method include the fact that not all brokers allow the use of such time intervals:
How to choose the right expiration time for a binary option
Choosing the right expiration time for a binary option is one of the most important steps traders take. This parameter plays a greater role the higher the transaction amount. This is explained by the very definition of the concept. The success of binary options trading is determined by the effectiveness of the forecast. So, if a trader correctly predicts the price direction, he makes a profit. In this case, it is necessary that the rate does not change its movement during the expiration of the binary option. Therefore, transactions of the same nature (for example, trading Call options) with the same trading asset in the case of a 10-minute expiration of a binary option bring profit, and with an expiration of 30 minutes - a loss.
If you are in doubt about which binary options expiration to choose, choose the longer one. A short period (short expirations) is only part of the global picture, so it is worth analyzing trends on a large scale, looking at quote movements on different timeframes in order to notice the formation of a new trend or correction in time.
To trade intraday, you need to know the features of chart analysis on small time frames. Options with a short duration (from a few minutes to an hour) are considered the riskiest. Beginners love them for quick results and high profitability, but the result is often disappointing, since without understanding all the intricacies of the matter, they lose their deposit . Classic technical analysis is ineffective for turbo options. Trading exclusively on news is also not always possible, because some brokers may block access to short-term transactions before their publication. You have to rely only on luck or use other approaches, for example, using trend lines . Their breaking is a clear signal to enter the market.
Professionals advise novice traders to study the features of long-term transactions, the outcome of which is much more convenient to predict, so the risks are much lower, as is the profitability. The price movement in the future is quite strongly influenced by economic factors and other external circumstances, on which you can build your strategy without taking into account technical data.
We can conclude that the more experience, the better the trader understands how to choose the right expiration time for a binary option in a given situation.
Choosing the optimal expiration time for a binary option
Fans of short-term trading need to choose the appropriate binary option expiration time. Trading at short intervals allows you to quickly gain experience working on the stock exchange, but is not recommended for beginners without any experience.
Trading assets and expiration times can be divided by type of trading asset:
- from 5 minutes to 1 hour – currency pairs ;
- from 1 hour to 1 day – indices, commodities;
- from 1 day to 1 month – cryptocurrencies , shares;
- from 1 month to 1 year – any instruments, but please note that this is investing, not trading.
The dependence of the expiration period of binary options on the type of trading asset is not sufficiently covered in the specialized literature. A novice trader should initially receive maximum useful information that will allow him to effectively plan his work. For example, prices for some currency pairs are relatively stable compared to the same gold or oil intraday (these trading assets are very volatile). Therefore, it is easier to predict the price movement of currencies, and professionals advise concluding transactions for a short period (from 1 hour), increasing their number. Currencies, of course, can also exhibit significant volatility , but their sharp fluctuations are more often caused not by supply and demand, but by fundamental factors based on politics and other world processes.
For beginners without experience who train on a demo account, experienced traders advise setting the expiration time of binary options at 3-5 candles, depending on the selected timeframe:
This rule can be used when working with different assets and on any charts. But it is worth remembering that this only makes sense during training. As soon as a trader gains experience, it is worth creating your own trading strategy and selecting the expiration of binary options for it.
The type of asset on which the binary option is based also depends on the expiration period. When trading short-term, as mentioned earlier, it is recommended to work with currency pairs, commodities or stock indices. This is explained by the fact that the quotes of such assets are not subject to sudden fluctuations. Therefore, it is easier for traders to predict price changes with short expiration of binary options.
For medium- and long-term trading, they often work with cryptocurrencies and stocks. The prices of these assets are subject to fluctuations under the influence of various factors. Moreover, quotes can change several times within a relatively short time interval.
As mentioned earlier, when choosing an expiration time, you need to take the timeframe into account. Both indicators are considered important tools that are taken into account when developing a binary options trading strategy, and next we will look at how expiration and time frame are related.
The relationship between strategies and timeframes and the expiration time of binary options
A time frame is a time interval at the end of which a candle or bar closes on the chart. Expiration of binary options is the period after which the transaction is automatically closed.
When working with binary options, traders do not use trading tools such as stop loss and take profit. To make a profit, users only need to determine the direction of price movement for the selected expiration time. Depending on the forecast, the trader chooses which type of option to buy - Call or Put.
How is the expiration time of a binary option and the timeframe related?
Most novice traders do not see the difference and correlation (relationship) between these concepts. For this reason, some users make mistakes by opening only unprofitable trades. In particular, beginners often choose the wrong time frame and expiration time. So, by setting the last parameter to 5 minutes and working on an hourly chart, a trader is more likely to lose money, because this type of trading is more like playing roulette. That is, under these conditions, the profitability and unprofitability of transactions is determined solely by luck. In this regard, the risks of losing your deposit increase. Therefore, we can conclude that the expiration time of a binary option directly depends on the selected timeframe:
If the M5 timeframe is set, then it takes 5 minutes to form one candle on the chart. After carrying out the appropriate analysis, you can understand what level the price will reach after, for example, 30-60 minutes. By “multiplying” both indicators (the number of candles and the timeframe), you can get the approximate expiration time in binary options.
To understand this rule, we can give the following example: on the chart with the M5 time frame, a bullish trend began to emerge. This information allows us to make the assumption that after the formation of approximately five candles, the price will exceed the current level. In such conditions, you can buy Call binary options with an expiration time of 25 minutes.
To avoid unprofitable trades, you cannot set the expiration time of a binary option to be less than the timeframe used. This is explained by the fact that during the selected period the candle does not have time to form. That is, the direction of price movement is not confirmed. In this regard, the likelihood of making an accurate forecast with such a short time interval is extremely low. In such conditions, there is a high risk of chaotic exchange rate movement due to short-term impulse. Such changes, which do not affect the direction of the price in a longer time interval, will lead to losses:
Relationship between expiration and trading strategy
The contract period is an important condition for the effectiveness of a trading strategy. If you use ready-made strategies or indicators, then the rules most likely already take into account a certain expiration and suggest its optimal value. When using a complex system from the Internet, do not forget about some points:
- any strategy was developed for a specific expiration time;
- For long-term expirations, completely different approaches to analysis are used in comparison with short-term strategies. The ability to see the future is based, among other things, on fundamental factors;
- For short periods of the chart, priority is given to technical analysis based on indicator signals or other binary options trading methods .
Beginners will have to learn to trade taking into account the news background. To do this, you need to know the time of data publication and its likely impact on the market. You can always find such information in advance in the economic calendar .
One of the effective ways to find entry points is to study several charts at the same time. The first chart will be with the base timeframe, the second will be two timeframes lower. For example, your main gap is D1. In this case, we consider a “junior” timeframe, which will be H1 (two timeframes less), in order to find the right moment to buy an option. The expiration time of a binary option can also be set based on this rule, that is, in a “double” amount. For example, when trading on the M5 chart, the expiration time is set to 30 minutes.
Conclusion: how to choose the right binary option expiration time
Expiration time is an important component of any strategy, on which the degree of risk largely depends. Thanks to the correct expiration time, a trader can make a profit on any market and time frame.
The specific duration of the contract is determined after a detailed analysis of the schedule. It also depends on the type of financial instrument the trader is trading. For indices, currency pairs, stocks, cryptocurrencies, various binary options expirations are recommended.
The expiration date must be selected taking into account the timeframe. That is, you cannot trade turbo options on an hourly chart. It is also prohibited to open transactions on long-term digital contracts with a time frame of several minutes.
It is optimal if the expiration period is directly proportional to the timeframe value by an integral number. For example, when trading on the M5 chart, you can open transactions that are executed in 10, 15, 20 minutes, and so on.
See also:
Binary options trading training
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