Tips For Starting Trading Binary Options
Binary options are an easy-to-understand investment when you are just starting out with online trading. Here, you can accurately calculate how much money your investment will pay out if it succeeds and how much you would lose if it fails. This makes it suitable for just about any investor. Learn here how to get started with binary options trading.
What are Binary Options?
Binary options are a so-called derivate. As such, we don’t buy a financial asset – like stocks or forex – directly. Instead, the asset we buy, the derivate, copies the market movements of a financial instrument of our choice.
If we speculate using a derivate of the Apple stock, our derivate will have the same value at any given time, but won’t be connected to the firm in any other way. We are not buying shares of a company; we are simply using the price of the asset as a reference base value.
Binary Options Base Strategy
The simplest trade with binary options is very easy to understand:
We select the base value for our derivate, pick an expiration date for the trade, and predict whether the value will be higher or lower than the strike price at the beginning of the trade once the expiration is reached.
Simply put, we invest in a 50/50 gamble with two possible outcomes:
- When we failed to predict the market movement correctly, we lose the investment completely.
- When we guessed correctly, we receive a pay-out depending on the trade amount and pre-set return percentages.
The percentage applied to our investment is relatively high. When we are accurate in our prediction, we receive 70 % to 95 % of the invested amount.
Naturally, there are more complex strategies than this basic binary option trade. Helpful websites can help you get informed about the assets and trading method in-depth (for example https://www.binaryoptions.com/guide/).
Benefits and Downsides of Binary Options as an Investment Method
- Simple to understand.
- Results of wins & losses are calculable.
- Suitable for risk management.
- You can profit from up- & downwards market movements.
- The use of leverage can lead to high revenue with small investment sums.
- High control over the trade by choosing expiration dates and co. yourself.
These benefits are accompanied by few downsides:
- The general risk of trading.
- Using leverage comes with a high risk.
- Several countries have banned binary option trading for private investors.
How to Start Trading Binary Options
There are few steps necessary to start trading binary options. Here is a step-by-step guide for binary option trading:
1. Learn About Trading
It is not a good idea to start trading and leave the results up to luck entirely. The more you know about the markets, trading, and the specific assets of your choice, the more likely you are to make accurate predictions.
Market movements typically form patterns that can be recognized with the right background knowledge and analysis tools.
2. Find a Broker
This background knowledge about markets and trading can help you find the right tools for your trade. The most essential is a trading platform that gives you access to stock markets and other exchanges. Also check benefit of cryptocurrency trading businesses.
When you have learned some things about binary options, you will know by now that you will most likely need to look for a specialized broker for binary trading with access to Over The Counter (OTC) markets.
Many governments have deemed binary options a too risky investment option for private investors because the simple-to-understand nature and high chances of quick revenue have attracted many scam providers in the past.
This makes it necessary to take some care when choosing a broker. Make sure to look for user reviews and pay special attention to the regulation and licenses of the trading platform to guarantee the use of a secure service.
The reviews will also tell you about the user experience, service scope, and support you can expect from different brokers. Many of them have demo accounts that let you test the service without exposure to real market risks.
3. Choose Markets & Base Assets
Different brokers have access to varying markets and asset selections. Your research will give you an idea which kind of base assets are suitable for your investment goals. Make sure the broker you pick has access to these.
4. Risk Assessment & Management
Statistical data, broker fees, and return percentages help you determine how much of your capital you can risk when investing. This is where binary options shine as an investment method, because the binary nature of the results makes it easy to calculate what you are standing to gain or loose exactly.
Experts advise never to use more than 5 % of your total capital when investing, and to start out with 1 % or 2 % first.
5. Configure Trade Details
Select the base asset, the trade amount, and the expiration date for your trade. You will also need to enter whether you choose the call or put option. The call option describes the prediction that the value of the base asset will rise. When you select the put option, you expect it to fall instead.
6. Finalize the Trade, Wait & Repeat
Once you have finalized the trade, you need to wait until the binary option expires to find out whether your prediction was accurate or not. Now, you can decide to reinvest your winnings or adjust your trading strategy if it failed. Also check crypto trading platform.
Binary options are simple and fast investment method. With the right background information and analysis tools, you can quickly gain revenue with this strategy. All you need is the right trading platform, effective risk management, and the right amount of data for informed decisions.
Thanks to the binary results, you can accurately calculate returns and risks. This makes this trading strategy suitable for beginners. Trading websites help you learn the necessary trading skills and strategies for successful speculations.