Binary Options Basics
Currently there exist a big number of financial instruments with the help of which traders have an opportunity to earn considerable sums of money. Yet the majority of them differ by complexity of usage, which is why they are basically unavailable for beginning and inexperienced investors. Nevertheless, there is a range of pretty simple instruments that can be used by novices. One of such instruments is binary options.
If to explain in simple words, this is a very easy instrument, buying which, investor will either get a profit of a guaranteed size or lose the money equal to invested in a deal funds. As a result of IT technologies development, binary trading has got a wide spread occurrence worldwide. Due to this feature, almost everybody who wants, can get an access to an option trading process.
One of the most significant binary options advantages is an opportunity of quick income. Exactly this distinctive feature made binary options extremely popular among all beginners. Yet, don’t forget to take the following fact into consideration: because of high profitability within a short period of time, the majority of traders begin treating binary trading as a game in some betting office, without following the basic rules of investment in pretty risky types of assets. That’s why, having got a considerable profit from the first 2-3 trades, lots of people were losing almost all funds in further unsuccessful investments. These investor’s main problem – miscalculations in terms of investments and ignorance or lack of knowledge of the main factors that work in favor of binary options brokers or traders.
Factors that Work in Favor of Binary Options Traders:
- complete understanding of market trading principles. Getting ready to trade financial instruments, you should always remember that market, brokers and other traders “play” against you. Trading binary options, keep in mind that you can rely only on your own skills, knowledge, experience and of course option trading strategies;
- discipline – if to draw an analogy with track and field athletics, then binary options can be compared with a marathon where one should be capable of patiently experience periods of failures as well as not fall into euphoria from big profits. Your main goal is to sum up the situation in a calm way and consequently make the right decisions;
- availability of the capital – in case if you have a small deposit, it will be hard for you to lead the trading process according to all rules of risk-management. Good capital is a sort of your “safety bag” in case of loss-making trades;
Factors that Work in Favor of Binary Options Brokers:
- investor’s lack of knowledge – the majority of people who invest in binary options, are beginners who don’t have enough level of skills and knowledge. That’s why such people have more loss-making trades which in their turn bring profit to brokers;
- absence of discipline – when investing in option trading, lots of novices are motivated not by a long-term strategy but a desire to receive quick income. The outcome on this situation is clear – investor is ruled by passion/gambling instead of cold calculation. And it always leads to the loss of an invested money;
- investor’s little deposit – having a deposit of a little size, investor stalemates and depends of short-term results: if a few of the trades turn out to be loss-making, the he has big chances to lose the biggest part of a deposit;
- Inability to optimize risks – almost all books connected with risk-management don’t advise to invest more than 2%-3% of your funds in one trade. In its turn, beginning traders who have got a considerable profit from 5-6 operations, begin investing sums that are much higher than 3% from the funds on their deposit;
Summarizing all the above-mentioned information, we should mention that it is more than real to make good money with binary trading. Yet for this, you will need to get so necessary knowledge and arm yourself with patience. Apart from that, you should take one trading strategy as a basis, adapt it according to your knowledge and follow it. Only after all these manipulations are done, you can count on a stable income from trading binary options. Binary Options Basics Binary options are easy for understanding, consequently there is absolutely no need to have a special education etc. They are called “binary” because the contract has only two possible ways of outcome: either you win (get your invested money back plus payouts), or lose (lose invested money). In order to buy an option, you need to make four important decisions beforehand:
Chose the market and an instrument
The first and foremost instrument a trader can work with, is for example, gold, silver, oil or shares/stocks etc. Always remember that the cost of a binary option depends on the price of a selected asset. The biggest advantage of working with binary options is based on the fact that you don’t buy or sell real market assets;
Life of agreement
Every binary option has a particular duration, e.g from 10 seconds to a year or even more. These figures already depend on binary options brokers;
How do you want to trade
Usually, the majority of brokers offer the following four methods of trading on a chosen instrument:
- Decrease/Increase – where you can receive a profit based on a market growth or disruption relatively to its current level;
- High/Low – where you can get a profit if after the option was exercised, the market will be higher or lower of a set in advance barrier;
- Touch/ No Touch – where you can receive a profit if the market will either touch or not touch a chosen barrier;
- Inside/Outside – where you can get an income if the market stays within two price barriers or overcomes them;
Choose the payment
Many binary options brokers offer the function of controlling the sum of winning money. At the very beginning of a contract, you estimate and set a certain winning amount, based on which, the trade will be counted – it will be your purchase price;
Binary options strategies vary depending on a range of factors including people’s trading preferences, expirations etc. There exist a line of strategies which can be successfully used and is a good example to know how to trade options using multiple risk levels.