Binary options are rapidly evolving as one of the most popular trading options in the market. Considering their trading simplicity, intuitiveness, and profitable nature, more and more traders are showing a willingness to add them to their investment portfolios.
Unfortunately, despite being easy to trade, only a handful of traders can reap favorable return percentages with binary options. However, this boils down to a lack of knowledge, strategies, and the right tips. Therefore, this article aims to enlighten you with tips, strategies, tools, and everything else you may need for trading binary options successfully.
So, let’s get started.
What you will read in this Post
What Are Binary Options?
Also known as “digital options” or “fixed return options”, the Binary option is a financial instrument in which return is either some fixed payout or nothing at all. Contrary to other trading options where traders are required to buy an asset, in binary options, only speculations work.
The traders involved are required to make predictions regarding the price movement of an asset (commodity, stock, index, or currency) within a specified expiration time. If your prediction is accurate and your option expires “in the money”, you gain a fixed payout.
Alternatively, if your prediction is wrong, you incur a loss, and the option expires “out of the money”. It is named Binary because there are only two possible outcomes, i.e., either you win or lose.
Trading Binary Options Basically Involves Three Key Steps
Firstly, you are required to select the expiration date/time for your trade. This is the time frame you set for your trade to end. It could range from a few minutes to a week; however, an expiry of one full day is pretty much the choice of the majority of Binary traders.
Secondly, you need to make a choice between Put/Call. If, as per your speculation, the asset price will end up at a level higher than the current price, select buy/call. Rather if you think it will end at a level lower than the current price, select sell/put. This executes your trade, and now you have to wait for the outcome.
As discussed above, if your trade expiry is “in the money”, you win, and if it is “out of money”, you lose.
Advantages And Disadvantages of Binary Options Trading
Minimum Financial Risk
The risk involved in binary options is the bare minimum as compared to other financial instruments. Since it works on the fixed return, the probable loss or profit is already known. It means the uncertain market conditions won’t blow you off.
You will only lose what you have already expected. Thus, there is better risk control. Moreover, there is always a limit on how much you can earn or lose in a single trade.
Binary options let you trade across multiple financial assets, such as bonds, stocks, commodities, indices, etc. Besides, the choice of selecting expiry time allows you to execute trades according to your preference.
If you prefer long-term investments, you can go for a week or a month. And if you prefer short-term investments, you have the options too. Overall, this flexibility is unrivaled as it gives you the freedom to trade with your choice.
Low Entry Requirement
Binary trading has a much lower entry requirement, and you can get started with very reasonable trading capital.
Alternatively, in stock trading or commodity trading, you need a good amount of initial investment capital. Nevertheless, with binary options, you can start trading with as low as $20.
Poor Reward to Risk Ratio
Despite your attempt to explore good trading opportunities, the return you get with binary options trading is comparatively low. With Binary Options, you earn 90% profit on the right predictions and lose 100% when the market goes against your predictions.
Thus, you tend to lose more than you earn. So, if you want to reap long-term gains with binary options, you need to have more than 50% accuracy in predictions.
Lack Of Regulation
Regulation is one of the biggest issues with binary options trading. Being a relatively new concept, it is yet to come under the lenses of regulatory agencies. That’s why most binary options brokers are unregulated, which aggravates the risk for traders as they may be exposed to being taken advantage of.
However, there are some regulated brokers to whom you must always consider when starting to trade Binary Options.
The fee charged on Binary Options trading is somewhat higher than the fee charged in other investments. However, when you purchase Binary contracts from a broker, they pay you around 71% to 85% return on winning.
And when you get “out of the money”, you get a certain small percentage of return of your principal amount. As such, the difference between the pay-out received on losing and the pay-out received on winning is quite significant.
Things You Need to Succeed in Binary Options Trading
Effective trading strategies go a long way in helping you reap lucrative outcomes. Trading strategies offer you a comprehensive market analysis that aids you in smart decision-making and ultimately increases your chances of winning and earning better profits.
Given below are binary options strategies that will help you discover profitable investment opportunities:
1. Fundamental Analysis Strategy
When trading, your main focus is on gaining profits, and this can happen only if you invest in a well-performing company. That’s where fundamental analysis comes into play.
Fundamental analysis helps you understand the prevailing financial health of a company you plan to invest your money in. It involves examining the company’s cash flow statements, balance sheets, and income statements. Additionally, the operations of the company will have a profound impact on your trades.
Therefore, you need to gain enough information about the company’s current status and its likely to head in the future. All-in-all, this strategy focuses on examining the present status of the company you are planning to invest in and the status of the industry as a whole.
2. Technical Analysis Strategy
This is one of the most important binary options strategies that many top-performing traders’ resort to for planning their trades. Generally, a technical analysis strategy focuses on examining an asset’s current and previous performance to predict a company’s future performance.
By examining the past performance of an asset, you’ll get a clear view regarding how it is likely to perform in the future since Binary options are all about making accurate predictions. So, if you can speculate an asset’s future performance accurately, you’ll reap profits on your investments.
In addition, the time when you plan to execute your trades also influences your possibility of success or failure. So, using this strategy, you can assess past trends and use them to figure out the best time to trade.
3. Basic Options Strategy
This is another important strategy that can do wonders to bring success in your trades. The basic options strategy helps traders avert the risk of huge losses. Similar to other trading options, Binary trading is also vulnerable to a certain amount of risk.
This is where this strategy proves to be of immense help. It mitigates the probability of losing the entire investment money at once.
Typically, the trader holds a position in both the call and put options on the same asset in this strategy. This way, if one option falls down, the other one will sail through, thereby helping in eliminating the chances of losing everything.
Trading Tips to Boost Your Trading Success
In addition to the strategies mentioned above, success in binary trading can be achieved by following the tips mentioned below:
1. Read And Analyze
The first and foremost requirement is to learn everything about the binary options market. Then, learn to read and analyze charts and various indicators to predict future price movements. There is a lot of real-time charting software that provides you access to real-time market data, which helps you perform your trades successfully.
2. Choose A Trustworthy Binary Options Trader
The trader should offer you all the essential features needed to succeed in your trades. And obviously, the broker should be reputable for offering good customer service.
3. Keep Track of Market Updates
Before executing any trade, make sure to check the market news. The news events greatly influence the market conditions. A piece of good news may result in a downtrend, while a piece of bad news may result in an uptrend, so utilize these events to improve your outcomes. Keeping a regular watch on the news will augment your daily gains.
4. Long-Term Trading Yields Better Returns
Set a fixed schedule and focus on developing a long-term plan. Rule out actions that don’t align with your overall strategies and strictly adhere to your set plan.
5. Trade What You Can Afford to Lose
Do not fall victim to greed or fear as they may lead to over-investing, thereby resulting in serious losses. Therefore, you need to be very cautious about the amount of money you can trade with. Determine your financial goals and accordingly contribute to trading activities.
6. Prepare Yourself Before Making a Trade
Check prevailing market conditions, verify graphs, and analyze activities surrounding the asset to make an informed decision. Also, make sure to prepare a money management plan beforehand.
7. Leverage Demo Accounts
Leverage demo accounts to try different strategies and find out what works the best for you. The demo accounts provide you a real-time experience of trading in the market. Without losing anything, you get to learn and sharpen your trading skills.
8. Note The Market Volatility
Remember that the volatility of the market tends to vary with different parts of the day. Generally, the afternoon is associated with low volatility, and there are no major announcements during this time. Whereas during morning hours, the market is deemed to have more volatility than the rest of the day.
9. Understand The Psyche
Last but not least, the most critical aspect of trading is psychology. No matter how much effort you put in, you won’t succeed if you don’t have control over your emotions and motivations. So, be consistent in your approach and stick to self-discipline to yield rewarding outcomes.
Frequently Asked Questions
How To Begin Investing in Binary Options?
Follow the steps mentioned below to get started with your binary options investment:
Register and open an account with the registered online trading platform/broker.
Select the option/asset you are interested in trading.
Select the amount of money you want to trade on the asset. If you think the price of the asset will go up, select Call. And if you think it will come down, select Put.
Check status after expiration time and collect the money.
What Happens When Binary Options Expire With “Out of Money”?
If your binary options expire “out of money”, you lose your investment amount. However, a “Sell Option” is available to allow you to sell your position at the current price before it reaches the expiry time.
What Does the Expiration Time in Binary Options Mean?
Expiration time in binary options refers to the time duration for a particular trading contract. It is basically the time after which you’ll get to see your investment outcomes.
There you have it all about becoming successful in your binary options trades. Well, this won’t come in a day, or a week, or a month. To become a competent player in this field, you need to be consistent in your practice. Besides, perseverance will play a critical role in shaping your long-term success. Unfortunately, many traders fail to reap profits because they give up too early. So, make sure you get over this fear and make your investments wisely.
Furthermore, it is always advisable to start small. Dedicate only 3-5% of your investment in a single trade. Transition to bigger investments only when you
are prepared as well as confident about your trading skills.