If you’re new to the whole online trading industry and want a simple and fuss-free way to trade and invest, why not opt for binary options? It is comprehensive and easy to understand, making it suitable for anyone!
Binary traders earn from the fluctuations in prices, similar to other traders. The only difference is that binary options do have a preliminary stated risk and profit potential, hence deriving the name of “binary” in binary options. This essentially means that traders either suffer the risk and lose money or profit from the reward and gain returns. Binary options trading basically requires you to predict and bet on whether the price will go higher or lower after the expiration. If you bet correctly, you win and if you don’t, you lose. Traders lose the amount that they have bet in the trade while winners win around 80% of the amount that they bet (but this is also dependable on the broker too!)
For example, a trader predicts that the price of the EUD/USD will be higher in the next minute and he decides to place a bet of $10. If he is correct, he will earn a profit of about $8 depending on the broker and if his bet is incorrect, he will lose the $10 that he bet.
In binary options, there are several specific technical terminologies that brokers and traders use. You cannot sell an option but instead, you can buy a “put” option. You purchase a put option if you predict that the price will drop. This means that you enter a deal whereby you bet that the price will decrease.
Conversely, you buy a call option when you predict that the price will rise, and enter a deal whereby you bet that the market price will increase.
How to Start Trading Binary Options
Step 1: Build Your Strategy
Traders can start with trial and error to test out different approaches and see which one is the best fit for you to earn profits. Combining different indicators is also another way to come up with a personalized strategy for yourself. Some of these indicators include price levels, trend, candle patterns, chart patterns, moving average indicators, Fibonacci levels, on-chart indicators, and area indicators. This is not an exhaustive list of indicators and there are still many others that function differently and complement others. Matching signals from different indicators is recommended to ensure that the chances of getting a bad signal is lower and hence increasing your chances of a profit.
Step 2: Calculate the Returns
Since your broker gives you an approximately 80% return if your bet is correct and you lose 100% of your bet if you get it wrong, figure out the ratio of success of your strategy and evaluate yourself the maximum loss that you will suffer until you want out.
For example, if you do 100 trades by putting in $10 each, your total amount invested will be $1000. You choose a strategy that has about a 55% success rate, translating into about 55 out of 100 successful trades. Bearing in mind what was stated above, if you get about 55 successful trades, this means that you will earn a profit of 55 x $8 + $440 and lose about 45 x $10 = $450. Instead of earning from these 100 trades, you end up suffering a loss of $10 which renders this trade unprofitable and proves not ideal at all.
This is where you can consider opting for another strategy with a higher success rate o say 70%. If you do the calculations similar to the previous example, you will make yourself a net profit of $260, which is much more idealistic than the previous strategy. Hence, by playing around with different strategies and success rates, you will be able to discern for yourself a strategy that works for you and reaps the profits that you want.
Step 3: Money Management Strategy
Bear in mind that luck plays an important role as well. Let’s say you deposit $100 in your account and invest $20 in each trade, you will likely fail as you do not have enough capital to start earning profits, and can only handle a maximum of 5 losses before you are wiped out.
Therefore as a rough gauge, traders normally have enough deposit for at least 100 losing trades, since the chances of having 100 consecutive losses in a row are unlikely.
Step 4: Choose Your Binary Options Trading Broker
Choosing a legitimate and reliable options broker is crucial as there are many scam brokers out there who do not let you withdraw your money. If you are new to trading you should definitely check out this list of options brokers published by business24-7. Typically, good brokers:
- Are authorized and adhere to the legislation set by the country
- Have been operating for a substantial period of time since scam brokers are usually caught between one to two years
- Have reasonably many good reviews online. Bear in mind that certain brokers can have fake reviews that normally consist of only less than 10.
- Offers a range of trading assets in order to prevent you from being restricted
- Possess a friendly and comprehensive interface
- Have a wealth of trading indicators to facilitate a better trading experience and higher chances of earning
Step 5: Create and Fund Your Trading Account
Follow the steps of opening a trading account carefully provided by your broker. They typically involve a few verification processes to identify yourself and confirm your account and then depositing a certain amount that you wish to start off with.
Be sure to keep in mind the tips mentioned earlier, instead of having too little money in your fund that will prevent you from making enough trades to earn profits.
Step 6: Begin With Your First Trade
You’re finally ready to go! Typically, it is recommended to invest about 1% of your total funds in your trading account. These are some basic steps to follow:
- Change the investment per trade to your desired amount
- Choose the expiration time of the binary option
- Conduct your analysis and choose your specific strategy
- Click on “call” if you predict that the prices will increase or “put” if you predict that the price will decrease
- Wait until the binary option expires
- Track results
- Repeat again
Trading binary options are one of the easiest ways of managing your financial assets without the process being too complicated for a newbie like you. Rules are extremely simple and easy to follow, and there is also a limited risk per trade depending on your bet, therefore preventing you from losing too much.
Final tips are to build a strategy that works for you with a good success rate, calculating your capital carefully, and being smart. Change your strategy if you don’t find it to be working well. You can consider getting a demo account first to practice before using your real money. May the odds be ever in your favor!