How to trade binary options?
Binary Options is the latest way to invest in the financial markets. Binary options are investments made in a currency (Forex), market value (index), stock value or in commodities. The major benefits of binary options trading are simplicity, controlled risk and high profitability. For beginners, the question in their mind is “who will show me how to trade binary options?” This guide answers this important question.
How to trade binary options
In binary options trading, all a trader needs to do is to predict whether a price will go up or down by the end of a predetermined expiry period. The trader does not own or buy the asset, but only predicts the direction a particular asset is likely to take by the expiry time; up or down. There are only two options. The only concern to the trader is whether the prediction is correct or not. Therefore to trade binary options, you have to:
- Select an asset you want to trade (for example a currency pair)
- Click CALL in case you think the price will go up; or click PUT in case you think the price will fall by the expiry of a predetermined period
- Enter the amount of money you want to invest and click APPLY
- Wait to see if your prediction is right or not.
Binary options brokers provide the trading platforms and the profit a trader makes or the loss incurred is predetermined. But the trader cannot liquidate the profit before the expiry of the binary options contract. The profits usually range from 60% to 85% and special trades can fetch up to 500%.
Example of binary options trading
In binary options trading, a trader predicts whether the underlying price of an asset will finish higher (Call Option) or lower (Put Option) at the expiry of the predetermined period. In simple terms, the trader selects a price will rise (CALL) or a price will fall (PUT) option. The investor sets the prevailing asset price as the strike price of the option on the trading platform. If the asset ends higher by the expiry period, the option is said to expire “in-the-money” and the trader makes a profit. If the asset ends at a lower value than the strike price, the option is said to expire “out-of-the-money” and the trader forgoes his investment. Some binary options brokers may give a rebate of up 20% in the event the option expires “out-of-the-money.”
The process is best explained using an example. Suppose the prevailing price of crude oil is $86.00 at 3.00PM. A trader who thinks oil will finish at or above $86.15 by 4.00PM will take a CALL option. If crude oil finishes at $86.25 by 4.00PM, the trader will make a profit.
How to start binary options trading
Starting to trade in binary options is very easy. All that you need is a computer, tablet or Smartphone, internet connection and trading account with a binary options broker. There are a number of brokers who offer the trading platform for binary options. Conduct thorough research and choose the best broker. After choosing a broker, deposit money into your trading account and then start trading.
Keep on reading – Understanding Binary Options Strategies for Directional and Volatility Trading