Binary Options Beginners Guide
Although a relatively new type of investment option trading in binary options has become very popular. The word binary means to have just two possible outcomes; this is true when dealing with this kind of investment. Every trade will be either successful and generate a profit for you, or unsuccessful and you will lose your funds. Of course, as it has become more popular many brokers have offered a range of options; whilst this changes the way you can trade it does not alter the possible outcomes.
The fact that anyone can start trading without needing to have vast sums of capital behind them or experience of the money markets means that it is attracting a lot of attention. To trade you will just study the price history of one asset; you can then choose the direction the price is likely to move in and place your trade accordingly. Providing you are correct at the time the trade expires you will make a profit. The important difference here is that it does not matter if the price has moved one dollar or one hundred; providing it has moved in the direction you predicted at the end of the trade, you will receive the same payout.
There are many who say that Binary Options are just another form of gambling; however, a quick look at this beginners guide to binary options will ensure you realize that although two possible outcomes is similar to gambling; this is where the similarity ends.
In fact, the ability to trade in binary options has been around for decades; insurance firms were one of the first to use this technique; it has actually helped to provide insurance to some of the most difficult insurance needs.
The other main factor as to why this is known as gambling is a result of beginners who do not follow a guide but believe that they can trade in binary options brilliantly from day one and generate huge profits. The fact is that although it is possible to make a lot of money from this kind of trading, to do so you need to understand the binary options industry and your investment options. Only through educating yourself will you be able to trade successfully and, more importantly, consistently. If you ignore this advice then you are highly likely to lose all your funds and be one of the people calling binary options a form of gambling!
To know as much as possible about this industry you must gain access to as much educational material as possible. This means understanding the trading options available and the different strategies which can be used. It is also essential to understand the financial markets and how they operate as this will help you to predict the right price movement.
There are several options when it comes to investment trading, binary options is one of the more recent but does offer a wide array of advantages over the more traditional approaches:
You do not have access to any leverage trading options. This is a huge benefit when looking to reduce risks and control your options.
Losses are always restricted to the amount you invested; it is simply not possible to lose more than you purchased an option for. Even better is the fact that you always know before you commit to a trade how much you could lose and how much you could win.
Speed is of the essence when trading in binary options. You can complete a trade in as little as thirty seconds, or as long as a year! However, the short expiry dates does allow you to trade many times and generate significant profits within just a day.
The rate of return on investments is usually between 70% and 90%; assuming you win your trade this is far more lucrative than the majority of other investment options.
How to Trade
The most basic form of trading is to choose the price direction of an asset and purchase an option accordingly. However, even this requires you to choose between whether you wish to trade in stocks, currencies, commodities or even indices. Most brokers offer a range of assets within each group. Perhaps one of the best ways to understand how to trade binary options is to look at an example trade:
If you choose to trade in currencies you will need to choose two currencies, such as the US dollar and the Euro. You will need to look at the current price; for instance one US dollar is worth 1.20 Euros. If you think that in half an hour the US dollar will be worth more, then you should place a call option and select half an hour as your expiry time. If not, you select put. There will be a range of options regarding the possible expiry time. The next stage is to decide on your investment. If you are studying this beginner’s guide to binary options and are just getting a feel for the market it is best to place just the minimum amount which your broker allows you to do. However, if you have some experience and have confidence in your judgment then you may prefer to invest a little more. You will then need to wait until the trade expires before finding out if you have generated a profit; which will be allocated directly to your account, or if you have lost your investment and need to try again.
Choosing a Broker
One of the most difficult parts of this type of trading is choosing the right broker; they will ensure you have a fair opportunity to trade and keep your funds safe. The following items should be considered before choosing your broker:
Do they have plenty of different trading options including a good range of assets, expiry times and trade options.
Is their platform easy to use and reliable?
Do they offer educational material, bonuses or even analytical tools which may be useful.
Are they regulated; if they are then check their registration with the regulatory body.
Check the reviews of every broker to find the right one for your needs.
There are a variety of different strategies available; these include the standard price direction approach, touch options and trading within boundaries. To understand the strategy you must educate yourself, it is particularly important to be able to analyze the markets and understand what is happening in the wider economy. Both elements play a part in correctly predicting a price trend. It is essential to understand and adjust any calculations for any possible price movement according to the analytical and economic information in front of you. The more strategies you become familiar with the easier it will be to find the right approach for each trade.
There has been an increase in the add-on services available within the last few years. These mainly focus on either providing you with signals that tell you when and how to trade, or simply undertake the trade themselves on your behalf. Both of these approaches can be beneficial to the new trader or to anyone who does not have the time to watch and analyze the market. In effect you can set up the automated service and busy yourself with other works whilst your binary trading takes care of itself.
As with any type of investment; it is essential to ensure you only use funds you can afford to lose.