The arena of binary trading can be a rewarding and yet confusing place; particularly for beginners. So, let us look at ten common mistakes that are made and the ways in which they can be avoided.
1. Trading with emotions
This is mentioned first because it is a common pitfall. When greed or anger supersede logic, great losses can be incurred. One should be analytical and rational; never allow raw emotion to influence even the smallest of trades. If upset or worried, it is best to avoid trading until these feelings subside.
2. Commodities are king
Thanks to the volatility of recent times, there is a misconception that commodities (and precious metals in particular) are a “sure thing”. Indeed, what goes up can and will go down. Therefore, the same analytical approach and foresight should be used when considering any commodities position.
3. A narrow portfolio
This is actually along the same lines as the last observation. Either due to a lack of experience or comfort, traders will often focus primarily on one or two sectors. This can leave any portfolio dangerously imbalanced. What is worse is that due to the very binary nature of these positions, a great deal of wealth can be lost within a short period of time. On the contrary, a portfolio needs to be diversified to supersede any potential volatility on the markets. Thus, a number of sectors (commodities, indices, stocks, and currencies) should be chosen; a loss in one arena may be offset by a gain in another. In simpler terms, a diversified portfolio is much more likely to produce tangible returns.
4. Sixty-second trades will make the most money
Again, this belief is commonly the result of an inadequate understanding of the intricacies involved with binary trading. This is also due to the fact that making “quick money” is frequently a promise of many substandard sites. While it is indeed true that short-term trading can result in capital growth, it can also cause net losses in a matter of seconds (a perfect example could be a sudden fluctuation in the Forex market). The truth of the matter is that wealth is rarely accrued within minutes and if this indeed occurs, luck would have had a considerable influence. Thus, it is better to develop an approach that involves a small number of sixty-second trades alongside more predictable positions.
5. Spreading one’s position
There is a notion that the best way to make a substantial amount of money in binary trading is to open multiple accounts across a great number of online portals (and even physical brokers). In fact, this will soon lead to a confusing situation. The trader will likely not be able to follow each account. This is even more concerning if numerous expiry positions are opened up. The world of binary options needs to be approached carefully and with a certain amount of discretion. Thus, it is much better to choose the best site and stick with their platform; this will provide the insight and the clarity needed to follow a position.
6. Minimum deposits
Every site will require a certain amount of money to open an account (normally a few hundred dollars or the equivalent). In the beginning, it is wise to only place the minimum in. There is the occasional story of a novice placing a few thousand dollars into a specific sector and “winning big”, but this is the exception as opposed to the rule. This is also another example of greed influencing sound decision-making. So, it is best to keep initial deposits low until greater experience is gained over time.
7. Beware of the bonus
Due to increased competition between brokers, there are a great many bonus offers that can be very tempting. These can include matching deposits, free advice from a professional or other enviable amenities. While this is all well and good, it is likely that the site will require a vast volume of trading to obtain these bonuses. This may be impossible (or dangerous) for a novice trader. It is wise to carefully read all of the terms and conditions before opting for any tantalizing bonus scheme.
8. Becoming overly eager
Although it is admirable to want to immediately jump into the lucrative world of binary trading, experience is only gained through a working knowledge of the different trading systems. One should learn how to use a binary options builder. The payout levels need to be clearly understood. Perhaps most importantly, the movements of the underlying assets (and the reasons behind these fluctuations) need to be appreciated. Of course, this will take a bit of time. It is nonetheless a fact that those who approach options trading believing that they will “strike it rich” from the onset are gravely mistaken.
9. Choosing the first site or broker
All that glitters may not be gold and the same can be said for the multitude of binary options platforms available. As with any purchase, it is wise to shop around well in advance of choosing one platform over another. Thankfully, the Internet offers a host of third-party review sites that will provide user ratings and objective analyses of the top binary options trading portals.
10. Managed trading will always make money
For those who are new to the game, a supervised trading system may seem appealing. However, it is important to note that even the most professional advisers will incur losses. Also, these schemes require substantially higher deposits and trades. These professionals may be great for advice, but it is always best to learn the basics of binary options trading and begin to open positions once one feels comfortable. There are no “sure things” on the binary options market.