How to start trading binary options
If you’re new to the whole online trading industry and want an easy and hassle-free way to trade and invest, why not choose binary options? Binary traders profit from fluctuations in prices, similar to other traders. The only difference is that binary options have a pre-determined risk and profit potential, hence deriving the name ‘binary’ in binary options. This essentially means that traders either suffer the risk and lose money or profit from the reward and gain returns. Basically, you have to predict and bet on whether the price will go higher or lower after expiry. If you bet right, you win and if you don’t, you lose. Traders lose the amount that they have bet in the trade while winners win about 80% of the amount that they bet (but this is also reliable on the broker too!) For example, a trader predicts that the price of EUD/USD will go higher in the next minute and he decides to place a bet of $10. If he is right, he will make a profit of around $8 depending on the broker and if his bet is wrong, he will lose the $10 he bet.
Put option
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 buy a put option if you predict that the price will fall. This means that you are entering a trade where you are betting that the price will fall.
Call option
Conversely, you buy a call option when you predict that the price will rise, and make a trade where you bet that the market price will increase. How to start trading binary options
Step 1: Build your strategy
You can start with trial and error to test different approaches and see which one suits you best to earn profits. Combining different indicators is also another way to develop a personalized strategy for yourself. Some of these indicators include price levels, trend, candle patterns, chart patterns, moving averages, Fibonacci levels, indicators on the chart and area indicators. This is not an exhaustive list of indicators and there are still many others that work differently and complement others. Matching signals from different indicators is recommended to ensure that the chances of getting a bad signal are lower and thus increase your chances of profit.
Step 2: Calculate the return
Since your broker will give you a return of about 80% if your bet is correct and you will lose 100% of your bet if you get it wrong, you want to figure out the ratio of the success of your strategy and self-evaluate the maximum loss you will suffer until you want out. For example, if you make 100 trades for $10 each, your total amount invested will be $1000. You choose a strategy that has about a 55% success rate, which translates to about 55 out of 100 successful trades. Given the above, if you get about 55 successful trades, this means you will make a profit of 55 x $8 + $440 and lose about 45 x $10 = $450. Instead of earning from these 100 trades, you end up with a loss of $10, making this trade unprofitable and proving to be not at all ideal. This is where you can consider choosing another strategy with a higher success rate of 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. Therefore, 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 you want.
Step 3: Money management
Keep in mind that luck plays an important role too. Let’s say you deposit $100 in your account and invest $20 in each trade, you are likely to fail because you don’t have enough capital to start earning profits, and can only handle a maximum of 5 losses before you get wiped out. Therefore as a rough gauge, traders normally have enough deposits for at least 100 losing trades, as the chances of having 100 losses in a row are unlikely.
Step 4: Choose your binary options trading broker
Choosing a legitimate and trustworthy options broker is crucial because there are many scam brokers out there that won’t let you withdraw your money. If you’re new to trading, you should definitely check out this list of options brokers. Usually good brokers: – Are authorized and comply with the country’s legislation. – Have been operating for a longer period of time as fraud brokers are usually caught between one to two years. – Have a reasonable number of good reviews online. Keep in mind that some brokers may have fake reviews that normally only consist of less than 10. – Offer a range of trading assets to prevent you from being restricted. – Have a host of trading indicators to facilitate a better trading experience and higher chances of making money.
Step 5: Create and fund your trading account
To get started, follow the steps provided by your broker to open your account. This usually involves verifying your identity by providing the necessary documents and information, as well as confirming your account details to ensure everything is correct. Once you have completed these steps, you will need to deposit the initial amount you want to start with, as indicated by your broker. Be sure to keep in mind the tips mentioned earlier, instead of having too little money in your brokerage account that will prevent you from making enough trades to earn profits.
Step 6: Start with your first deal
You are finally ready to start trading! Usually, it is recommended to invest around 1% of your total funds in your trading account. These are some basic steps to follow: – Change the investment per trade to the desired amount. – Choose the expiration time of the binary option. – Do your analysis and choose your specific strategy. – Click on the “call” if you predict that prices will increase or the “put” if you predict that the price will decrease. – Wait for the binary option to expire. – Track results – Repeat again.
Final thoughts
Binary options trading is one of the easiest ways to manage your financial assets without the process becoming too complicated for beginners. The rules are extremely simple and easy to follow, and there is also a limited risk per trade depending on your stake, which prevents you from losing too much. Final tips are to build a strategy that works for you with a good success rate, calculate your capital carefully and be smart. Change your strategy if you don’t think it’s working well. You might consider getting a demo account first to practice before using your real money. May the odds always be in your favor!
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