Trading the binary options market is a fascinating and lucrative endeavor. It's also worth noting the risk involved when opening and closing positions. Failure to acknowledge the inherently risky nature of the activity can entail in serious financial losses. Below is a rundown of what binary options are and tips on how to trade it with capital safety and consistent growth in mind.
Binary Options in a Nutshell
Binary options offers a way to trade a variety of financial assets with predefined risk and profit parameters. As the term "binary" implies, every trade is based on the possibility of a "yes" or "no" outcome. If you are speculating the price of gold to run up to $1,250 at 2:00 today, you put a call option bearing those stipulations. If you are correct with your prediction, the profits are paid out to your account. If not, the contract expires without value and you are left with losses from the cost of opening the contract.
Strategies for Binary Trading
Having a well-defined strategy enables a trader to consistently profit from binary options while minimizing losses. A trend strategy is one of the more popular strategies chosen by both novice and veteran traders due to its simplicity and high probability. Put up a moving average on your chart and if you see a flat trend line with a noticeable upward trajectory, open a Call option; open a Put option if you are anticipating a bearish trend to unfold. Other creatively named strategies include the Pinocchio, Straddle, Hedge, Risk Reversal, and Fundamental Analysis. Each strategy has its own pros and cons that either align or resist with a trader's personality and circumstances.
Choosing a Binary Options Broker
The choices of tradable assets will depend on your broker. Brokers, like TorOption, offer options contracts to indices, foreign exchange, commodities, and stocks. You have virtually hundreds of assets to trade with, giving you the flexibility and liquidity you need to pull off any strategy desired. Your broker should also have a good trading platform and tech support behind it. Troubleshooting technical or account issues in a prompt manner is important to avoid any delays with strategy and order execution. Last but not least, make sure your broker is financially solvent. If markets suddenly go severely awry, you'd want to make sure your broker doesn't file for bankruptcy and leave you hanging.
Risk Management
Although an online
trading firm like TorOption offers the best leverage and deposit requirements, you should avoid using the maximum leverage available in your account. Leverage can damage your account as much as it can help you make money. Trade only 10 to 20 percent of your leverage at any given time. This is a general rule of thumb, however, and can be adjusted lower or higher depending on your investment goals and strategies. Managing risk in binary options is commonly overlooked since contracts already have a predefined capped loss amount. If careless, the number of losses can exceed your winning trades. Have a physical or digital journal on which you can record your past trades for comparison and analysis.
Final Notes
Accumulate as much knowledge and experience first before you start betting big. Binary options, like other financial markets, are neutral and will not hesitate to take as much of your money as you care to pour into it. Build the mental fortitude and ironclad discipline to cut losing trades quickly and let winning trades run. If you can do this technique of opening and closing positions using logic and reasoning instead of emotions, particularly greed and fear, you'll find yourself making a lot of money in binary options.
