Overview – What is Binary Trading?
Binary options trading can simply be defined as a type of investment where the investor predicts the result in either a yes or no situation by the end of a predetermined period.
Investors can choose from only two investment hostilities where the pay off is either a fixed amount of money which serves as compensation, or they receive nothing at all.
What is meant by ‘Binary Trading’?
When buying a binary, it indicates, to the investor who is buying it, that the outcome will either be true whereas, when selling, the investor will guess, or predict, that the result will be false.
Thus, there are only two payoffs; a total dollar amount at the end of the time period which was pre-determined, or the chance that the investor will lose their entire investment.
In financial markets, investors often predict the fluctuation of values which are associated with a certain asset during a period of time which has predetermined.
Should the investor estimate the trend of the asset’s price accurately, the investor gets a specified currency amount for the investment which had been made in accordance with the binary agreement.
If the investor’s guess is untrue, the entire investment is consequently lost. The alternatives related with binary trading has two main classifications namely the cash-or-nothing, which pays a particular fixed amount and the asset-or-nothing, which pays the value of an underlying asset matching to the contract associated with the investment.
Binary trading can be applied when investing in commodities, stocks, and Forex.
Binary Options and the world of Brokers
Binary options trading has attracted a lot of attention around the world and to understand it completely, it is necessary to evaluate several key components associated with it namely simplicity, affordability, and handiness.
Furthermore, prospective binary options traders need to manage several other aspects which includes underlying assets, price direction, and expiry times linked with binary options trading.
Affordability in binary options trading refers to the fact that there are several brokers who not only offer binary options as part of their trading conditions, but they also offer prospective traders with the chance to trade starting from a low requirement of $25 and lower.
When comparing this to what the industry standards are where minimum initial deposits are concerned when opening a conventional trading account, it is fairly low, as brokers often charge such deposits from $100 and up.
Binary options trading can be done from anywhere, at any given time, through the provision of platforms offered through which binary options can be traded such as desktops, mobile phones, and tablets.
The first step is to choose an established binary options broker to trade through. A broker can be the key to successful trading as it is hard to attain enviable trading results without having a broker which is not only established but has a long-term reputation in the industry.
To find such a broker, and to ensure that they cater for the trading needs and objectives of the trader may be a tedious task, but one which is necessary.
Underlying Assets, trading tools, and features – what is needed for the best results?
Binary options broker offer a variety of tools and features through the trading platform that they provide, in addition to offering additional tools as part of their offering.
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Where diversity is concerned, it is a valuable and integral part of binary options trading and, as technology has developed and advanced, there has been a lot of growth in the development and provision of trading tools and features offered, which has raised the quality associated with binary options trading.
Traders now have access to a world of information and various trading platforms which is offered by binary options brokers whether it is the broker’s own proprietary software, or third-party, which cater to the trading needs and objectives of numerous traders.
Despite the traders, or what their unique needs may be, the end goal remains the same, to earn profits. Naturally, in aspiring for great profits, it would make sense to have more options at the trader’s disposal as it brings them closer to their goal.
When opting to trade with a broker which offers an array of tools and features, it makes it easier for traders and investors to not only achieve their goal, but to evolve as traders and develop and improve their skills and experience.
Why should traders make use of demo accounts?
In striving to provide their traders with the best possible service, brokers offer prospective traders with a demo account which can be used in a variety of ways.
One of the main functions of a demo account is often overlooked, especially by beginner traders, as it does not serve the purpose of making profits but merely provides a risk-free environment and the use of virtual funds with which to practice trading.
However, while using a trading account, beginners are afforded with the opportunity to gain valuable insight into the inner-workings of binary options trading as they mimic a live trading environment and the trader can explore the broker’s offer first-hand.
Demo accounts can be used as practice accounts in addition to being used as an avenue to explore the broker’s offer and to test strategies without risking actual capital.
Traders can make use of this tool to great extent without having to risk their own capital and practising trading is one of the best ways in which to gain more skill and experience in the art of trading.
What are the advantages of mobile trading?
Technology in mobile phones has developed and evolved in such a manner that what once required a desktop can now be managed in a device that fits the palm of the hand. There are a great variety of trading apps available that allow for trading while on the move.
It is important for prospective traders and investors to consider brokers that offer the option of mobile trading as it is advantageous in a number of ways. There are also a number of apps, apart from the actual trading platform, which could help traders refine their trading skills such as news apps.
What is the difference between binary options trading and gambling?
Trading, in general, has been compared to gambling in a variety of ways. When looking at an extremely broad, and loose, definition of gambling, it is regarded as the wagering of money on a single event or a number of events which will have uncertain outcomes with the intention of winning more money.
However, the best approach to such a definition is to adapt it to say that gambling is the act of wagering money on an event or a number events which have certain outcomes without mitigating risk.
The last words in that definition is where the difference ultimately lays. Risk is a certainty in life, and it is not possible to eliminate it completely, but it is, however, possible to manage it adequately, and to minimize the trader’s exposure to it.
Risk management is one of the most important tools that is used by traders who take trading seriously.
The Benefits of trading Binary Options
Traders who have some experience in trading, or who have some knowledge regarding it, especially stock trading, will find it easy to understand and start trading binary options as there are numerous rules that apply to both types of trading.
It is imperative to have a solid understanding of the financial markets despite the type of trading as it will help traders make more informed trading decisions.
There is risk involved with all types of trading, not only binary options trading, and the rewards that stem from it are plentiful, when done in a disciplined, systematic, and methodological manner. Some of the benefits associated with binary options include:
- It has a high potential for ROI
- Known risk and reward – the risks are fixed
- There can be gained even when having lost some
- It is easy to trade and less complicated than Forex trading
- Faster turnover rate than other investments
- Free trading accounts with some brokers
- Variety of assets which can be traded
- It offers more assets for investment and trade
- Beginners can understand it more easily and start trading faster
- There is a lot of excitement involved
Types of Binary Options available
- High Low/Call Put – which involves the investor predicting whether the price of the asset will rise or fall within a given period of time. Should the investor ‘Call’ they predict a rise, and ‘Put’ should it fall.
- One Touch – which involves the investor predicting whether the price on an asset will reach a certain value before the set period of time expires.
- No Touch – which is similar to High Low/Call Put and involves the investor selecting a particular price that the asset should not reach before the selected period expires.
- 30-second trading – which is Call/Put but within a 30-second timeframe.
- Option+ – which offers the option of buying the asset back.
- Range Options – including Boundary Trading or Tunnel Betting in which the investor believes or predicts that the asset’s price will finish in or outside a certain price range.
Binary trading signals and services
As with other types of trading, such as Forex, traders can make use of signal services provide traders with certain trading recommendations with the alert containing certain basic information such as:
- The asset
- The type of trade
- The expiry date of the trade
- Time of the contract
- Price at expiration, and more.
There are numerous signal providers and should the trader trust their wholly, they can place a trade as per the recommendations or, should they not yet have gained faith in their provider, they can research and evaluate whether their results coincide with the recommendation.
Traders often make use of signals purely for the purpose of improving their results. Signals which are received are reliable, but only as reliable as their provider is sound. To evaluate the level of accuracy and reliability, traders can consult user critics and reviews to see what other traders have experienced when using a service provider.
Although signal providers offer recommendations which are sound and reliable, they do not guarantee profits, and they should not be used as a fool-proof way in which profits will be made consistently. They should be seen as a recommendation and a guideline, and not misused or abused.
Binary Options versus Forex trading
Although closely related, binary options and Forex trading differ in that binary options involves the prediction of the direction of an assets price, either up or down, while Forex trading involves traders who speculate on the price of a currency pair and buy/sell according to the direction that they predicted it would move in.
In order for a Forex trader to profit, the price must move in the direction that they speculated whereas, with binary options, the trader can still profit even when prices do not move.
Basic strategies for Binary Options Trading
In order to have a solid trading strategy in place, traders must consider the following factors:
- The risk reward ratio, the trader’s tolerance to risk and their individual trading style.
- The trading tools which are available and how to use them efficiently to the advantage of the trader such as candlestick charts, pivot points, and more.
- Traders must use their trading strategy to guide their decision and allow for adaptions thereof where necessary over time as the trader improves their trading and their trading needs change.
Considerations when choosing a broker
Binary options trading is unregulated and there are numerous scams which may seem, at first, like a legitimate business. However, when evaluating brokers, traders are urged to make use of the Commodity Futures Trading Commission, or CFTC, as it features a long list of capitalized members which serve as legit entities through which to trade.
When evaluating brokers, there are a few questions that traders have to ask, including, but not limited to:
- Does the broker offer leverage, and how much?
- Is there a limit on trading, are there specific lot sizes?
- What are the options with pay-outs and how quickly can money be withdrawn from the trading account?
- What are the payment methods that the broker offers?
- Does the broker offer mobile trading, or do they only offer desktop and web-platforms?
How to become a more profitable binary options trader
- Learn as much as you can about binary options and trading, and never stop learning.
- Choose the right broker.
- Find a trading method and learn all that there is to learn about it.
- Backtest the trading method multiple times.
- Test the trading strategy thoroughly.
- Do not stop testing and learning.
- Live a life which is balanced.
- Stay healthy.
- Write down your trading plan and come up with realistic goals.
- Know yourself.
Final Thoughts – What are the advantages of trading binary options?
- Binary options trading is one of the easiest ways to understand trading.
- The fees associated with binary options trading are lower than other types of trading.
- The minimum deposit involved is much lower.
- The minimum investment amount ranges from $1 to $25.
- There is a variety of assets which can be traded.
- There are multiple ways in which traders can conduct trading.
- Trading can be done from anywhere in the world at any time.