Binary Option Trading: introduction
Binary options is a form of tentative trading wherein the returns are either a pre-agreed amount or can even be nothing at all. The term binary depicts the dual outcome of this trading. This form of trading has gained ample popularity in recent few years chiefly due to its simplistic nature of up and down. Also, the money needed to get involved in this is lesser with so many registered and experience brokers so easily available to help any newbie try hands on this trading. Traders see this form of trading as an amazing opportunity to earn loads in a time as less than 30 seconds.
How other trading markets differ from binary options
Most form of investments involve the investor buying the asset they wish to invest in and the value is calculated based on the profit or loss which is based on the asset’s changing value. Here the investor can choose to sell the asset back to the market when the price increases which means earning a profit or can even opt to see when the value of the asset depreciates meaning a loss. This investment constantly burdens the minds of the investor about being aware which is the best time to sell the asset to prevent exposing the entire account to the volatility of the trading market. Binary options trading on the other hand is very simple and here the level of stress an investor faces is very less as the timeframe for which the movement of the asset has to be determined is predetermined and already known.
Assets where binary options trading can be used
This form of trading can be applied to a large number of assets, which are
- Forex which is foreign exchange trading and involves all the major currencies like the EUR, USD, GBP, JPY and AUD. Forex market helps in carrying out trade and transaction between countries and is an investment opportunity for investors ready to take some risk.
- Indices: Indices often supply as barometers for a given market or industry and benchmarks against which financial or economic performance is measured. Some of the major ones include Nasdaq, Dow Jones, FTSE, Nikkei and many more
- Commodities involve physical assets like gold, grains, food, silver, corn, oil, and more which can be exchanged with another similar type of product and which is bought or sold through futures contracts. The price depends on supply and demand.
- Stocks are the share of a company which is managed either by an individual or a group. Stocks can be sold or bought on an exchange and there are many types; common stock and preferred stock. Some of the biggest and most interesting companies in the world whose stocks can be bought or sold are Google, Deutsche Bank, Coca Cola and many more
How trade binary options
Trading is simple only when the person understands the basics. The first step needed is opening an account and then going to the trading platform. After this the asset one wishes to trade must be selected with the expiry time and one of the two options, which are Call or Put options. After this the amount one wishes to invest must be entered. Here the investor has full control of the investment at every stage. When the time ends, the set return will get added in the account in case the trading was successful or will get deducted if it was not.
Some golden tips for trading successfully
Knowing about the underlying asset is crucial as binary options derive there value from here. Before investing it’s mandatory to understand the asset and get familiar with the relevant financial markets. It’s always recommended to trade assets of which the person is already aware about.
One must know how to interpret the market as there are many ways to analyze the statistics and markets. Also daily market updates and analysis are very easily available online to make informed decisions. Also there are many brokers who offer trading signals and advice to meet with the trading needs of individual investors.
Opting for a diversified trading strategy is important in order to minimize the overall risk and maximize the final outcome. One can even choose to trade multiple assets together rather than staking a large sum of money on just one asset.
Tools needed for binary options trading
To be successful at binary options, one requires proper tools of the trade. The chart on the broker platform is not a reliable source for long term success in this trading. Some tools which seem important are
- Meta trader 4 is the most important trading tool needed. The tool can be easily downloaded and installed from a number of websites. For those who do not wish to install the software on their computer there are live charts available online where indicators can also be set for free.
- There are two major types of analysis when trading binary options which are technical analysis that involves analyzing indicators by searching for the price and action and fundamental analysis which is driven by the analysis of news.
- The indicators which are very important and useful when trading with binary options are Bollinger Bands, RSI, Stochastic, Moving Average and Donchain channel. All of these indicators are free and are already available for the MT4 platform charts.
There are two types of Binary Options trading tools – the first kind are trading tools such as Roll Over ( Extend) and Close Now (Stop Loss), which are provided by the binary options broker and available to use after purchasing an option.
Trading strategies used in binary options
- Reversal is where the value of the asset moves in just one direction and there are chances of it moving back in the backward position. This is where investor might choose to buy a Call option if the price has just got depreciated or a Put option if the value has just appreciated.
- Straddle strategy is where both Call and Put option are set on the same asset as it’s high and low points. This is most used in volatile markets. It’s ideal to choose an expiry level that lays in between the two strike prices and means the investor gets successful in a dual way in case it does not work then also the loses are minimum, as one option ends in the money.
- Knock on effect is considered to be the most logical strategies where it’s measured that the price of a stock may affect the index’s price in which it is traded or of a related commodity or stock. The motive here is to understand the link between the assets while anticipating the knock on movements.
Binary options trading for beginners
Due to its simplicity and exactitude, binary options trading is an ideal option for beginners to start trading but one which requires minimum time to learn and start. For people who have an experience of trading with traditional options, commodities or forex they can easily use their existing knowledge to try their luck at binary options. For those who are totally new to trading it’s always recommended to first learn the basics and then practice with a demo account before putting their hard earned cash on the line.
A key factor for beginners trying their luck at binary options trading is to choose the right broker to start with. Nearly all brokers allow setting up a demo account before starting to risk the real money. This can help newbie’s in knowing about how the site works, what are the kind of pay outs and loss and refunds, if interested in long term trading. Most investors trading in binary options have accounts with multiple brokers due to the varying nature of returns and trade types. One broker might offer the best return on binary options while other on forex trading. So it’s crucial to know the strength and weak points of each broker.
When undertaking binary option, a person must understand that they are not actually buying an asset when purchasing a binary option; in fact they are making a speculative investment on the behavior of an asset over a predefined time frame.
The bottom line
For all those thinking about trying their luck at binary options trading, they must know that it is a great option as it hardly matters whether the price of the asset goes up or falls down. It all lies on predicting where the price will head. Also the prediction of how much one can lose or win helps in better keeping a track of their money and also prevents huge losses while minimizing risks and maximizing returns.
Practically there are a lot of things which any person must understand if thinking of options trading. And always remember to start slowly and look for the best brokers and the best deals while diversifying the portfolio and knowledge. Also, it’s a known truth that anyone can start making money in the binary options market in no time!