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DeFi Binary Options

Written By

William Berg

Written By

William Berg

William contributes to several investment websites, leveraging his experience as a consultant for IPOs in the Nordic market and background providing localization for forex trading software. William has worked as a writer and fact-checker for a long row of financial publications.

» William Berg Profile Page

Edited By

Tobias Robinson

Edited By

Tobias Robinson

Tobias is a partner at DayTrading.com, director of a UK limited company and active trader. He has over 25 years of experience in the financial industry and contributed via CySec to the regulatory response to digital options and CFD trading in Europe. Toby’s expertise and dedication to financial education make him a trusted voice in the industry, including a BBC investigation into digital options.

» Tobias Robinson Profile Page

Updated

Oct 2, 2024

The rise of decentralized finance, or DeFi, has led to one of the biggest shifts in modern investing, giving traders an opportunity to use a neutral financing system that operates on a peer-to-peer basis without an intermediary body like a bank. Now, with the introduction of DeFi binary options, traders have the chance to make money from one of the most straightforward derivatives without going through a traditional brokerage.

This user guide will explain how DeFi and binary options work together, the benefits of trading DeFi binary options, and tips on how to get started. We have also reviewed and ranked the best binary options brokers and apps that offer DeFi trading.

DeFi Binary Options 101

DeFi binary options are a type of derivative that asks the trader a simple, yes/no question: Will a digital asset’s price rise or fall by the end of the contract? If the trader answers this question correctly, they will make money, if not, they will lose it. This makes binary options in DeFi straightforward to understand and use, hence their popularity with traders.

When a trader opens a DeFI binary options contract with an online broker or platform, they will choose the asset/token they wish to trade, the amount of money they wish to put down as a stake, and the contract’s expiry time. Finally, they will decide whether they are long on the asset, and predict that it will increase in value, or if they are short and think its price will fall.

The payout for binary options in DeFi varies among brokers and among different assets, but it is common to find trading platforms offering payouts equivalent to 90% of the contract price. This means that a successful trader with a $100 binary options contract will receive the $100 stake back plus $90 in profit. An unsuccessful trader loses their entire $100 stake.

Understanding DeFi

Decentralized finance, also known as DeFi, is a financial system that works through blockchain technology allowing for faster transactions and giving widespread access to financial products and instruments on a peer-to-peer basis without going through any middlemen.

Banks, brokerages and other financial institutions which are regulated by bodies such as the US regulator, the SEC, all exist in a system of centralized finance. The state-sanctioned regulatory bodies are responsible for making the rules by which these systems must abide. In centralized finance, the third party facilitates payment to a user but often charges some kind of fee for using the service, such as a credit card fee.

Decentralized finance, on the other hand, makes use of exchanges between peers and takes out the function of the intermediary body. This frees users from transaction fees and gives them a secure and fast way to transfer money using an internet connection. Therefore, centralized finance is no longer necessary because, in theory, anyone in the world can make a transaction using DeFi with increased control and anonymity.

DeFi use cases leverage the same blockchain technology brought to widespread attention by cryptocurrencies like Bitcoin. A blockchain is a secure ledger of transactions that can be verified by peers, not a third-party financial system. When two parties verify a transaction, the current block is encrypted and a new one is made with information about the previous one. By far the most commonly used blockchain for DeFi transactions is Ethereum. As a result, many of the top DeFi binary options brokers offer contracts on Ether.

DeFi Assets For Binary Options Trading

The assets available for DeFi binary options trading depend on the platform that you choose. Primarily, DeFi is used for trading digital currencies, so tokens like Bitcoin (BTC), Ethereum (ETH), Ripple (XRP), Matic (MATIC), Uniswap (UNI), and Litecoin (LTC) are available. In addition, some brokers offer stablecoins like Tether (USDT), plus NFTs. Firms may also provide access to Play to Earn (P2E) services, which also use DeFi infrastructure.

It’s also worth pointing out that the best DeFi binary options brokers offer a wide range of tradable assets from digital assets to traditional stocks, commodities or forex.

Benefits Of DeFi Binary Options

Binary options in DeFi are easy to understand for beginner traders. Users simply need to decide if the price of BTC, for example, will rise or fall over a set period. Investors can also speculate on popular digital assets across a range of expiries, from 60-second turbos to binaries that span several days.

Another primary advantage of decentralized finance is that it offers lower fees than traditional banking solutions. The aim of DeFi is to utilize a peer-to-peer model to allow everyone to make transactions at a minimal cost, if any.

The transaction times are also faster using DeFi binary options platforms than many other payment solutions, which is an advantage to traders looking to deposit and withdraw funds via digital currencies instantly.

Getting Started With DeFi Binary Options

Find A Platform

When choosing where to trade DeFi binary options, there are a few top brokers that will give you the best experience. In many ways, this makes the process of choosing a platform easier than with traditional trading instruments – these brands stand out against the rest and therefore are the best options to choose from.

The top firms also offer automated bots on MT4, books, courses and calculators, strategy hacks, staking, definitions of key DeFi terms, and more. It is also worth checking the brand’s downloadable platform provides rich market data, free withdrawals, user-friendly graphs and indicators, plus the latest digital asset news and insights, along with trading ideas and signals.

Note, DeFi binary options brokers often don’t have strict KYC requirements at the sign-up and login stage.

Develop A Strategy

The next important step is to develop an OTC 1-minute or 5-minutes volume strategy, for example, for trading DeFi binary options. This particular aspect of DeFi binary options is, for the most part, the same as traditional binary options, so take the time to educate yourself and build a strategy that works for you.

We recommend practicing binary options strategies on a demo account before you use real funds to minimize potential losses.

How To Start

Getting started with DeFi binary options is simple. Begin by checking multiple websites for different DeFi exchanges and see what they offer and what kinds of contracts will be available to you in the USA, Australia or Germany, for example. Once you choose from a list of brokers, you can set up an account and enter your details.

Once signed up, you need to deposit funds, often in the Ethereum network’s native token Ether (ETH), and once this has been done you can begin buying binaries.

Ensure you have enough ETH or digital currency in your account to make trades and remember you need to have the entire stake available for each trade. Once this is done, you can begin trading DeFi binary options.

Tips For Trading DeFi Binaries

Below are some of our top tips for trading binary options in DeFi:

• Avoid scams and frauds by ensuring that you are using a trustworthy and reputable platform; this will help to keep your funds safe. You can check local regulations and requirements or look at a watchdog’s blacklist to steer clear of problem companies with insecure wallets or misleading no deposit bonuses.
• Never invest more than you can afford to lose, and always ensure that you are aware of the risks before you begin trading.
• Ensure you study the digital asset’s charts and historical performance before you open a contract, so that you have a better idea of how your trade will unfold without finding out when it’s too late.
• There is always risk involved in making investments, so ensure you make educated decisions based on an informed DeFi binary options trading strategy.

Are DeFi Binary Options Good Or Bad?

Binary options on DeFi are one of the most flexible trading choices out there and can bring large yields to switched-on traders. While trading derivatives on DeFi is still relatively new, it does pose advantages to traders such as faster transaction times and fewer intermediary fees.

The idea behind decentralized finance is to create a more secure environment for individuals and traders, but this doesn’t mean you shouldn’t be cautious – be wary of where you are placing your funds and always do your research beforehand. Use our list of the best DeFi binary options brokers and trading platforms to get started.

FAQs

What Are DeFi Binary Options?

DeFi binary options involve a contract between a trader and a broker in which a bet is placed on whether the price of a digital asset, such as Bitcoin, will rise or fall. Payouts typically range from 70% to 95%+. The top DeFi binary options websites offer opportunities on leading digital currencies by market cap, plus stablecoins.

Are DeFi Binary Options Only Available On Crypto?

While DeFi binary options are mostly known for trading on cryptocurrencies as underlying assets, the sector is growing all the time, and NFTs and Play-to-Earn (P2E) solutions may become available. Halal trading products are also available, along with binaries that can be used to hedge an index, for example.

Can You Make Money From DeFi Binary Options?

Yes, decentralized binary trading works on the same principles as standard trading. Therefore, you can make money from trading binary options in the same way, but often with reduced fees and faster transaction times. For crypto investors, DeFi binaries allow traders to finance and execute trades on digital assets using tokens like Bitcoin.

Are DeFi Binary Options Safe?

Trading DeFi binaries comes with the same security questions as traditional binary options trading, in that you need to ensure you are investing through a platform that is reliable and trustworthy. It is also important to use a tried and tested strategy, alongside an effective risk and money management system.