Binary options trading has increased in popularity over the last few years. The trading method is easy to learn and risks, as well as profits, are calculable. With a good broker service and informed decisions, binary trading offers you many chances to increase and protect your capital.
Here is a step-by-step introduction to binary options trading.
Table of Contents
What is Binary Options Trading?
Binary options trading is a comprehensive and easy way to invest money and increase your capital. In contrast to many regular stock market trades, it is, as already mentioned, short-timed, and risks, as well as chances, are easy to calculate.
The risk and profit potential are predetermined in binary results. You either succeed or fail and receive total payouts or losses.
Base Assets & Speculations
The investment is based on your speculation on whether a stock market asset will fall or rise in value until a chosen expiration date.
To open a position, you buy a derivate of a stock market asset. Your trade will then be tied to this base asset’s market movements.
Brokers & Markets for Binary Trading
To trade binary options, you need to find a binary trading broker. Not every trading platform allows access to binary options markets. These are not regular national stock markets, but OTC derivative exchanges. There are several exchanges of this kind, like Nadex in the US.
Binary options brokers are not always easy to find. Some international authorities have banned binary options trading because they deem it prone to fraud and classify it as gambling. People in these nations need to access offshore trading platforms.
To find trustworthy brokers, you should always make sure they are regulated. User reviews and trading communities help with finding reputable services.
Binary Options Trading: Step-by-Step
Some steps for binary options trading are like regular trading methods, while others are very specific. Here are the steps for simple binary options trades. Naturally, advanced strategies can be used after one has more experience in the field.
Research
It is essential to know the market trends and statistics to find promising assets. As with other stock market trades, the success of your investments is based on accurate predictions. You will need to know, or accurately guess, if an asset’s market value will move in which direction at which time.
The best tools are resources, news, and background knowledge about trading and the markets. Some brokers offer more extensive guidance than others. If you are inexperienced, it might pay off to use a trading platform with a lot of educational material or a trading community.
Selecting Markets & Assets
Once you have background knowledge, you can find suitable markets and base assets for your investment goals. Traders typically have personal interests that determine which markets interest them the most.
Some brokers offer access to specific markets with differing contract durations and contract options to buy and sell at specific times.
Select Call/Put, Strike Price & Expiration Date
Once you have chosen your market and base asset, you need to decide whether you want to use a call or a put option. These are the terminologies for speculating if a value will rise (call) or fall (put). Additionally, you will need to decide on a strike price and expiration date.
The strike price helps you calculate the possible returns or losses and is essential for your money and risk management. Only set the strike price high enough that you are still able to carry the loss without going bankrupt or significantly impacting your capital.
Selecting a smaller duration for the trade will make it easier to predict whether the value will fall or rise until then. However, the riskier longer durations lead to higher payouts. This, too, can be decided with proper risk management and calculations about probabilities and which losses you can stomach.
Place the Trade & Wait for Expiration/Close Trade Early
Once you have decided on a strike price, duration, and whether you expect the value of the base asset to fall or rise, you can place the trade. Depending on the user interface of the broker you are using, this process will differ slightly.
Here, you might be given the options to make more detailed predictions, like in which price ranges the value of the base asset will be at the expiry.
A limit order allows you to specify the price at which you are willing to place the trade, while a market order lets you buy or sell the derivate at the best current price available.
You will also need to fill out the size box to specify the number of contracts you are looking to buy or sell.
Afterward, you typically wait till the expiration date to find out whether your prediction was accurate or false.
However, if a trade does not go as planned, it is sometimes possible to close an order early to limit your losses. If you can see the market is most likely moving against your prediction, it might pay off to call it quits early.
Conclusion
Binary trading is a simple trading strategy where we speculate whether a market value will rise or fall until a predetermined date. Thanks to the binary outcome and preliminary percentages, you can calculate the risks and profits easily. This makes it easy to perform risk management and forgo trades whose financial burden of a loss you could not carry.
When you want to trade with binary options, you need to find a trustworthy, regulated broker and do enough market research to make informed and promising decisions.
