Binary options are an easy investment method. Beginners can quickly understand this trading style and accurately calculate risks and chances. Forex and crypto assets are possible targets for base values when trading binary options. Here, you can combine the profitable nature of currency markets with the simple trading method. If you want to make use of these benefits, you need to understand what you are dealing with first.
What exactly are binary options, and how do you get started with trading them?
What Is a Binary Option, and How Can I Make Money?
Binary options trading is a trading method where you speculate using derivates. These derivates are colloquially known as binary options. When you are trading with derivates, you select a regular stock market asset, like a cryptocurrency. Your derivate will then copy the market movements of this base asset.
When trading binary options, your goal is to accurately speculate whether the value of this base asset will have risen or fallen on an expiration date of your choice compared to the strike price at the beginning of the trade.
When your speculation was correct, you receive a 75 % to 95 % payout, depending on the trade amount and the trading platform you use.
- This article will give you an overview over the topic of binary options trading. Additionally, you can find many resources to help you get started with trading binary options online. For example, this is a trading guide for beginners that will teach you the basics of binary options trading in more detail.
Is Binary Trading Profitable?
Binary trading can be very profitable when you know what you are doing. With the right amount of market analysis, risk management, and background knowledge, you can make informed and promising decisions.
Thanks to the typically short trade durations, you most likely won’t gain big amounts with singular trades, but can quickly amass winnings from multiple trades.
Binary options trading also allows the use of leverage. Here, you only pay a small percentage of the total trade amount. The broker pays for the rest. The winnings are calculated using the total trade amount and not the smaller investment you made. This can make accurate binary options speculations incredible profitable.
- It is important to note that the money you lose with a wrong prediction will also be calculated using the total trade value. In this case, you typically own the lost money to the broker who advanced the majority of the funds for the trade. This means you can lose much more money that you invested and can afford to lose.
How Do Binary Options Works
Some people compare binary options trading to gambling. With the right amount of background knowledge, however, you won’t be leaving your fate up to luck. Still, trading binary options is comparatively easy to betting on a coin toss, because it too has a binary outcome with two possible results.
- You select a base asset and an expiration date, and speculate whether the market value will have risen or fallen in the time between the beginning and end of the trade.
Once the expiration date arrives, you will either lose or win 100%.
Since the percentages for the payout are pre-determined, you can exactly calculate how much money you win or lose in either of the instances.
- Depending on the asset and broker you picked, you receive between 75 % and 95 % of the total trade amount as a payout for accurate predictions.
How To Trade Binary Options – A Guide for Beginners
Here are basic tips for trading binary options that will help you get started as a beginner:
Learn Binary Options Basics
The risk of trading in general can be reduced if you know what you are doing and aren’t just guessing without any facts to back your speculations up. The more you know about the markets, assets, trading methods and co., the better.
- You can find many helpful informational resources and analysis tools online. Typically, a broker will include data that you can use to make informed decisions in their service.
- Additionally, experienced traders often share their trading strategies online to help you copy their successful trades.
- Another option are seminars and classes on trading.
Weigh the Opportunities and Risks
Any kind of trading should be accompanied by proper risk assessment and management. You are betting your real-life money, and uncontrolled losses can ruin your finances. To avoid bankruptcy, you always need no have an eye on your capital and how much you can afford to lose.
Some trades are riskier than others. The market knowledge and analysis you can amass and perform will help you figure out which trades are more secure than others.
Some rules of thumb for risk management are:
- Start out with investing a maximum of 1 % to 2 % of your total capital. More experienced traders can risk up to 5 %.
- No trade is 100 % secure. Even if all signs point to a promising trade, real-life events can influence the market unexpectedly.
- Set up a diverse portfolio to spread the risk. You can counter high-risk investments with more secure trades on the side.
Find a Binary Broker
You require a trading platform to trade binary options online. There are many brokers who offer websites and apps for trading. Not every broker has the same service scope. Some might only offer access to limited markets, while others have different features to help their users trade.
For binary options trading, you will need to look for a specialized binary options broker. Binary options are typically not traded over the national stock exchanges, but use separate exchanges and marketplaces.
- Make sure the broker of your choice offers binary options as a trading method or asset type.
You should also look at user reviews and the licensing. Financial authorities regulate trustworthy brokers to weed out scams. A licensed broker was tested and is monitored by these authorities and is safe to use.
- Note that not all countries allow binary trading for private investors. If your country does not provide licenses to binary options brokers, you can look for offshore brokers with trustworthy foreign licensing.
Try a Demo Account
A good broker service offers a free demo account. Here you can trade with a fake virtual currency and the full features of the trading platform. Since you are not betting real money, you can try out the broker and trading strategies without exposure to real market risks.
The Best Binary Trading Strategies for Beginners
Look for binary trading strategies online. Many of them will teach you how effective risk management and market analysis work. Using these methods, you are more likely to imitate the successful trades of other investors.
Don’t Get Greedy
An important part of risk management in trading is to set up limits for yourself. Trading can quickly carry you away when you succeed or want to compensate losses. One helpful limit is the ‘invest max. 5 % of your capital’ rule. Another good idea is to schedule specific hours for trades. A bit of discipline is necessary to stick to these limits.
Binary trading is a simple trading method that allows you to calculate exact payouts or losses for your trades. With the right amount of background knowledge, market analysis, and risk management, even beginners can use this strategy to gain revenue. The use of leverage allows even bigger payouts for those who can carry the additional risk.
To trade binary options, you need a specialized online broker with access to binary trading markets. Make sure to look at user reviews and licenses to find a high-quality, trustworthy service.
David is a crypto enthusiast and an expert in personal finance. He has created numerous publications for different platforms. He loves to explore new things, and that’s how he discovered blockchain in the first place.