Binary options trading, also referred to as digital options, is a simple method of financial trading where a participant either gains all or loses all. The trader predicts the direction the price of the asset they are buying into will go, which can be either up or down. When they predict an increase in price, they then purchase a call option. If indeed the prediction is right and prices do go up, they are given the maximum payout. This end result is referred to as in the money. If prices decrease contrary to their prediction, they lose the premium invested in the option, an end result referred to as out of the money. If they predict a decrease in the prices, they buy a put option and the procedure is similar to that of a call option. If you lose, your investment is lost.
The trade method is mostly web based and interested parties can bet on market prices straight from their computers. All one requires is a connection to the internet to enable their participation in the market. For a first time trader, it might be prudent to use a broker, who will guide you in the process. Brokerage in binary options is not as advanced as in other investment markets such as stocks, so you need to use your broker carefully.
Go for a broker who understands the market, is thorough, helpful and responsive, flexible in the trading assets they offer, provides a user friendly and easy to use platform to trade in, and whose website is easy to navigate through. As you become seasoned in the trade, you may opt out of the broker’s services.
Before purchasing any binary options contract, it is important to study the market and understand what the behavior of the asset has been in the past. A thorough study will help you make an informed prediction and will most certainly help prevent you from losing your money. Just like any other investment option, there is a level of risk attached to binary options trading. However, the risk level is quite low compared to other investment methods.
The greatest risk in binary options is that there is a 50% risk of losing. You cannot make a bargain so when you make a wrong prediction, you simply lose what you had paid to purchase the contract. To minimize the impact of loss on your finances; buy assets that are worth the exact amount of money you intend to invest, not more. This way even if you lose, you will not have lost any savings, only the investment.
What does the trading process entail?
The first thing you need to do is choose the currency pair you want to trade on. All major currencies listed are a good bargain. However, you must have checked the currency’s performance and confirmed that it is a good buy so that you do not make losses. Major currencies you can trade on include the US dollar versus the Great Britain Pound, the Australian dollar versus the Euro, the Great Britain Pound versus the Japan Yen and any other combination you want to try your luck in.
Select the investment amount you would like to invest in. This can be any amount between $30 and $3,000 or its equivalent if you are using an asset-or-nothing option. This amount is matched with a predetermined gain margin, say 0.0015. You can participate in as many options as possible, as trade option trading allows you to make investments in multiple indices simultaneously. For beginners, it is advisable to invest small and then grow big over time. Investing $3,000 on your first try is not wise. You can easily lose cash as you virtually have no experience and do not even know what indicators to look out for.
Next, make a prediction on the behavior of the asset price. It can only go up or down. If you think the price will increase, select the ‘call’ option, which is trademark for an upward movement. If you expect a decrease in price, choose the ‘put’ option to indicate a downward trend.
Lastly, pick an expiry period. This is the period during which the assets movement will be observed. The shortest expiry period is one hour, followed by one day and a week, with a month holding the rank for longest trade time. Unlike some of the other financial investments which may take years to mature, trade options last shorter periods and are designed to help investors make quick gains.
The entire process - from choosing currency to expiry period are done online. The program is available on software and all you need to do to close a contract is follow the prompts.