Binary Options Trading – Four Simple Steps to Success

Binary options are fixed return options because they come with only 2 possible outcomes. It is a contract which gives the buyer a right to buy an underlying asset at a predecided fixed price within a specified time limit. The security that is being traded is known as the underlying asset and can include commodities (e.g. gold, silver, nickel, lead, and oil), currencies (USD/JPY), stocks (e.g. Apple, Microsoft, IBM) or stock indices. The price at which owner buys or sells is known as the strike price.

When trading binary options the person who is buying the underlying asset chooses call option if he is expecting a rise in the value of the security at the end of the expiry of time which may be the end of the day, week or the month. The buyer will place a call option thinking that the option price would be more than the current price at the time of trade. In vice versa the owner will place a put option if he thinks that the option price will be less than the current price. Binary option trade is the most flexible type of trade available. The trader can select the asset, predicted direction, expiry time and it can all be controlled by the owner of the security. The only thing that remains unknown is whether the asset will expire lesser or higher than the current price.

There are significant differences between binary option trading and an ordinary trading. Under ordinary trading you actually own the asset and can possess it for any time you desire. Under option trading, you are actually trading on the variances of the asset. For example, when you do option trade in Microsoft, you are actually not owning the shares of the company but making a contract whether the price of Microsoft’s shares are to go up or down at the end of the expiry period. The correctness to which one can make the prediction after studying the price movement of the security can help in making profit or losses for the trader.

Binary options’ trading is a common tool used by traders nowadays. Most day traders now adopt binary options trading so as to increase the profits that they earn from these trades. Simply, binary options’ trading is a contract which upon the attainment of a specified condition gives a predetermined fixed amount to the trader. The amount to be paid depends on whether his contract ends “in the money” or ends “out of money”. In the case were a contract ends “out of money” the trader will not receive anything at the time of expiry.

Are you interested in doubling your profits without investing more? Trade binary option is the tool that you can apply to secure maximum profits. If you are able to predict the price movements of the security of a company for a particular time period, then surely option trading is the area where you can surely succeed. Binary options trading do carry with it a high risk. But is there any trading instrument which is completely risk free? If you are able to bear the risk that is associated with options trading, the returns that you would be getting will be much more than the returns that any other trading instrument will give you.

How can we make use of the binary options to make money?

1. Trade on the most active and liquid securities: A trader should always do trade on those companies which are very active on the indices and do larger volumes of trade each day. These will be highly capitalized growth oriented companies and you can always expect their prices to go up.

2. Do the opposite if the market has risen already: In a day if you have missed out on a market rally caused by a sector a particular company, then don’t feel sad. You could trade for the opposite as the prices are to settle at the end of the day.

3. Give importance for quantity than quality: The most important thing that you should consider while engaging in binary trading options is that you should consider quantity over quality of the securities. Binary options trading will offer you more return when you go for quantity of shares than to its quality. The traders need not worry about the magnitude but consider only direction of the security price.

4. Binary options trading can be used for hedging: The simplest way to make money from binary option trading is to hedge your contract. If you find before the expiry time, that the price movement is in your favour, you can hedge the contract and lock in the already made profits. To conclude, we can definitely say that binary options trading is one of the most powerful trading instrument available with us which can help in maximizing returns to the traders.


Finding the Best Advice For Binary Options Trading

If you are like most binary options traders, you look for advice that will help you make as much of a profit as possible, but the source of that advice may or may not be beneficial to you. This is because in many cases, the advice you’re being given is benefiting somebody else even more. The biggest mistake made by most traders is believing that all of the advice given by the broker they are working with is meant to benefit the trader.

How Brokers Make Their Money

At the end of the day, the broker you are working with has to make money. That’s why they exist. The problem is that brokers make most of their money when traders lose. This can lead to a lot of advice that may appear sound, but also might not get you the promised results.

You see, the money that you put into trades doesn’t actually become part of the larger money market, ie it is not ‘pumped’ into the markets. Instead, it is managed by the broker. Winnings come not from the market, but from the losses of other traders. The market only serves as a type of measuring tool.

Of course brokers need you to win often enough to keep going, so not all their advice is bad or designed to cause you to lose money. If all anyone in the binary options trading market did was lose, it wouldn’t still be around, would it? The truth is that you can make money with binary options trading, but you have to be careful about where you are getting your advice.

Binary Options Experts

There are people out there who have been trading binary options successfully for years who not only continue to turn a profit on the market, but who have also begun to teach others on how to do the same.

By finding binary options experts who know the market and have themselves made a profit, you can confidently accept advice from them while knowing that they will not directly benefit from your gains or losses.

When looking for binary options experts, take time to research their history and check into any credentials they may have. But be ware, because of the popularity of the binary options trading market, there are people out there who are claiming to be experts even though they really aren’t. Following their advise could cause you to get into financial trouble.

Another important note is that even experts who have been trading binary options successfully for years are human and can still make mistakes. Plus, they may have a good understanding of the market, but the market is always changing which means there’s no way for anybody to predict with 100% accuracy which direction the market will turn.

Develop Your Own Strategy

By staying informed on current market trends and learning everything you can from binary options experts and third-party websites, you can begin to develop your own strategy for trading binary options. Although at the beginning it may be more beneficial to you to closely follow the direction of various industry experts, as you learn and grow in your abilities, it’s important that you become more confident in your trading skills and begin to trust your instincts more.

When developing your own strategy, remember that you want to develop a strategy that is simple, easy-to-understand, and adaptable to any situation. While many broker websites may lay out complex strategies for you to follow, the best strategies are simple and easy to use. Overly complicating strategies can actually lead to bad decisions since trading binary options is fairly straightforward.

It is also important to be sure that your strategy is flexible, so that you can change it as the market changes and make adjustments as needed to perfect it for you. Remember that the market can be volatile, so even the best strategy is going to lose now and then. What is more important is that you find one that allows you to win consistently.

Conclusion

When learning binary options and trying to figure out the best way for you to make money, make sure that you don’t spread yourself too thin. When it comes to binary options, there are a number of different trades that you can make depending on expiry times and what you are trading whether it’s commodities, currency pairs, assets, or stocks. Find something that works for you and stick with it. Different expiry times and options require different strategies, so it’s best to pick just a few things and work with those.

One of the reasons to stick with a lower number of trading options is that you can more easily do research on that option and watch it more closely. Effective binary options traders usually focus only on one or two assets and they get to know them really well.

In addition, by focusing on a single asset it is much easier to follow news stories and information relevant to the asset, Eventually you’ll learn to use current events and changes in the global economy to predict where your particular asset is headed.

Choosing a solid source for your binary options trading advice is the first and, arguably, the most important step in being successful when it comes to binary options trading.


Binary Options Trading As an Investment Vehicle

It is human nature to try to make the most of our assets, including our financial assets. Apart from those people who have no ambition and throw away their money, the majority look for ways to increase the amount they have. They look to the future, and try to build enough resources to let them see out their retirement in a financially stable way.

One of the most common ways to try to build up cash reserves is to use existing cash to put into some kind of investment scheme. There are many different investment vehicles available, and one of the most popular ones in recent times has been binary options.

Like all investment schemes, there is an element of risk involved, but one of the reasons binary trading has become so popular is it provides an opportunity to make substantial profits over a relatively short time period.

Bad investments

There was a time when people were quite happy to leave their spare cash in a bank. They felt it was secure there, and that gave them such confidence that they did not worry too much about the poor rates of interest they were receiving.

Today, unless you have a very large sum of money to invest, putting your money in a savings account is like throwing it away, albeit over a long time period. Interest rates on standard savings accounts are now almost always lower than the rate of inflation.

That means that even though the dollar amount in your savings account may be growing year on year, its real value is actually falling. In other words, you can buy less with the amount in your savings account now than you could with the amount you originally invested. In the present financial situation, putting your money in a bank savings account has to be regarded as a bad investment. This is especially the case for long term goals, such as a comfortable retirement.

Why binary options trading is a viable alternative?

As already stated, binary trading provides a way to make decent profits over relatively short time spans. One of the key aspects of this type of trading is that results are known quickly, giving investors the option to take corrective action before large losses are incurred.

Later, we will look at how this type of trading compares to other forms of investment. First, it is important for the potential trader to understand what this type of trading involves, and how it is different from other more standard types of investing. The best way to do this is to compare this type of trading with stock market investments.

To make our explanation clearer, we are going to create a fictitious company called Ace Products Inc. whose stocks are traded on the NASDAQ. The company is doing well, and its share price has risen by more than a dollar in the last year to $7.95 today.

Stocks

Stocks or shares are issued by companies that have floated on one or more of the world’s stock exchanges, such as the NASDAQ or the London Stock Exchange. Companies issue shares at a given price, and anybody can then buy some of these shares. Shares are bought and sold through the stock exchanges. The price of shares is dictated by supply and demand. The more demand for a given the share, the higher the price will be.

When you buy shares in a company, you become a part owner in that company, no matter how small your share allocation is. That means you have a say, albeit a tiny one, in how the business is run.

Shareholders are entitled to vote at the company’s AGM, where they can take part in votes to appoint people to the board, and to approve the company’s annual accounts. Most people who have small shareholdings do not bother to attend the AGM to do this. They can appoint a proxy to vote on their behalf. If they do not attend and do not appoint a proxy, they assign the right to vote on their behalf to one of the board members.

If the company they have invested in makes a profit, the board may decide to issue a dividend. The company decides it has a surplus of cash that will be divided amongst the shareholders. Each share will have some monetary value, and the total payable to a shareholder is the share dividend value multiplied by the total number of shares he or she owns. When the dividend is paid out, most companies permit shareholders to reinvest the money by purchasing new shares, or they can opt to receive a cash amount.

For the purposes of our illustration, we will assume you own 1,000 shares in Ace Products Inc., which you bought 6 months ago at $7.25 each. The company has announced that it will pay a dividend of 2c per share. That means you are entitled to a $20 payout from the company. For simplicity’s sake, we will ignore brokerage fees and bid/offer spread (of which more later), but if you decide to sell the shares, you can now make a profit in your investment. Here’s how:

Sale price: 1,000 x 7.95 = 7,950

Dividend: 20

Gross worth: 7,970

Amount invested: 1,000 x 7.25 = 7,250

Gross profit: 720

The key factors here are:

1. As a part owner of the company you got a dividend of $20 from profit distribution.

2. When the company is doing well, the price of shares tends to rise.

3. If the company did not do well, there almost certainly would have been no dividend, and the price of shares is likely to have fallen.

4. If the price of shares falls below the price at which you bought, your holding will be worth less than what you paid for it. You will have just two choices. You either sell at a loss, or hold on to your shares in the hope that the share price will go up again.

5. When you bought your shares, you did so because you expected the share price to rise.

6. You own your shares, and you can hold on to them for as long as you like.

Binary options trading

The term “binary options” harks back to the early days of this type of trading, when there were only two possible outcomes. You either made a profit or make a loss – there was no other scenario. Today, there are many more complex ways in which you can take part in this type of trading, but beginners should stick to the most basic.

Binary trades always have an underlying asset. This could be a stock, a currency, a commodity, a stock market index, and so on. We will use Ace Products Inc. as our underlying asset.

A key element of this type of trading is that you must specify an expiry time in the future. This could be just a few minutes, an hour, a month etc. Another key element is the strike price. When you make a trade, you take a position that says the strike price will be at or above a certain level at some time in the future.

If you think that Ace Products Inc.’s share price will have risen to $8 in 30 days’ time, you can make a call option. You back your belief with an investment amount. On the trading platform, another trader will have the opinion that your prediction is wrong. He or she will make an offer that will be a percentage of your investment amount.

You both enter into an irrevocable options contract. When the contract expires or closes, the Ace Products Inc. will either be at or above the $8 you predicted. Is so, you get your investment amount back, plus the additional percentage you were offered. If the share price is below $8, you lose your entire investment amount.

When you make a call option in a binary options trade, you are not buying anything physical. If you take a call option on the share price of Ace Products Inc., you do not own any shares in the company. Taking a call option means you think the price of the share is going to increase to at least the specified price at the specified time.

For the sake of completeness, it is worth pointing out that even if the share price of Ace Products Inc. had exceeded $8 during the lifetime of the contract, which is irrelevant. It is the price at the exact expiry time that counts.

With this type of trading, you are not restricted to making contracts based on rising prices. You could also make contracts based on the value of the underlying asset falling. This is termed a “put” option. This works in exactly the same way. For example, you can take a put option that Ace Products Inc. price will have fallen to $7.90 in 30 days’ time. You will be shown an offer amount that you will get if you are right. If you are wrong, you lose your investment.

Why is binary options trading better than investing in the stock market?

Hopefully, it should be fairly clear from the example above that this type of trading provides you with a vehicle for making quick profits. This is almost impossible with share investments.

If you buy or sell stocks, there are other factors you must take into account. We mentioned the bid/offer spread above. This is often referred to as the bid/ask price. When you see a quoted price for Ace Products Inc. share price, which is an average of the selling price and the buying price, because these two prices are different. The amount that you can buy a given share for is always higher than the amount you could sell it for at that particular time. The difference between the two is the bid/offer spread.

The bid/offer spread can be quite substantial, and it is not unusual to see spreads of 1 – 2%. That means if you buy some shares in Ace Products Inc., the share price has to rise by at least the bid/offer spread percentage before you could possibly make a profit on selling the shares. In addition, you will almost always have to pay brokerage fees on both your purchase and on your sale.

This means your investment is going to be tied up for some time before there is any chance of making a profit on it. Another vital aspect of investing in stocks is that there is no way to make a profit or even break even if the stock price goes down.

If the stock price starts falling, you are faced with the agonizing decision of whether you should sell at a loss, or wait in the hope that the price will rise again. There is nothing you can do to improve your position. Another important factor is that you will have to make quite large investments in stocks to gain a reasonable profit.

With binary options trading, you can make a good profit from a series of small investments. You will know the results very soon, and you have the opportunity to offset negative results relatively quickly. In other words, you have much more control over your investments.

Is binary options trading better than investing in property?

As with stocks, when you invest in property you own the asset. You will have to make a large investment in buying property, and that can be tied up for quite some time. The costs of buying property are high and there are many associated fees for owning/buying a property. You can expect to pay about 10% above the purchase price in fees, duties and taxes. You will also have to pay legal fees when you sell property.

All this means that you cannot possibly make a profit from property investments until the price of your asset has risen by at least 10%. That means your investment has to be considered a long term one, and your capital is completely tied up. As with stocks, if property prices go down instead of up, there is no way for you to regain your investment.

So in conclusion, there are always risks involved in all kinds of investments. When you invest in stocks, property or other standard investment vehicles, you have no way to offset falling prices. Investments in these vehicles tend to be long term.

Investing in binary options trading gives you much more control over your capital. You are dealing in a short-term marketplace, so you get the opportunity to take corrective action if trades go against you. You can invest small amounts of money and still have the chance to make good profits. Binary options trading is certainly something to which the savvy investor should give some thought.