Digital Contracts

In 30 minutes, will the price of Apple’s shares rise or fall? Digital contracts are a financial derivative that allows traders to profit simply by answering this question. This guide will explain what digital contracts are and list their benefits and risks, as well as providing a guide on how to start trading with tips to help set up a money-making strategy.

We have also reviewed and ranked the best platforms and brokers that offer digital contract trading in 2024.

What Are Digital Contracts?

Digital contracts, sometimes known as digital options, are financial derivatives that can be traded on a variety of underlying assets. Essentially, digital contracts ask whether the asset’s price will rise or fall by a specified point in the future, when the contract expires. If a trader predicts this price movement correctly, they will receive their stake back plus a fixed payout, regardless of the scale of the price movement. A failed trade results in the loss of the initial stake.

Digital contract trading can take place with almost any underlying financial asset, including cryptocurrencies like Bitcoin (BTC) and Ethereum (ETH), forex pairs like GBP/USD and EUR/JPY, and shares like Amazon (AMZN) and Apple (AAPL).

Traders who are familiar with binary options will recognize many similarities between the two products. And some online brokers which are known as binary options brokers, such as Focus Option, in fact offer products called digital contracts or digital options.

How Digital Contract Trading Works

There are three main components in a digital contract trade; the strike price, expiry time, and payout:

• Strike Price – This is the threshold that the asset’s price must rise above or fall below for a long or short position to pay out.
• Expiry Time – This is the time when the digital contract’s position closes and the trader will either receive a payout or lose their stake. There is a wide range of expiry times available, from 30 seconds to one month or more.
• Payout – A digital contract’s payout is fixed before a contract opens. This allows you to know the exact profit you stand to gain from each trade. The payout is usually a percentage of the digital contract’s price, with payouts of 90% or more available from some of the best digital contract brokers.

So, how does a digital contract trade work? Let’s look at an example…

Let’s say the price of BTC is at $17,470.00, and you expect it to rise within the next 30 minutes.

So, you log into your digital contract broker’s platform and click through to open a trade. You open a contract with a strike price of $17,480.00, an expiry time of 30 minutes and a payout of 80%. The price of the contract is $100.

When the contract expires half an hour later, if the price of BTC is above $17,480.00 then you will receive your $100 contract price plus a payout of 0.8 x $100 = $80. If the price is below the strike price, you lose your $100 stake.

Pros Of Trading Digital Contracts

Benefits of digital contract trading include:

• Simple – Digital contracts are a straightforward bet on the price movement of an underlying asset. There are only two directions this can move: up or down, and you don’t need to worry about when to close the trade.
• Attractive Potential Profits – Even though some other financial products offer uncapped returns, the potential to earn a high percentage in profit from each trade is attractive.
• Accessibility – Digital contracts can be traded on a broad range of underlying assets and markets, and many digital contracts brokers and platforms are open for trading 24/7.
• Freedom – The range of markets and assets means traders are free to play to their strengths, whether they prefer crypto, forex or stocks.
• Control and Fixed Risk – Since potential profits and losses from digital contracts are determined before the trade begins, it is easier to keep your risk level under control.
• Flexible Products – There are also variations in digital contract trading products to suit different strategies and risk tolerances. For example, some of the top digital contract brokers offer products whereby you can win the bet if the price merely hits/touches the predetermined level at any point during the contract period. Equally, some digital contract trading brokers offer products whereby you can win payouts if the contract finishes within a specific price range, say $17,475 – $17,485 using the example above.

Cons Of Trading Digital Contracts

Downsides of trading with digital contracts include:

• All Or Nothing – Digital contracts are all-or-nothing trades, and if you predict a price movement incorrectly you lose your entire stake. As a result, losses can quickly add up.
• Risk And Probability – An estimated 10–30% of all traders earn money when trading digital contracts, while 70–90% lose money. Traders need to have a winning strategy and the discipline to follow it if they want to make money over the long term.
• Regulation & Scams – Depending on where you are trading digital contracts, there may be some strict regulations on who can trade and who can provide such products. There are also some unregulated and dishonest digital contract brokers out there, so traders must be sure they are dealing with a trustworthy company. We have compiled a list of the most trusted digital contract trading brokers available in your region.

How To Start Trading Digital Contracts In 2024

Follow this step-by-step guide on how to get started trading with digital contracts:

1) Find A Suitable Brokerage

Finding a broker that provides you with a reliable and convenient way to trade digital contracts is crucial, as it will have a huge effect on your growth and success as a trader. Here are some of the key things to consider:

Trading Platform

A trading platform is the interface used to make a trade. Good trading platforms should include real-time charts displaying the markets, assets and financial products you want to speculate on. It is also here that you will place your trades.

Most digital contracts brokers provide their own proprietary, web-accessible trading platforms, while others support third-party software such as MetaTrader’s popular MT4 and MT5 platforms. The important thing is to make sure the platform is fast, responsive and easy to use.

Many digital contracts brokers offer trial or demo accounts where you can practice using their platforms without using real money. These are a great way to test trading platforms to find one that suits you best.

Asset Availability

Not every broker will offer every type of instrument, and some specialize in specific financial assets. Find a broker that gives you access to the asset classes you want to trade, be that leading and emerging cryptocurrency tokens and blockchain-based assets, technology stocks listed on US exchanges, or major, minor and exotic currency pairs.

Mobile Apps

If you need to make trades on the go, you will want a digital contracts broker which has a strong mobile app.

Read user reviews and test the mobile app if you can, and take advantage of demo accounts to make sure it is fully functional for your iPhone or Android device before you start making trades.

Payouts & Costs

Digital contract brokers set their own terms and often vary on payout percentages, fees and other charges. There may be a commission per trade, or you may need to pay a percentage when you deposit or withdraw funds.

Make sure to carefully evaluate all the costs entailed by a broker as well as the payouts to gain an accurate understanding of what expenses you can expect.

Minimum Deposits

Some digital contract brokers may place a limit on the minimum amount you are able to deposit into a brokerage account. Many digital contract trading platforms will keep this value low, often between $0 and $10, but some specialist brokers may have minimum deposit limits upwards of $50.

Deposits & Withdrawals

There are many different payment methods in use around the world, so make sure the digital contracts broker accepts your preferred payment solution. Most brokers will accept debit card payments, PayPal and bank wire transfers, but other options like cryptocurrencies and e-wallet services such as Neteller or Skrill are also widely accepted.

In fact, crypto payments are particularly popular with digital contract brokers, with traders able to deposit and withdraw using Bitcoin plus stablecoins like Tether.

Regulation And Security

Be aware that many brokers offering trading with digital contracts and similar products may not be regulated by financial authorities in some major jurisdictions, such as the UK’s FCA. As such, traders who use these brokers and platforms may not be afforded the same protections as they would have while digital contract trading with a fully regulated broker.

However, there are several popular brokers that offer digital contract trading which are trusted and well-regarded by a large number of traders. Check our online reviews to find out which brokers are seen as trustworthy.

Useful Extras

There are several other services and features digital contract brokers offer to improve traders’ experience. These are typically dependent on your own personal needs but can include VIP accounts with better payouts or lower costs, instant withdrawals, open trading hours on weekends, 2-factor authentication on login, and many more.

Bonuses & Promotions

The top brokers and platforms that offer trading on digital contracts provide welcome deposit bonuses and loyalty rewards. These can come in the form of no deposit bonuses, gadget giveaways, and trading contests.

2) Choose An Asset

Once you have opened an account at a digital contracts broker, you will need to choose which assets or markets you wish to trade. The decision to trade forex, cryptos or stocks will impact how and when you trade, since different assets are available at different times and require different strategies.

For example, forex pairs are open to trade 24/5 but are more volatile and liquid when their corresponding domestic exchanges are open. Cryptocurrencies are known for their high volatility, making short-term digital contract trading quite risky, though they are traded in high volumes over the weekend.

3) Purchase A Digital Contract

Once you have chosen the underlying asset, it is time to buy a digital contract. Choose the contract size that suits you, remembering that if you plan to make a lot of digital contract trades per day, you should avoid risking too much capital on a single trade. You will also need to choose your expiry time with care.

Contract Expiry Time

Turbo digital contracts can have expiry times of less than a minute. Traders will need to take a different approach to this contract length as standard methods of technical analysis may not be as productive. The longer digital contract lengths of five minutes to an hour or two are popular with intraday traders, many of whom develop technical analysis strategies to increase their win rate. But these, too, will require a different mindset to longer-term digital contracts, which may have a length of weeks or even months.

Strategies

Strategies help traders prevent their emotions from interfering with their digital contract trading decisions, and they make it easier to understand why certain systems work so they can be adopted and refined.

A good digital contract trading strategy will consist of a system designed to maximize the number of successful trades, as well as methods to reduce risk and manage your wallet.

The best strategies may also involve using technical analysis and signals to give insight into the direction of price movements, as well as sticking to a predefined plan about how and when to make trades.

Digital Contracts Signalling

First, we will have to create a signal. The main ways of doing so are by using technical analysis or reading and interpreting the news.

Technical Analysis

Technical analysis revolves around looking at charts and finding patterns. You can use technical indicators and tools like moving averages, trend lines, supports and resistances, oscillators and Japanese Candlesticks to determine patterns and find signals of future price movement.

The most common method of viewing price charts is Japanese Candlesticks. They give an easy visualization of the open, high, low and close prices of an underlying asset. Most price action strategies require an understanding of Japanese Candlesticks, and learning about them is recommended.

News

Many digital contract traders also rely on the news to help them understand which way a price may be heading. Financial report releases, global events affecting entire markets, institutional scandals and many other types of news reports could trigger a price fluctuation. Keeping an ear out for all relevant news for your chosen market or company will often prove to be rewarding, especially if you become aware of important news as it breaks.

Some examples of useful news sources include Yahoo Finance, Bloomberg, DayTrading.com, the Economist, the Financial Times and Business Insider.

Investment & Money Management

Money management is essential when trading digital contracts. It allows you to control risk and protect your account from wiping out. A money management strategy simplifies your decision on trade size, limits your risk per trade, sets you up for consistent growth, and helps deal with stress.

It is best to build and follow a strict digital contract trading strategy with risk management techniques and systems in place. This involves planning your stake, entry point, timeline, strike price and payout combination. Sticking to a risk-tested strategy is recommended as it will help keep you mentally and emotionally stable, allowing you to push through unlucky periods without spiralling.

For those just starting out, popular risk-management strategies include the Percentage strategy and the Straddle strategy:

• Percentage Strategy – This is a money management rule that specifies that you should never stake more than a specific percentage of your fund’s value in a single trade. Typical percentages tend to float around 2%, but ultimately this depends on your personal risk appetite and experience level. Suppose you have $10,000 in your account and your risk value is 2%. The most you can risk on a single trade would therefore be $200.
• Martingale Strategy – This is a strategy that revolves involves increasing your investment size after you make a loss. Suppose you have an investment size of $200 per trade. If a digital contract goes south and you lose the $200 investment, according to this strategy you will increase the stake in your next trade, say to $400. The idea is that if you have a consistent signalling system, you will have a good chance of winning the next contract. If so, you will recover losses quickly. Of course, this is risky as an unlucky streak will quickly sap your funds. The strategy is best used by experienced traders with a consistent, proven digital contract trading system that provides a good chance of generating accurate signals.

Bots & Algorithms

Once you have built a signalling and strategy system that you trust, you can automate the process by programming a bot to automatically react to signals and implement your digital contract trading strategy.

Bots conduct trades autonomously according to an algorithm, meaning they can execute many more trades than a human user, and thus create higher profit potential. This also allows you to create strategies for multiple markets simultaneously and to continue making trades while you get on with your daily life.

However, it is important to note that having an auto-trading bot is not an excuse to be complacent. Your bot cannot adequately react to shock events in markets, so you will need to take the reins in such an event to avoid losing money.

Legality & Regulation

Regulation of digital contracts is something of a grey area. Several financial authorities in major jurisdictions, such as the UK’s FCA and Europe’s ESMA, have banned brokers from offering binary options and related products to retail traders.

This financial product is not banned in the US, but the Commodity Futures Trading Commission (CFTC) only regulates a select few binary options brokers, such as Nadex.

As a result, it will be difficult to find a regulated digital contracts broker, so you must be extremely careful who you deal with. Despite the lack of regulation, thousands of traders use popular brokers such as Pocket Option and Spectre.ai, and you can research these and others by looking for reviews and user comments on trustworthy trading sites and forums. Our experts have also tested many of the top digital contract trading brokers. Head to our list of the best digital contract brokers for our recommendations.

Islamic Law

Some brokers, such as blockchain-based Spectre.ai, advertise their products as Shariah compliant and thus could be considered halal. This means there are no interest charges to pay and limited opportunities to speculate on industries such as gambling and alcohol.

But whether or not a digital contracts trade is halal or haram may depend on a particular interpretation of Islamic law, so it would be best to discuss it with a religious authority if you are unsure.

Digital Contract Trading Education

Being consistent and successful when trading digital contracts requires investors to do their due diligence. This means educating yourself as much as possible. Information is key to maximizing the efficiency of your strategy and increasing your profit potential.

Many digital contract brokers also offer educational services designed to help traders use their platforms. However, more specialized education on digital contracts can be found all over the web, including useful training through webinars and video tutorials, free workshops and trading courses. More comprehensive courses can also be found, although these typically come with a price tag.

There is also an abundance of free articles, webinars, newsletters, blogs, ebooks, PDFs and documentaries available for you to access online. Not only can you learn complex economic trading strategies, but you can also learn how to efficiently use sophisticated trading platforms or program auto-trading bots.

Make sure you use websites you know and trust, so that you avoid scam sites, which typically advertise get-rich-quick schemes or promise risk-free trading if you sign up for an expensive course.

Tips & Tricks For Digital Contracts Trading

Demo Accounts

Take advantage of demo accounts, which are a great way to learn how to use a broker’s platform, test new strategy implementations, fine-tune your auto-trading bot and more.

Paper trading is a useful tool for new digital contract traders and experienced investors alike to practice a strategy before risking their hard-earned cash.

Automation

Once you have built a consistent signalling and management system, consider automating it. This will greatly increase the number of trades you can complete, eliminate errors you make due to emotional decisions, and increase your profit potential, while also allowing continuous digital contract trading 24/7 based on your signals and strategy. Just be sure to check in frequently and make adjustments.

Patience & Psychology

Be careful not to let your emotions get the better of you. If you trust your digital contract trading strategy, don’t let a single run of bad luck get to you and start making rash decisions. Trust your research, time and effort and follow your strategy, even when you’re going through a rough spot. If, eventually, you see that a digital contract trading strategy is failing, don’t get frustrated. Patiently do the work to improve it, and the rewards may come.

On the flip side, sometimes it can feel like the gains you make from following your strategy are too small. It’s important to remember that digital contracts are all-or-nothing, and every trade you make has the potential to lose all the investment into the position.

Final Thoughts On Trading With Digital Contracts

Digital contract trading offers investors an easy-to-understand, transparent and simple financial derivative with fixed risks and a massive range of supported financial assets. Traders can trade at almost any time because of the number of available underlying assets and implement auto-trading bots, allowing for decent profit potential if you have the discipline and patience to develop a winning strategy.

Use our list of the best brokers for trading digital contracts to get started today.

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