If you are a beginner or you already have experience as a trader, trading binary options is a bit different compared to other trading methods. Learn in this article what this trading method is all about and how you can start out!
What Is A Binary Option, And How Do You Make Money?
Trading binary options is a popular trading method that promises higher rewards compared to other trading methods but is also riskier. The idea behind trading binary options is pretty simple. The trader must decide on an asset and predict a specific outcome. For example, a trader chooses to trade the S&P 500 stock. Now the trader needs to determine if this stock will gain in value over time or lose value. Let’s say the trader decides that the S&P 500 stock will gain value over the next 2 hours. If the trader is right, they will earn a high return. How high the return is, depends on the broker, but it is usually about 75%. But, if the trader is wrong and the S&P 500 stock actually loses value over time, it will result in losing the entire investment. This shows how trading binary options got its name since there are only two possible outcomes.
When it comes to trading binary options, you have two possibilities to choose from; cash-or-nothing or asset-or-nothing options. The first option pays out the cash in case of a correct prediction, while the other pays in the value of the underlying security.
How to Trade Binary Options
If you want to learn how to trade Binary Options, you should look at the following tips and tricks. They will help you start your trading journey today and significantly lower the risk of this trading method.
Know the market trends
One of the critical elements of trading binary options is knowing the market. This is why we recommend starting with just one asset. Focus all your energy on learning everything possible about this asset. This knowledge will help you understand the market trends, and you can limit the risks you need to take in trading with this method.
Pick the market you want to trade
There are many ways you can trade binary options, for example, with specific stocks or even forex. It is up to you, but we recommend you choose one market. This will help you to keep your focus on one market rather than multiple. One great way to determine what market you should go for is to look at your interests. If you are, for example, interested in Forex, or you might even have experience with this market, then selecting this option will be the best way for you to go forward. The more interested you are in a specific asset or market, the better. It will help you to gain knowledge.
When you want to make a binary options trade, you not only need to decide on an asset and an outcome but also an expiry time. Here it depends on how much time you would like to invest. The later the expiry time, the longer the trade will go on. There are no monetary differences in long and short trades – it is just personal preference.
Select a strike price and expiration
If you want to start trading; you need to select a strike price and also decide when the trade is going to expire (the expiry time). As a beginner, it can be pretty challenging to make these decisions; that’s why we recommend using a demo account. These demo accounts are great because they allow you to trade with fictional money. This way, you can gain experience and learn how to select strike prices and expiry times without having the risk of losing your money. Be sure that the broker you choose offers this feature. Unfortunately, not every broker allows demo accounts.
Place your trade
If you decide on your asset and your market, gain knowledge and experience through a demo account, and find the right broker, you are ready to make the first trade. We recommend starting with a small investment so that you can take some time to gain even more experience. With time you can start making more significant investments. If you are worried that you might invest too much money, we advise you to set a limit for each day, each week, or each month. As soon as you reach the limit, you need to stop trading. This way, you can be sure that you will never invest and possibly lose too much money.
Wait for expiration, or close out your trade early
You don’t necessarily need to wait until the trade experience, but you also have the option to close out the trade early. Let’s say you have invested a good amount of money and realized that the market is moving against you. If that’s the case and you want to minimize the losses, then closing out early might be the choice for you. There is also the possibility that your trade is going as planned, but you worry that this might shift until the trade expires. In this case, you can also close out early and earn a smaller profit.
We hope these tips and tricks help you to start your trading journey today! Follow our tips and tricks, take your time to get to know the trading methods, the market, and the assets, and you will get better at trading binary options with time!