How to trade commodities with binary options
Commodities trading allows you to speculate on markets that are integral in our daily lives. Binary option contracts are a good way to trade commodities markets, as they offer limited risk and excellent opportunities to make predictions on market movements. Learn about commodities, understand what they are, and find out how you can benefit from trading them with binary option contracts.
What is commodities trading?
Commodities trading means buying or selling raw materials that form the basis of our society, such as precious metals, energy, and agricultural products. Most commodities are traded with futures contracts where there is an agreement between a buyer and seller to honor a set price on a future date. Traders can hedge or speculate on the price of a commodity, predicting whether it will increase or decrease without taking ownership of the actual commodity.
You can also gain exposure to commodities with binary option, call spread, and knock-out contracts, where you can speculate on their prices, again without taking ownership of the actual commodity.
Binary options are a short-term trading product that appeals to those wanting to capitalize on short-term price action, rather than more traditional longer-term methods of investing. With these contracts, risk management is built in, which is beneficial when trading metal and energy markets that could be affected by political and economic events, or supply and demand.
Call spread contracts have a floor and ceiling built into the trading product and the amount you could lose is always limited. These contracts are financial instruments that are unique to Nadex, offering the opportunity to speculate on metal and energy markets with defined risk/reward outcomes.
Knock-outs, also known as Touch Bracket™ contracts, use a floor and ceiling that, once hit by the indicative price, will close you out of the trade. Nadex Knock-Outs give you the opportunity to speculate on gold and oil with predefined boundaries.
What commodities can you trade on Nadex?
Commodities generally fall into one of three categories: metal, energy, and agricultural.
These are the commodities you can trade on Nadex:
Nadex offers binary option, call spread, or knock-out contracts in gold or silver. These are based on COMEX/NYMEX® futures prices.
Nadex offers binary option, call spread, or knock-out contracts in crude oil or natural gas. These are based on NYMEX® futures prices.
How to trade commodities with binary options?
Before you trade, you’ll want to understand commodities and, in particular, the markets you are planning to trade. This is how you’ll form your own market predictions and decide which trades you want to place. Next, take a look at how to trade binary option contracts and understand that you’ll be protected by a fixed level of risk and a clearly defined potential profit outcome. Then you’ll be ready to start testing your skills with practice trades on our demo platform before trying it out for real.
This is how you can trade commodity binary option contracts on Nadex:
Navigate to commodities in the binary options menu within the Nadex platform.
See the list of commodities contracts, the times you can trade them, and the expiration times.
Click on a time period and see a list of strikes. They’re structured like a question: will this market be above this price at this time? Here’s an example: Crude Oil > 59.86 (1 p.m.) This is asking you if you believe that the crude oil market will be above 59.86 at 1 p.m., when the contract expires.
If you agree with a statement, you buy the contract. If you disagree, then you sell it.
Learn to trade more markets with binary option contracts.
Get a better understanding about the basics of trading binary option contracts so you can add them into your trading plan. Discover a world of opportunity with binary option contracts based on popular commodities.
Binary Options FAQs
What are binary options?
Binary options are a financial instrument that provide a fixed payout if the underlying market moves beyond the strike price. You decide whether a market is likely to be above a certain price, at a certain time. Trading a binary option is like asking a simple question: will this market be above this price at this time? If you think yes, you buy, and if you think no, you sell. Nadex Binary Options enable traders to predict the outcome of an underlying market’s movement. Learn more about how binary options work.
How do binary options work?
There are three key elements that make up a binary option contract:
The underlying market. This is the market you choose to trade.
The strike price. The strike price is central to the binary option decision-making process – to place a trade, you must decide if you think the underlying market will be above or below the strike.
The expiration date and time. You can trade binary options lasting for up to one week, with durations as short as five minutes.
Learn more about how binary options work.
Are binary options legal?
Yes, binary options are legal to trade with a regulated provider in the US. It’s not just legal to trade binary options in the US – it’s regulated, has low capital requirements, and is accessible to retail traders. Look out for CFTC regulation to make sure the exchange you are trading on has legal oversight to protect you against unscrupulous market practices. Additionally, ensure the exchange is based in the US and that you trade your own account. Learn more about how binary options are regulated.
Is binary options trading risky?
It can be! Here are some steps to follow so that you can trade binary options more securely:
Only trade with a CFTC regulated exchange.
Don’t engage with anybody who claims to be a broker, or who says they can trade your account for you.
Trade your own account.
Try trading binary options on a regulated exchange for free! The best way to trade more confidently is through practice on our binary options demo account with $10,000 in virtual funds.
How do binary traders make money?
Binary traders can make money by correctly predicting whether a market will be above a specific price at a specific time. At expiration, you either make a predefined profit or you lose the money you paid to open the trade. Binary options are priced between $0 and $100. Each contract will show you the maximum you could gain and the maximum you could lose. If your trade is successful, you receive a $100 payout, so your profit will be $100 minus the money you paid to open the trade. If your trade isn’t successful, you don’t receive a payout. This means you lost your capital, but nothing else, because your risk is capped.
What's the difference between options and binary options?
Binary options are short-term, limited risk contracts with two possible outcomes at expiration – you either make a predefined profit or you lose the money you paid to open the trade. The payoff is fixed on either side of the strike price. Options, also called vanilla options, have a payout that is dependent on the difference of the strike price of the option and the price of the underlying asset on one side of the strike price while fixed on the other. Options can be complex, difficult to price, and have the potential for outsized profits or losses.
What's the minimum deposit for a binary options trade?
At Nadex, you can open a live account for free - that's right, no minimum deposit required. Binary trades at Nadex are priced between $0 and $100, excluding exchange fees. The cost to place a trade is always equal to the maximum risk, plus any trade fees, which is required to be in your account when the order is placed. Not ready for a live account? You can practice trading binary options for free with our binary options demo account.