In financial terms an ordinary option is a contract that gives an investor the right to buy and sell an asset at a specific share price known as a strike price before a given date, without any obligations. This is the most common investment option found in traditional stock market investments. A binary option, also known as a digital option, is a contract where only two outcomes can be expected by the investor; either a win all or lose all.
Binary options are a more fixed investment option compared to traditional options. This is because you cannot exercise the execution of your option before the expiry date. You therefore have to be careful when purchasing the options in order for you to make the best of your investment. A step by step guide on how to minimize chances of losing are discussed here.
- Know the kind of markets you want to trade in. Binary options can be traded in indices, Forex, commodities and stock. Picking on of these that you are very good at can be a great start to binary trading. Experience in one of these markets will guide you in knowing whether the prices will either rise or fall within a given time frame, which is mostly what binary options trading is all about. For those without experience in the markets, it is important to get educated on the trends of the markets in order to avoid making huge losses.
- Once you have settled on a suitable market, you will need to choose a broker. The brokers offer you a platform where you can trade the binary options. There are many binary option brokers to choose from. Most of them have websites where you can register, log in and start trading. A key pointer to help you choose a broker is the available markets they support, their minimum and maximum trade limits as well as the amount of deposits you are allowed to make. Make sure that the amount of money you want to trade with is something you will be comfortable loosing.
- Most broker websites have demo trading accounts which you should fully utilize before you start real trading. Here you are given demo trade money which you can use to trade in different markets. This is help especially for those with little experience in the market trends. Other websites offer tutorials which give you plenty of resources to assist you in making progress with your trading. All this can help you minimize chances of losing big time.
- It is now time for you to start trading. You will need to figure out which binary trading option will best suit you, as there are three options here. One is the call/put trade, where you attempt to determine whether the price of an asset will either rise or fall within a given time. This is the most common and basic option. The second is the one touch trade where your broker sets a target price to be reached by a chosen asset within a given time. Here if the asset price surpasses the set target, you will be given the full agreed amount, whereas if it fails to hit the target, you will lose. The third one is the boundary trading option, where your broker gives you an asset price range within which the asset price will remain within a given timeline. You will then determine whether the price will either rise or fall within its given range. If your determination is right, you gain.
- After choosing the most suitable trade option, you will need to also choose a time frame that best suits you. This will need you to put into consideration your goals, as well as your patience. Time varies from a minute to even a month, so it is crucial that you have good knowledge of the asset you are trading in. Once your trade is made, you will now have to sit back and wait for the results of your bid.
The above are the most basic steps in binary option trading. Once you become an expert, you can look at other potential areas of making more money, such as Trending Options. You can also be on the lookout for promotional and bonus offers by your broker which can help you increase your trading budget and in effect, help you make more money.