Binary options have been around for a while now, but recently have been a hit among the new traders. Basically, binary means two 2 values and in the case of trading, it means up and down. Thus, when trading, you can either gain or lose. Binary options are nowadays flawed with unscrupulous internet marketers looking to cash on unsuspecting traders. In this post we will give you an idea how to trade binary option in a few simple steps.
Doing a simple search on Google or YouTube will yield hundreds of binary options scams. Options provide great opportunity leveraged plays. They can also help you earn greater profits with a small amount of cash outlay. You need to have good strategies to succeed in this industry. This article will show you how to succeed in options trading.
- 1 Steps
- 1.1 1. Gain experience of trading in stocks first
- 1.2 2. Understand basic terms
- 1.3 3. Read books and magazines that talk about binary options trading
- 1.4 4. Learn how to do technical analysis
- 1.5 5. Select an options trading that best suits you
- 1.6 6. Choose a good trading platform
- 1.7 7. Open a brokerage account
- 1.8 8. Correctly price options
- 1.9 9. Understand the risks and the downside of binary options trading
- 2 Tips
1. Gain experience of trading in stocks first
There are many similarities between stock trading and binary options trading. If you have been trading in stocks, and earning good returns, then you can consider going to options trading. The only difference between the two securities is that, unlike traditional markets where losses and profit amounts vary, in options trading these amounts are made known upfront.
2. Understand basic terms
There are some terms that are used in currency trading. You need to understand these terms before jumping into options trading. Look up for these terms online and in business magazines and study them for a few days. Here are some of the basic terms you should study.
• Put: This refers to a right or option to sell an asset at a specific price within a specified time. The term also refers to the prediction of a decrease in price of an asset.
• Call: This is an option to buy a security at a specified price within a specific time. It is also a prediction that the price of a security will increase.
• A writer: This is a person who sells options
• A holder: This is a person who buys options.
3. Read books and magazines that talk about binary options trading
There are many books out there that can give you a lot of information about options trading. If you don’t have them in your library, you can look for them on the search engines. Read those books to understand how binary options works. There are also articles online that can give you information about binary options. However, some of the information should be paper tested before being put into action.
4. Learn how to do technical analysis
You need to learn how to interpret charts. These charts will;
• Give you an overview of the best trading options.
• Allow you to make the most of your currency trading. You will know the best time to buy and sell your currency.
Meta trader is one of the most popular charts in trading options. This chart was originally developed for use in Forex trading but its functionality extends to other markets as well.
5. Select an options trading that best suits you
If you are an experienced binary trader, you need a brokerage account to use in trading. This account will help you build your investment strategy. If you are a beginner or a swing trader, it is advisable to try trade binary options.
6. Choose a good trading platform
A trading platform is software that enables investors and traders to place their trades and to manage their accounts. There are many trading platforms out there. However, each of these platforms is different from the other. Some help you maximize your earnings while others fail even at the most basic requirements. Good binary options signals software should have;
• A reliable customer support. Whether you are an advanced trader or a beginner, you never know when you might need help.
• A user-friendly interface. This is very important if you are a beginner. The interface should be easy to navigate.
• Return in case you lose. When trading options, you need to look for a platform that will guarantee you a 70% return after a loss.
• Good reputation.
• Allows traders to withdraw their money in a fast and convenient way.
7. Open a brokerage account
You need to open an account that is basically dedicated to currency trading. Most firms will ask you to seek the approval of the firm’s option principal before commencing trading. If you are a beginner, the firm will only allow you to use writing covered calls. You can request for a review of your account to more advanced trading options after gaining experience.
8. Correctly price options
One of the questions that you may be asking yourself is the kind of money you should expect to lay out to into these option trades. It is very easy to answer this question once you master the process of trading. The price of an option is influenced by several factors. Some of the factors that determine pricing of options include;
• The time left until the option expires. Options with more time left before expiration will have more value that the ones with less time left.
• Volatility of the underlying stock.
9. Understand the risks and the downside of binary options trading
In compliance with the SEC rule, your brokerage firm will give you a booklet that contains the risks and characteristics of standardized options after opening the account.
• Learn how to conduct market analysis. This is important because, before investing in any security, a proper market analysis needs to be done. This analysis will help you know whether the price of a particular security will increase or decrease within a specified period.
• Understand how to interpret Binary Option Price.
• Know the underlying asset; Options derive their value from the underlying asset. Thus, before buying an option it is important that you understand the value of its underlying asset.
• Learn how to get out of position; You need to work on the strategies that you will use when you find yourself in a difficult situation such as a binary contract going out-of-the money at expiration.
• Understand how risks and rewards relate with each other; These two terms go hand in hand. Before taking a position, you need to weight these two happenings. Generally, options with higher rewards will have greater risks.
• Options trade is a risky business. There is no guarantee of getting positive returns from your investment.
• Avoid taking bonuses when trading options.