Binary options trading is one of the most engaging and prominent financial markets worldwide. It is simpler and easier to understand than forex trading, and even low-skilled traders can use it to line their pockets with cash from time to time.
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What are binary options?
Binary options are financial instruments that turn all trades into a simple ‘yes’ or ‘no’ question. You, the binary options trader, get the power to decide whether or not a market is likely to be above a particular price at a specific time.
If you sincerely believe so – backed by your analysis, you buy. But if you think it won’t be, you can sell.
Whenever you place an order for a particular binary options contract, you speculate on the market instead of purchasing a share of the underlying market. As a result, the price never deviates from $0 to $100.
How binary options works
Binary options traders are expected to place a wager on the movement of a currency, stock, or commodity. An expiration date is stated; however, most binary options trading platforms allow users to adjust the expiration date before every wager.
Suppose the binary options trader secures the direction of the commodity upon expiration. In that case, the trader makes a profit on their investment. Most trading platforms offer profits of up to 80 percent and above.
A binary options trader can execute several wagers within seconds. This means they make a lot more money quickly with lower initial investment compared to conventional forms of investing, such as shares or stocks that require huge sums to be invested before profits can be made.
To put everything in context, here are vital elements you must know:
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The underlying market
This is the market you choose and decide to trade in.
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The expiration date and time
Binary options traders can trade contracts for up to a week. They can also trade binary options contracts for short durations lasting less than 5 minutes.
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The strike price
This is the ever-popular price level you will always hear when trading binary options. The strike price is the central piece around which all binary options trading decision-making process revolves. To place any trade, you need to decide if you think or believe the underlying market will be below or above the strike.
Binary options traders have the liberty to speculate on up to 4 markets, namely:
- Commodities
- Forex
- Events
- Stock indices
Binary options contracts are always available night and day.
Call vs put option explained
A binary options trader can buy a ‘put’ when bearish on an index, currency pair, stock, or commodity or a ‘call’ on these instruments when bullish. For a put to make money, the market must trade below the strike price at the expiration time. For a call to make good money, the market must trade above the strike price right at the expiration time.
How to start binary options trading
You can sign up and set up a binary options account, invest just $10, and start trading within 10 minutes. Since binary options trading has an incredibly low entry barrier, many casual investors troop in daily.
But these casual investors don’t possess the knowledge or technical know-how about why commodities, stocks, and currency change in price from time to time. This makes them lose huge sums of money within a very short period.
That is why you should consider several factors before making every binary options trade.
The primary reason some binary options platforms offer as many high potential returns as 70 percent or more is that many investors lose a lot of money during trades. Therefore, a well-regulated platform must inform you of the percentage of investors losing their hard-earned cash. This information is displayed on the binary options platform’s homepage in most cases.
Here are the essential steps you should follow to stay miles ahead of most traders in binary options trading:
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Always get and use the right information
In the binary options universe, you should always be learning and never stop. The world’s dynamic economy plays a crucial role in trading binary options. An event in a particular country can significantly affect the price of a specific commodity in another.
Therefore, search for and use reliable sources of information that enable you to spot excellent trading opportunities. Always get insights into the entire world’s economy from time to time.
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Always trade on the right binary options platform
Many binary options trading platforms are not adequately regulated, which leaves you unprotected when a dispute arises unexpectedly. This is crucial; you don’t want to be part of the horror stories of investors losing substantial sums of money through no single fault of theirs.
Some binary options trading platforms are easier to navigate or more user-friendly than others. However, binary options trading requires a lot of lightning-quick, high-level thinking if you want to make profits consistently.
If the binary options platform has a demo account functionality, take advantage of it immediately. Demo accounts are vital tools designed to help any savvy binary options trader to develop their own or unique trading strategy.
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Money management and investment strategy
Trading binary options may help you make lots of money quickly within a very short period. But you can equally also lose vast sums of your hard-earned cash.
Aside from making crucial, data-backed trades, another critical aspect of your binary options trading strategy involves managing your money. You should only trade with the money you can afford to lose. This will prevent you from chasing your losses. This is the action of most gamblers on a losing streak; they stop making calculated decisions and only chase after their losses.
Conclusion
Binary options trading has limited risk. It is a short-term contract that requires quick thinking, calculated decision-making, and the ability to spot trading opportunities. If you stick to your well-designed trading strategy, you will improve on it. This involves staying up-to-date with happenings worldwide and taking advantage of trading opportunities the moment you spot them.