Binary options came on the scene for retail traders just a few years ago, and since then they have grown immensely in popularity. The reason they have become so popular is that they are quite simple to trade, no matter who you are, which means the average trader can use them to make profits quickly and with little fuss. Also contributing to their popularity is the fact that binary options traders can get started with as little as $100, which can’t be said about most financial instruments. Nearly any person can begin generating profits with binary options right from their first day of trading.
Because binary options are so new, we know that many traders have questions about them, so we put together this brief binary options trading guide to help everyone understand the ease of trading binary options.
The Binary Options Trading Guide for Beginners
1. What is binary options trading?
Binary options are a type of financial instrument that allows for only two outcomes; the trader wins and profits, or he loses and all the initial investment is gone. It is because they have only two outcomes that they received the name binary – which means two. In practice a binary option is traded by an investor making a prediction about the future direction of an underlying assets price. If the investor is correct he can profit up to 310%, but if he is wrong he loses the entire investment.
2. How does this apply a normal trader?
Binary options appeal to normal investors because they offer large profit potential, very quickly, with a reduced risk profile. Nearly anyone with an internet connection can trade binary options after creating an account with a broker, as the market is virtual and not located in any real world location.
3. What benefits does binary trading have?
There are numerous benefits including the ease with which they are traded, the fact that traders know their risk before purchasing the binary option, the large number of assets which can be traded, and the low initial capital outlay.
4. What negatives does binary trading have?
The negative is the same as with any investment, that is the potential to lose money. There have also been claims that some traders approach binary options in a similar manner to which they would approach a casino and thus they become addicted to binary options. This too can happen with traditional investments when a trader doesn’t take the time to research and understand the market they are trading.
5. What risks does binary trading carry?
The risks with binary options are actually less than in other markets, for the simple fact that traders in binaries know exactly what their risk and rewards are prior to placing a trade. There is no other market for which this can be said.
6. Is it complicated to trade binary options?
Binary options are actually the opposite of complicated. It is so simple that no prior financial market experience is required to trade binary options. Anyone who has enough knowledge about a market to properly predict the future price direction of that asset can easily profit using binary options.
What are Binary Options?
Binary options is a revolutionary form of online investment that allows traders to combine their own choice of assets and financial instruments to achieve a high pre-determined profit. Instead of purchasing assets, investors predict their performance on the markets within a specific time frame. There is no sliding scale of profit/loss. If the prediction is correct – even by a fraction of a pip – the trader will receive 100% of the quoted ROI (return on investment or profit). If a trade fails the only money lost will be the sum invested in that specific trade; there is no further liability.
Binary options investments are fast, simple and entirely transparent. It should take no more than a few seconds to launch a trade using an automatic options builder.
A typical binary options trade could be built around the following components:
Potential ROI: 89%
Do I have what it takes to be a Successful Investor?
Binary options opened the financial markets to ordinary people. Anybody who is willing to persevere can become a successful investor.
- Use the online education center to develop a financial background knowledge
- Get to know your account manager and ask for advice
- Set clear financial goals, an investment budget and a personal trading schedule
- Find trading strategies that fit your goals and personality – then invest systematically
If you have the patience and commitment to follow these four basic rules, you probably already have most of what it takes to become an effective trader. The successful traders are not the macho stockbroker clichés from the movies, but the people who take the time to research the markets and invest logically.
How do I find a Reliable Broker?
The most important decision you will make as a new trader is which online broker to register with. You will be depositing money into their care, trusting them to provide honest brokerage, and then return your profits on demand. It is vitally important that you sign up with a regulated binary options broker that is subject to a recognised licensing authority such as CySEC (Cyprus Securities and Exchange Commission). Check the website of any broker that interests you and look for information about regulation – usually this will be in their FAQ or About Us pages. It’s worth taking another minute to double check with the licensing authority’s own website.
First Steps to becoming a Trader
As soon as you are registered with a broker, your first challenge is to avoid the temptation to start trading immediately. Successful trading careers begin in the online education center. The better binary options sites put a lot of time and effort into creating a range of eBooks, VOD film tutorials, webinars, financial reports and analysis. The education center should contain enough learning tools to give you the following:
- A background knowledge of the financial world and market forces
- A detailed understanding of assets and how they perform
- A working knowledge of the trading platform
- How to perform technical and fundamental analysis
- The ability to devise your own trading strategies
A quick look at the education center is a good way to get a first impression of the quality of any binary options site.
Assets and Instruments
Assets currently tradable as binary options fall into four categories: Commodities, Currencies, Indices and Stocks. Financial instruments can vary slightly, but most sites offer High/Low, Boundary, Short Term and One Touch.
Any site should offer at least 100 assets. Examples include:
Commodities: Gold, Oil, Corn and Coffee
Currencies: EUR/USD, GBP/USD, EUR/JPY, GBP/JPY
Indices: FTSE 100, DAX 30, CAC 40, IBEX 35
Stocks: AXA, BMW, GAZPROM, TESCO
The purpose of the financial instruments is to create parameters within which traders can predict the performance of the asset.
High/Low – The trader predicts whether an asset will close higher or lower than the quoted target price.
Boundary – This instrument quotes two target prices – one upper and one lower. The trader must predict whether the asset will close inside or outside the boundaries created by the target prices.
Short Term – This is probably the single most popular instrument. Traders choose an expiry time – usually between 30 seconds and 5 minutes – and make a simple high/low prediction.
One Touch –The trader must predict whether the market price of the asset will reach the quoted target price at any point before the expiry of the trade. It is possible to make exceptionally high ROIs using the One Touch instrument – profits of 350% are not unusual. Many traders will launch long term One Touch trades at the weekend or during holidays when the markets are closed for normal trading.
The only way to make sustained profits from binary options is to invest systematically using personalised trading strategies. The starting point for any trading strategy is personal goals; there are four basic questions that a trader needs to ask:
- How much money do I intend to earn?
- What is my investment budget?
- How much time can I allocate to research and trading?
- How will my own personality influence my decision making?
The single biggest aid to developing a trading strategy is the online education center. It should contain tutorials covering all aspects of advanced investment and trading. It pays to record and analyse the performance of every investment, adjusting any strategy through trial and error. Many trading platforms allow investors to print their trading history as an Excel spreadsheet for easy analysis. Traders are encouraged to explore their own personalities and motivations for investing. Different personality types are better suited to different strategies and a degree of self-knowledge allows better risk management.
There are several well-known financial trading strategies that are useful for binary options investors. Most are trend based and are built around technical analysis using charts. The most accurate results are often obtained by using two methods simultaneously. Traders should aim to familiarise themselves with the following strategies as they develop a deeper knowledge of binary options investments: MacD Indicator, Inside Day, Price Channel, Two Way Movements, News Trading, ParSAR, and the Triangle Trading Strategy.
How To Trade Binary Options
If you are looking for a trading option that presents you with the choice of buying an asset in any particular market at a fixed price within a given time frame, then you are thinking of the Binary trading option, which is a contract that allows you, as the owner of the contract the opportunity to act in any way that you would like when it comes the buying and selling of your contact.
In binary trade, the term given to items being traded are underlying assets and these items can range from a number of products in any market, such as: Commodities, Currencies, stocks, and or indices such as FTSE 100 and Nasdaq and the price that the owner buys or sells these products is known as the strike price. The way that binary option trade works is that the buyer predicts when if he thinks that the underlying asset will reach its strike price by the time he selected that the contract should expire.
How do you trade Binary Options?
- The first thing that you need to do is create a binary options account with a broker who is in the binary option trade. A few that you can choose from are: 24option, OptionBit, AnyOption, and BBinary but if you would like, you can find different brokers online at BinaryOption.com and the process is usually very simple because all you have to do is register and start depositing your funds.
- The next thing on the list is to choose an underlying asset to invest in and for your best interest; you should only choose markets that you are familiar and comfortable with. For example, you have been following the gold stocks in the news and you are comfortable with it, and then do your binary trade in gold because you already have ground rules and knowledge in this area.
- After you have completed the steps above, you then need to choose the time that you want the contract to expire; whether, it is in a few hours, a day, a week or a month, the choice is yours. After choosing the time, the direction that you think the assets will take is your next step. Choose whether you think the asset price will be lower in which case you would buy a put option and if you think it will be higher at expiration date then you buy a call option.
- However, before you decide on whether you should buy a call or a put option, you should ensure that you are very knowledgeable in the market and the direction that you think the stock will take.
Binary option trading is one of the simplest forms of trading and all you have to do is make sure that you do your research.