Intraday investors often aim to make a high volume of fast-paced trades to maximize potential profits, and trading digital contracts is an innovative financial instrument that can meet their needs. These derivatives pose a simple question – will the price of an asset go up or down over a specific timeframe? Whether the day trader bets the correct way or not, they will profit or lose an amount that is determined before the digital contract begins, meaning they can quickly move onto the next trade.
This guide will explain how trading digital contracts works with examples and outline tips for getting started. We also rank the top digital contract trading brokers in 2023, as well as provide guidance on how beginners can follow a strategy and design their own system for trading digital contracts.
Digital Contracts Trading Basics Explained
Digital contracts are an innovation with a history of only a few years. They came to the fore after financial regulators in key trading jurisdictions placed tough restrictions on their predecessor, binary options.
Trading digital contracts works similarly to binary options, offering investors the chance to profit by speculating on the price movements of assets over a short time window – sometimes less than a minute.
However, digital contracts are legal to trade with reputable brokers, unlike their restricted predecessors in the UK, parts of Europe, and many other countries. These contracts can be based on various underlying assets, including stocks, gold, FX, and cryptocurrencies.
Prior to the start of the digital contract, the trader must determine whether they want to take a long or short position, the contract’s value, which essentially means how much money is being staked, and the contract’s duration. If the trader’s prediction is correct, they will earn a pre-determined profit, regardless of how much the price has moved in their favor. The payout for basic digital contracts generally offers slightly less than the contract’s value and varies based on the broker and contract type.
For instance, Quotex provides an 80% payout on certain assets with their digital contracts. Suppose a trader correctly predicts a price increase on a £1000 digital contract with this broker. In that case, they will earn their stake back plus an £800 profit, regardless of whether the price has increased by 0.5% or 5% when the contract expires.
While this trading method may seem counter-intuitive and more luck-based than skill-based, many day traders find it advantageous and develop effective strategies to profit from it. Furthermore, classic derivatives like futures or options typically require a longer holding period to turn a profit, while profits from shorter-term instruments like CFDs can be limited when price movements are small.
It is important to note that all trading involves some level of risk, and it is essential to work with reputable brokers and exercise caution when trading digital contracts or any other financial instrument.
When it comes to trading digital contracts, the potential profits and losses are predetermined before the contract is executed. This type of derivative relies on a simple yes or no question, making it a straightforward trading option. Additionally, digital contracts can be completed quickly, allowing for a high volume of trades in a single day.
How to Begin Trading Digital Contracts
To start trading digital contracts, the first step is to find a suitable broker. As digital contracts are a relatively new product, it may not be easy to locate online brokers through a simple web search. However, some exchanges and brokerages that previously offered binary options have now shifted to digital contracts trading.
Choosing the Right Broker for Digital Contracts Trading
There are several crucial factors to consider when selecting a digital contracts broker:
- Regulation – It is essential to ensure that the broker is regulated by a recognized body to confirm its trustworthiness. Although some platforms such as Spectre.ai, have a good reputation despite being unregulated, it is always prudent to conduct your due diligence and stay informed about each broker’s security features.
- Payouts – Most digital contract brokers offer a payout of around 90% of the contract value, but this may vary depending on the asset at stake. It is advisable to shop around for brokers that provide the best payouts for digital contracts trading.
- Fees – Different digital contract trading brokers have varying fees.
Some charge commission on each transaction and others will charge running administrative fees to keep your account open. Deposit and withdrawal fees can be particularly costly for day traders who have active digital contracts trading accounts.
Underlying assets – This is important because day traders tend to have preferred assets to trade in. Choose a digital contracts broker that provides access to markets you are comfortable trading, for example, forex, stock, commodity, cryptocurrency or NFT.
Bonuses – Some digital contracts brokers provide excellent benefits, such as sign-up and deposit bonuses, that can boost your capital and offset other fees. Just make sure to check withdrawal terms and options before claiming a promotion.
Trading platform – Make sure you choose a digital contracts broker that has a fast, responsive platform which you find easy to use. The best digital contract brokers offer beginner-friendly, web trader terminals. And importantly, quality is more important than quantity when it comes to trading apps and platforms.
Good customer service – It is important to have quick access to support if there’s a problem with your account. The top digital contract brokers offer 24/7 support via live chat, social media channels, and email. Customer service representatives should be able to help with trading definitions, yield explanations, and provides guides on when a digital contract expires.
Educational and training material – Some digital contracts brokers provide useful material that can help beginners to start quickly turning a profit from their desk.
This can include webinars with crypto and blockchain products explained, strategy tips and automated trading tools. A particularly useful feature for novice traders is copy trading, whereby users can replicate the positions and strategies of proven investors.
Digital Contracts From Quotex
Quotex’s digital options offer traders a very similar experience to digital contracts with more or less the same terms related to the stake, profit margin and duration of a trade. Quotex’s popular website includes a proprietary browser-based trading platform that traders can use to access digital contracts on securities, forex pairs, commodities and indices.
The size of the payout depends on the asset traded, with a maximum payout of 98%. Traders can buy digital contracts for a variety of expiration periods, from 1 minute to 4 hours.
An advantage to Quotex is the easy-to-use website and app, available from Apple’s App Store and Google Play. Quotex also offers a demo account and has some excellent benefits, including a 30% deposit bonus, profit calculators and group user reviews online.
Spectre.ai Digital Contracts
Another website, Spectre.ai, offers trading on digital contracts with a difference – this company’s trading system is built on the Ethereum blockchain. This allows Spectre.ai traders to draw funds directly from their e-wallets, bypassing traditional brokerage cashiers and instead matching peer-to-peer trades or matching trades to a decentralized autonomous liquidity pool.
Other innovations by Spectre.ai include a feature that allows the use of automated bots.
Spectre.ai’s model means the company is free from some of the fees associated with traditional trading brokers, such as inactivity fees or commission charges. Payouts are not as high as with some of the other top digital contract brokers, but traders should bear in mind that their rate of successful trades could be higher with more competitive investing conditions.
Spectre.ai offers digital contracts on a range of assets through its proprietary trading platform, including all major currencies and some 100 stocks, as well as crypto assets such as Bitcoin.
The brand has its own app, available from its website, and is set to offer compatibility with MetaTrader platforms (MT4 and MT5) soon. Spectre.ai is also fully Sharia compliant, making this a halal option for Muslim traders.
Tips For Trading Digital Contracts
Some market commentators consider trading digital contracts and similar products to be little more than gambling. Since the contracts expire in a short period of between seconds and hours, some of the factors a trader would normally consider while planning a trade are not as relevant.
However, many say it is possible to make a profit from trading digital contracts by developing a strategy and following a consistent system. For example, some traders wait until an asset’s price has been moving in one direction consistently for a certain period before betting the other way.
The rationale for this is that, even if the market’s momentum is headed in one direction, it is very rare for the chart to display a completely consistent line of red or green bars.
This is just one very basic example of the broad range of strategies used by digital contracts day traders. Your system will ultimately depend on numerous factors, such as the asset you are trading and the expiration time of the contracts you trade.
For more information, you can also join a digital contracts trading forum and exchange strategies and ideas with other traders. In addition, there is a good deal of information available online about trading similar assets, so a studious trader can turn YouTube into a digital contracts trading academy.
But perhaps the most important advice for beginners is to join a digital contracts broker that offers a demo account. This allows you to develop your strategy on a variety of assets and expirations periods without putting any real money down. In other words, you will have free rein to test your theories and find the best combination of assets and expiration times for your personal investing style.
Final Word On Trading Digital Contracts
Digital contracts can be a profitable way to trade if you have the right mindset. While this is one of the fastest-paced financial products available to day traders, ironically it requires a deep amount of patience and discipline to consistently make money from.
Some reliable brokers specializing in digital contracts can assist you in achieving your goal, offering demo accounts and innovative features related to the latest blockchain technology. However, before you start investing real money, conduct thorough research on a reputable broker and take the time to establish a trading system.
Refer to our list of the top digital contract brokers to begin trading.
FAQ
What is Digital Contracts Trading?
Digital contracts are a rapid-paced financial product that allows day traders to speculate on the price movement of an asset over a short period, sometimes as low as seconds. Investors can use digital contracts to speculate on various underlying markets, including stocks, shares, forex, and cryptocurrencies.
How Does Digital Contracts Trading Work?
Digital contracts are one of the most straightforward products to trade, as they depend on the simple question of whether an asset’s price will rise or fall within a specific time frame.
For example, will the price of Bitcoin be above or below $20,000 in two hours?
If the day trader guesses correctly, they will earn a predetermined payout, regardless of the size of the price movement. If they are incorrect, they lose their stake, but can quickly move on to the next trade.
Are Digital Contracts Safe To Trade?
As with any financial product, you are putting your money at risk. Meaning if the price movement goes against you, you will lose your stake. In the long run, you will lose money to brokers’ fees and other expenses unless you have a game plan that helps you consistently make winning bets.
As for security, there are some safe and reputable digital contract trading brokers out there, and your money and personal information should be relatively secure with these. Before you sign up to a broker, make sure you properly research it by checking whether it is regulated, which security measures it takes, and how existing users review it. Alternatively, we have ranked the top digital contract trading brokers.
Which Brokers Are Best For Trading Digital Contracts?
The best digital contracts broker for you depends on your personal requirements.
Find a brokerage that offers both the assets you would like to trade, and the expiration times you are interested in, for example, one-minute contracts or 24-hour contracts. Also, ensure you are comfortable with the digital contracts broker’s trading platform, that it has a good reputation for security, and that its fees are reasonable and payouts competitive. We have compiled a list of the best digital contract brokers.