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  1. #1
    Active Member

    Post Are you a US Resident? If so please read... !!!

    DISCLAIMER:

    I am new to trading, but after a really bad run and finding an amazing US Broker, this is where I currently stand. The following is just my opinion but please take heed. I've been scammed already by some shady brokers for one, for two, I've gotten my arse kicked by the markets. Three, I'm trading much more effectively as a result of my expensive education, but I'm still new!


    Are you a US Resident?

    If you are in the US, it is best to stay away from brokers outside of the US, there are really good US brokers (very few) and American Style Binary Options have a much better risk/ reward ratio than europian style if you know what you are doing. I'm very happy with NADEX, they are Regulated by the CTFC, in chicago IL, and follow the law. That's very important.

    US Brokers - don't pay affiliates, so no affiliate scam crap going on. US Brokers, don't promise you huge profits, they don't give you bonuses, and hey, you can SUE them if they screw you.

    Oversees Brokers - mostly are shady bucket shops on some island and will just take your money. The ones that are regulated don't cater to US residents either. So there's that...

    So what's the difference between Euro Style and American Style Binary Options?



    Euro Style (Call/Put)

    First let's look at the Euro Binary Style, which I'll label the CALL/PUT style.
    Euro style binary options are very easy to use and understand. They often have really nice charts, really big call/put buttons, and that's about it. If you are in the money you get between 75% and 90% profit, or lose it all (except some give you a rebate if you lose around 10-15%) if you are out of the money. You can sell an option if it is not working for you to limit your losses as well, but usually not when too close to expiry.

    CALL/PUT Pros:
    You can deposit with a credit card
    The platforms are very, very simple to use.
    Lots of assets to trade from, more options.
    You just hit CALL if you think it'll go up, or PUT if you think it'll go down. EASY!
    When price expires you are either winning or losing.
    You can get a nice bonus (lol)

    CALL/PUT Cons
    You have to give them a copy of your driver license and credit card.
    They are not regulated
    If you sell an option that is IN THE MONEY, you will lose money.
    You are forced to hold onto expiry to make a profit. *
    CALL/PUT forces you to buy an option at the market price.
    You play against the HOUSE
    You are limited on positions.
    Your reward is less than your risk. (below 100% profit) *

    *Those two cons are really important, because they are what cause the house to have a constant edge against you.


    US Style (BUY/SELL)

    Now let's look at the US Style Binary Options, which are a lot more complicated. Instead of CALL/PUT you actually BUY/SELL Binary Option Contracts. For example, you can see a EUR/USD list of contracts (10 or so) that all expire in a few hours. The main goal with US Style is 99% of the time you take profit instead of holding onto an expiry. It's almost the exact opposite of CALL/PUT Style.

    Each Binary Option Contract is worth $100 when it expires is in the money, and 0 if it expires out of the money. Where it gets interesting, is that you can buy contracts that are already in the money for a higher price, or buy contracts that are way out of the money for a smaller price. When the contract settles (by expiry OR if you take-profit/stop-loss) you are given the difference. Even better, you can buy a contract for $20 and sell it for $40. There's no penalty. You can also put in automatic working orders (if price goes to certain point automatically sell/buy to take-profit / stop-loss)

    The Contracts that are worth $50 are where their strikes are right at market value (similar to CALL/PUT). The difference between CALL/PUT brokers right here is that if you expire in the money on a $50 dollar offer, you get the full amount. Instead of getting 70%, it's 100%.

    The contract pricing is determined by: Implied Volatility (upcoming news), expiry time (as only 100 or 0 is the outcome), probability the strike will go up or down, and supply and demand of the contracts themselves. If it costs $50 then it is 50% that it will go up by expiry time.

    You can buy contracts that are for $8 and get $100 for a low risk, high reward if a huge swing is in your favor, but that is unlikely. Otherwise, you can buy contracts that are $80 and already in the money for a high risk, low reward of $20.00.

    The beauty is that if you buy a contract for $70 and its value is now $80 you can sell it and make 10 bucks. It's that simple. That means you can really just buy/sell/buy/sell 'till your hearts content and settle whenever you want before expiry. Whereas with Euro style you only profit if you expire in the money, thus increasing the house edge against you.

    As such, there are numerous strategies that you can deploy which I will not go over but greatly give you an edge over the market. Another thing is that you are not playing against the house but you are playing against the market. The house gets a commission, but those are capped at $9 where I am and profits can well exceed $9 in a day.

    US Pros:
    You have the US law on your side. Your money is safe, and it is in a US Bank, not on some island somewhere.
    You can take a profit if your position is favorable before expiry
    You can deploy Strangle strategies, Premium Collection Strategies, Double Binary Strategies, and Butterfly strategies.
    Those strategies are used to give you a 1:1 risk/reward ratio, which is NOT available on euro call/put.
    You can use automatic take profit or stop loss on your binary to reduce risk without sitting in front of the computer.
    Withdraws are fast, without any exchange rate fees or wiring fees using ACH/ Echeck.
    You have a much better edge on the market.

    To quote a Pro who was featured in Futures Magazine, Darrel Martin, "It is a lot easier to take a profit while your trade is in the money, then to hold onto expiry hoping that it'll stay in the money"


    US Cons:
    Commission Fees hurt your profits
    Much longer learning curve, it's not simple put/call
    No bonuses
    You can't use a credit card.
    You have to pay capital gains tax.
    Very complex and may be overwhelming to those used to CALL/PUT


    Conclusion

    I do know some good euro style brokers that I trade with as well if that fits your style better. Just know that with euro you have to be right much more often than with American. There are way too many bucket shop OTC binary brokers that are on some island somewhere that'll never pay you a dime. American style can give you a much better edge and you dont play against the house. Downside to US Style is lack of assets, capital gains tax, extra complexity, and commission fees. However, commission fees are far less than the Risk Ratio on euro style because you can get out of the market and take a profit in US style, where in euro style getting out of the market even if you are 20 ticks above strike on a call is still a loser.

    Sadly, euro broker CALL/PUT style forces you to hold onto expiry to be profitable which is just godawful when you think about it. CALL/PUT also forces you to strike right at the market price which prevents you from deploying strangles, butterflies, or double binary strategies.

    Being forced to hold onto expiry, and being forced to strike at market price prevents a lot of other strategies that can vastly increase your edge over the market.

    I still trade both styles, as I'm still learning, and I still enjoy the simplicity of eurostyle. But be warned!
    Last edited by tonechild; 04-14-2014 at 03:42 AM.

  2. #2
    Specialist Member marvel's Avatar
    Thank you for this information tonechild!
    I am not an US resident now but it is actually very helpful to everyone willing to compare pros and cons of American vs European type of binary options. Also it is really always better to have a broker which is stable and long time in the market.

  3. #3
    Active Member
    Thanks and your welcome. And to be clear. While I personally favor US style over EUR style, I do not believe that it is a fact. To be honest, it really is a matter of your trading style, because ultimately your worst enemy is yourself, so my best advice is to pick strategies, plans, etc that put your future-self in the best possible position. In trading nothing is certain, but the amount you risk is!

    Someone who is a pro with CALL/PUT will outperform a newbie in US BUY/SELL every day. And the same goes vice versa.

    I'm very open to everyone feeding their input. Especially in regards to EUR Style Boundaries, Touch, etc, as I can see potential to maybe try to play some of the strategies that are easy with US (strangle, butterfly, etc)

  4. #4
    Rookie Member
    Thanks for posting this Tonechild its is very valuable to understand the differences and the value benefit of each.

  5. #5
    Senior Member dorrian's Avatar
    It is a great post and presenting in deep details the difference between both styles. I still prefer to trade so called European style because it is much easier to calculate your risk/reward ratios and because there are actually some great brokers that are not bucket shops, but there are really some advantages with American style trading like early closure.

  6. #6
    Solid Member Matthew Taylor's Avatar
    NADEX is a good choice for trading binary options

  7. #7
    Legendry Member Michael Hodges's Avatar
    this about sums it up...

  8. #8
    Solid Member susan's Avatar
    Thanks for the article! It will be very useful to a lot of US forum members. I also believe Nadex are good enough for BOs.

  9. #9
    Rookie Member Herman's Avatar
    Thank you. This message is good for USA resident.

  10. #10
    Veteran Member Dan21's Avatar
    Thank you very much! I’ve been looking for a thread like this for a while. Once a year I go to America for a solid 6 months and this will be very helpful for me.

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