Prices move in ticks whether you are trading forex, stocks or commodities. Trading is all about correctly predicting the price movements of an asset. Will it go up? Will it go down? You get it right and you make a profit. Tick trading is no different. Simply put, you predict whether the price of an asset will go up or down in say, 5 ticks!
Yes, you read that right! 5 ticks can take as little as 3 seconds! And that’s the beauty of tick trading!
Tick trading vs. traditional forex trading
In traditional forex trading, you “buy low sell high” to make a profit. Let’s say you buy EURUSD at 1.11305, the price goes up to 1.11345 and you sell. You make a profit based on how much the price has gone up by and how much of the asset you bought. It works both ways. You can likewise sell at a higher price first and then buy back at a lower price to close out the contract to make a profit – this is “going short” or short selling. Don’t let these terms confuse you if you are a newbie. This is just to give you an overview of traditional forex trading. We are not trading forex here in the traditional sense.
With tick trading, it’s much simpler than that. You may be trading the same assets, like forex currency pairs, but you are not buying and selling the asset as such. Forget about round turn contracts, margins and asset prices. They don’t matter anymore. How much profit you make depends only on whether you correctly predict the direction of the price movement in a given time frame, measured in ticks, and how much your stake is. What matters is when you enter a trade and whether you are right.
So tick trading is a binary event: you either win or you lose (there is no break-even, or close to break-even). What you win or lose is calculated upfront and is known to you before you decide to enter a trade. If you lose, you lose 100% of your stake. If you win, you can count on making an average return of somewhere around 90% of your stake. Needless to say, you wouldn’t be tick trading unless you are convinced that your odds of winning are good.
FYI, contrast that with trading traditional forex, how much you win or lose is not known upfront and can be quite unpredictable.
The simplicity of tick trading
So you can say that tick trading is trading abstracted and simplified to the extreme. You stake your money and you make a prediction. If you are correct, you win! No calculation of the payout is necessary as you are told what the payout is upfront before you trade. For Binary.com, the trading platform that the BonusTrade app is built on, the payout rate for most assets ranges from 75% to as much as 115%.
In the example below, the payout rate for AUD/JPY is 106%-108%, depending on the direction. So if your stake is $10, you will receive a payout of $20.82 if you correctly predict that prices will be higher than your entry spot price of 74.918 after 5 ticks. In other words, you will get your $10 stake back, as well as a 108.2% profit of $10.82 if you win.
Isn’t it a bit like gambling then?
So if you can trade in a matter of 5 ticks, say 3 seconds and win a large sum of money, how is that different from gambling in a casino? I hear you ask.
With gambling, there is a high element of randomness or chance involved, which is something out of your control. By definition, this randomness is the antithesis of predictability. So the more predictable an event is, the less random it is.
If you go into tick trading not understanding how prices move and not caring when you enter a trade and you just take your chances, then you’d be gambling, since you are not using the predictability of price movements to your advantage.
On the other hand, if you see that the price movements are making a very predictable pattern right now and you enter a trade at the optimum time as prices are rising, you will likely win. You made a calculated and shrewd prediction based on your knowledge of price movements. You know that you are not gambling.
In case you didn’t know, there is a huge volume of studies, technical analyses and theories for well over a century on the price movements of traded assets, going back to the candlestick chart system devised by rice traders in Japan in the late 1800’s. Many of the classic price movement concepts and patterns such as support and resistance, “head and shoulders”, apply equally to tick trading.
It literally pays for you to know some of the basics of price movement patterns, which we will be covering in this blog in due course.
The value proposition of tick trading
So as you can see, whether tick trading is gambling or not entirely depends on how you trade. Given that price movement patterns of assets are by and large predictable, if you know just how to reliably spot up trends and down trends based on these predictable patterns, it follows that you could make money very quickly and very easily! That is, if you don’t let fear and greed get the better of you.
Don’t believe me? Download the BonusTrade app and try it out.
BonusTrade is a state-of-the-art tick trading app built on the Binary.com trading platform, with dozens of assets to choose from. You get a $10,000 virtual money demo account to play with right off the bat as soon as the app is installed. No sign up necessary.