Binary Options Trading
Binary Options trading is one of the newest concepts in trading and investments, with several new-age traders turning towards more exotic financial products to take advantage of the fluctuating market conditions. Binary options trading is indeed a fast-paced and exotic financial product that involves wagering on the direction of the movement of an asset, rather than investing in stock, commodity or index through outright ownership. In fact, binary options trading combines the best of both worlds and has more in common with FX/CFD trading, rather than the conventional forms of investing.
Binary options trading is a risky proposition for all investors. Regardless of the proficiency of a trader or the amount of expertise, binary options trading carries a tremendous amount of risk, both internal and external. Binary options brokers also play a vital role in determining the success of a trader’s career, while high-quality education and efficient trading resources can prove to be the ultimate deciding factor between a winning and a losing trader.
TOP BINARY OPTIONS BROKERS
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Evolution Of Binary Options Compared To The Traditional Financial Products
The turn of the 20th century witnessed a rise in popularity of financial markets and allied investment opportunities among retail traders, which were previously reserved for larger investors and institutional market participants. Regardless, the popularity of FX and CFD trading among individual investors peaked during the 2000s, but some investors felt that they lacked the opportunity to make hefty profits from the constant fluctuations of the markets.
Traditional investors always leave a considerable amount of profits on the table, and it is common for traders to make a few compromises in their trading strategies to accommodate for market volatility. Traditional forms of investing involve significant trade times, where open positions would be held for days, months, or even years. At times, traders may be forced to close their positions at a loss, even after holding the underlying asset for a substantial period. This is when in 2008, retail traders were treated to something known as ‘Binary Options Trading’, which revolutionised the industry to include fast-paced trading products into the mix.
Although leveraged Forex and CFD trading provided an incredible earning opportunity for traders, the profit potential was limited by the degree of market fluctuations, even if traders made all the right calls about the underlying market direction. Therefore, even after proper market analysis, traders started suffering immense losses, even resulting in account wipeouts due to margin calls.
It was also common for traders to lose their entire investment on a single trade, only to find out that the markets turned in their favour, but there were no longer able to take advantage of their original analysis. Therefore, in 2008, the concept of binary options trading quickly captured the imagination of high-frequency traders and scalpers, as it allowed traders to profit from the direction of the movement of the market, rather than depending on how much the market moved in their preferred direction.
In the current context of the financial markets, binary options trading continues to gather popularity among all sectors of the retail trading market. Of course, there are some issues that concern the reliability of binary options brokers and the overall regulatory aspect of binary trading, but dedicated traders make considerable sums of profits on a consistent basis. Modern changes in regulatory frameworks are paving the way for creating a safe trading environment for investors, and it can only get better as time passes.
How To Trade Binary Options
Binary options trading allows a trader to profit from the direction of the movement of an underlying asset, or bet on the future price of an asset, all within a specified time period. There are different types of binary options products available in the market, and the profit and loss of each option are dependent on a wide variety of factors. We outline all the basic essentials on how to trade binary options to help you get to grips with the fundamental factors affecting the binary options markets.
– Choosing A Binary Options Company
Choosing a reliable trading partner is the most important aspect of trading binary options. The reliability of a binary options broker can often lead to a favourable trading environment, as non-regulated and scam brokers may create more harm than good. The safety of your investments should receive primary importance, regardless of the trading strategies or the ability of a trader to make consistent profits. If traders are unable to withdraw their funds from a broker, they may as well lose their entire investments on the markets. Therefore, ensure that you opt for a reliable binary options trading company, and you can indeed make use of our excellent binary options broker reviews to aid you in your broker selection process.
– Making An Initial Binary Options Deposit
Making a deposit is the next step to start your trading career. The deposit amount will serve as your trading capital for as long as you continue your trading career, and the profits generated from the trading capital should be representative of your ROI on your investments. In most cases, the binary options minimum deposit for accounts at regular brokerages would be around $250 to $1000, while some brokers may be able to offer an account for as low as $1. Some brokers may seek higher minimum deposits of up to $10,000; hence, you should choose a broker that offers an account for an investment amount that suits your preferences.
– Learning The Trading Platform – Opt For A Binary Options Demo Trading Account
A trader must familiarise with the binary options trading platform, of which there are plenty of choices in the market. There are dedicated desktop trading platforms, as well as web-based interfaces that can be accessed on both desktop and mobile devices. Most brokers also offer the option of dedicated mobile trading apps for iOS, Android, and Windows devices, which should provide a personalised trading interface for smartphone and tablet users. A demo trading account is usually offered as a free-of-cost feature at some binary options brokers, but at times, traders may only be able to enjoy a binary demo account by opening a real account and making an actual deposit. Take some time to learn all the aspects of a trading platform before you actually commit to the markets.
– Choosing The Financial Asset
One of the main reasons behind the popularity of binary options trading over traditional markets is the availability of the sheer number of financial assets from different financial markets across the globe. Binary options trading allows a trader to invest in any type of underlying instrument, including assets from stocks, commodities, indices, ETFs, and Forex markets. Binary options trading does provide an incredible opportunity for traders to invest in their preferred financial instrument and are at liberty to choose as many instruments as they desire. Even though traders are free to pick any underlying instrument of their choice, you must make sure that you don’t go overboard with your selections. You should restrain yourself from choosing a large number of tradable instruments, in order to prevent being overwhelmed by the markets.
– Analysing The Markets & The Price Of An Asset
Once you have selected your top picks of assets according to your particular preferences, the next logical step is to analyse the performance of the asset and deduce the future price changes according to the core financials of the instrument and the underlying market conditions. Making an accurate prediction of the markets can help in achieving high returns, but it is inherently difficult to make correct predictions all the time. Even professional traders fail to reach an average of 60% accuracy at the best of times. Therefore, if you wish to make consistent profits, you should be aware of your limitations and work on improving your accuracy through proper education and research.
– Selecting The Binary Options Product
Binary options trading is categorised according to the different types of binary options products available to traders. The first and foremost type of binary options is the classic high/low option, which allows the trader to bet on the direction of the movement of an asset at a specified time of expiry, in relation to their original entry price. The trader profits from the trade if their prediction comes true, while they lose their entire investment if the market moves contrary to their position. Other binary options types include touch/no-touch, range, and ladder options, where the potential payouts can range from 60% to 500%. Losing trades pretty much cost the entire investment on a trade, but there is a probability of winning back around 15% or even up to 25% of the losing trade at a select few brokers.
– Minimum Investment Per Trade
Trading binary options allow investors to invest anywhere from $1 to $25,000 per trade, but the average investment amount may realistically be around the $5-$2500 range. Some brokers are designed for larger traders who have a greater risk appetite and higher trading capital, but most retail traders stick to smaller brokers that grant market access using a small initial investment. Choosing the investment amount depends on your money management strategies, your account balance, and of course, the maximum risk you are willing to take per trade.
– Picking The Expiry Time
The binary options expiry times are broadly classified into short-term and long-term options. Short-term options are generally trades that are over within 60 seconds, but other short-term trades may have expiry times ranging from 5 minutes to one hour. Longer time-frames are used for trades that are held for more than a few hours, as most long-term trades are over within 24 hours. Some binary options brokers may also offer weekend trades, which can extend for days, in return for a higher payout. Binary options products such as range, touch, no-touch, and ladder options are more dependent on the price or direction of an asset, but these trades may also have an expiry time that is determined by the broker.
– Call/Buy & Put/Sell – Trade Options
Binary options trading signifies the opportunity to either make a profit or lose an investment per trade, and there are only two directions for most trades. If you believe that the underlying asset that you have chosen should rise at the time of expiry of the option, you can choose to call or buy the option. Conversely, if you anticipate the asset to drop in value at the time of expiry, you can opt to put or sell the option. The trading platform should offer all the necessary information about the trade options, the payouts, and the expiry times, which should help in making an informed decision.
– Managing Trades
The primary difference between binary options trading and other conventional forms of investing is that traditional investments allow traders to manage their positions, while binary options trading only offers limited access to managing their trades. Under most circumstances, binary options trades cannot be managed, especially for short-term trades, but long-term binary options positions may be managed as per the broker’s specifications. Standard trade management features include rollover (extension of the expiry time in exchange for a fee or larger investment into the position), double-up (double the investment in the hope of achieving higher payouts), and premature closure of trades (trade can either be closed at a partial profit or a partial loss). Trade management is a feature that is widely representative of the broker’s services and platform functionalities.
– Trade Outcome
Ultimately, it all comes down to the outcome of the trade, whether it’s profitable one or a losing one. Binary options trade will only result in a profit or a loss, but if the entry price and the exit price are the same at the time of the expiry of the option, the trader can receive a complete refund of their investment. In other cases, winning or in-the-money-trades can receive a fixed payout while losing or out-of-the-money trades result in a loss of the invested amount.
Don’t Gamble – What It Takes To Trade Binary Options For Positive Returns
If you are looking to make a quick buck by gambling on the markets, you may be better off by gambling on other gaming products such as casinos and sports betting. The financial markets are quite ruthless, and luck and complacency don’t stand any chance in the highly risky binary options markets. Even if traders get lucky for a few consecutive trades, the drawdowns can be quite massive for a continuous losing streak. Therefore, it is imperative for traders to have a disciplined approach to trading, and have a good understanding of the dynamics of the market.
Traders should commit their efforts and resources to learning the different strategies, analysis, and other facets of trading to be able to enjoy a lucrative binary trading career
It may take years to develop the skill and expertise to make money in binary options, which should be complemented with a sound money management plan and a reliable financial brokerage. Traders should avoid the temptation to risk all in a single trade, instead focus on gaining small, but consistent returns over a period of time. Making profits in binary options trading is indeed possible, provided you are willing to work for it.
Pros & Cons Of Binary Options Trading
Advantages Of Binary Trading
- Trading binary options is simple; there is no need to exercise any complex strategies or trading methods, unlike conventional markets.
- Traders can be aware of the risks and rewards of a trade beforehand.
- Capital outflow is reduced when compared to traditional investments.
- Trading times are significantly lower. Most trades can be completed within seconds or minutes.
- Traders can enjoy flexible trading schedules.
- Higher payouts offered for traders. Payouts can reach as high as 500%.
- Success in trading is not determined by the scale of movement, but by predicting the direction of trade.
- Large collection of financial instruments.
- More exciting and fast-paced than other markets.
Disadvantages Of Binary Trading
- One of the riskiest trading products in the market.
- Inability to manage trades, particularly for short-term trades.
- Trading involves a direct conflict of interest between a broker and the trader.
- Regulation of trading may vary from country to country. Some countries have banned binary options trading.
- A large potential for broker scams and financial malpractices.
How Is Binary Trading In The US Different To Other Countries?
Binary trading was banned in the US until recently, but the US authorities such as the CFTC and the NFA have since approved binary options trading with a few modifications. Binary options trading is actually a contract between a broker and the trader, which induces a direct conflict of interest between the two parties. Therefore, brokers may try hard to create unfavourable conditions for their clients to lose their investments. All the funds lost by a trader goes straight to the broker’s account, and a trader’s winning money comes from the broker’s operating capital. The nature of the contract between the broker and trader is the main reason why traditional investors consider binary options trading to be a form of gambling.
In the US, however, CFTC has specified several regulatory guidelines that prevent brokers from being a counterparty to a binary options trade. Therefore, binary brokers are only allowed to act as exchange houses, where binary contracts are generated between traders. These exchange houses should work in a similar manner to the traditional stock exchange, where sellers meet buyers to determine the price of binary options, the expiry time, and the potential payouts. Therefore, the increasing number of regulatory requirements and broker restrictions have forced several companies from avoiding the US retail trading market. Nevertheless, there are US-specific binary options companies that are regulated by the CFTC and the NFA, which provide excellent binary options products to traders from the US.
Key Factors To Consider Before Investing In Binary Options
- Invest in good quality education.
- Choose a reliable binary options broker.
- Only risk what you can afford to lose.
- Create an investment portfolio that you are comfortable with.
- Concentrate on consistent returns, rather than gambling with your trading capital.
- Try binary options robots and social trading to increase your chances of success.
Who Benefits From Binary Options Trading? A Conclusion.
Binary options trading, in its purest form, is simply a financial product that is similar to most FX and CFD products available in the market. Of course, there are some core differences between the traditional forms of investing and binary options trading, but professional traders should be able to find common ground in both products. Several established traders try their hand at binary options trading to hedge against market volatility, and the basic concept of binary options trading has been around for decades.
Binary options trading should benefit new traders, in particular for traders who don’t have any pre-conceived misconceptions or notions about the binary options market in general. Of course, having a fair amount of experience in analysing the markets may provide some advantages, but learning the fundamentals of binary options from the ground up can have its distinct benefits. Binary options trading is also suitable for Forex traders and other investors who have been facing difficulties in enjoying consistent returns through such investment strategies.
Always keep in mind that traders should put their best foot forward while investing in any ventures. Binary options trading may be risky for the general population, and most traders quit even before they can tap into their potential. Perseverance is the key to finding success in the binary options markets, which should be complemented with the right amount of education and tools of trading.