What Are Binary Options?
It is important to understand what are Binary Options and the basic concepts of trading first before you go any further.
Binary Options are an innovative and relatively new way of trading options. The name derives from there being two possible outcomes (up or down, “in the money” or “out of the money”), hence the name binary. The idea is to predict which way the asset will go after a predefined period of time. For example, you may predict that the USD/EUR will rise to 1.35 in the next hour. If it reaches that point returns of perhaps 85% are possible. If it doesn’t you lose your investment but many brokers will return a small proportion to you of up to 15%.
Binary Option trading is based on research and a certain amount of knowledge of the traded assets. While you don’t need to be an expert, any knowledge you have certainly helps manage your risk. The online platforms available today make trading easy from anywhere in the world once you have an internet connection. All the information and research you need is also available online. You make predictions on the expiry price of your chosen asset and decide how much to invest.
Smart traders use strategies to help them maximise their successful trades. A simple and effective strategy for new traders is the Trend Strategy.
Binary Options can be traded on stocks, stock market indices, forex pairings or commodities. Binary Option trading is straightforward and can be lucrative with quick returns available but nothing is certain and losses can be made also.
To get started I would recommend learning everything you can about this form of trading. Educate yourself and give yourself the best chance of success possible. Sign up with a recommended broker and take advantage of demo systems to practice your strategy before trading with real money. Good brokers also have support staff on hand to give you any help and assistance needed.
There is some terminology used in Binary Options Trading that you will find useful to know. If a trader believes the market is going higher, he would place a “CALL”. If the trader believes the market is going lower, he would place a “PUT”. In order for a CALL to make money, the price must be above the strike price at the time of expiry. In order for a PUT to make money, the price must be below the strike price at the time of expiry. The strike price, expiry and payout are all defined at the outset of the trade. (See Glossary for a comprehensive list of the terms used in Binary Options trading).
One of the advantages of Binary Option trading is that the risk and reward are known from the outset. It doesn’t really matter how much the market moves for or against you, you will win a fixed amount or lose a fixed amount. As you never own the assets you are “trading” on you have no liquidity issues. A disadvantage is that you must be right more than 55% of the time to make money with many brokers.
In summary, Binary Options are a new and innovative way for speculating on stocks, currencies, indices and commodities but come with advantages and disadvantages. However, you can increase your chances of success by smart research and implementing a good solid strategy similar to the ones discussed in in the Strategy Pages.
Binary Options are a fun and quick way to make some extra cash for a casual trader or a substantial income for a full time dedicated trader,