Having understood how other asset trading market operate , now you are ready to indulge in our pet topic , the binary options, the most promising trading option and rewarding too, but only if you play your game right. The mechanism of trade is as simple as other trading market, where you gain when you sell higher than you bought and lose when you sell at a lower price than you bought the asset. Although the mechanism is simple it is not easy to earn with binary options, and this is what clearly distinguishes it from gambling. One point that we have to be made clear here is that trading with binary options is not gambling, it is not a game of chances. Here what you see is what you get, it is not a matter of luck, you have to understand how the trend clearly otherwise you may not win as anticipated.When it comes to binary options trade, investors do not experience the heightened psychological stress since they are only required to predict the asset movement within a predetermined time. It can only move towards a given direction, therefore there are high possibilities that one will win but getting it right is what required some level of experience and a combination of other positive attributes.
What are binary options?
The word binary basically means two, or something having two sections or parts. Literary in binary options trading all that is needed is a prediction of call or put. There are only two investment options or probabilities for the investor to predict and choose between. One of the possibility, the call option is expressed when an investor makes a prediction that the price of a given asset will appreciate or rise. The other possibility involves making a put option where the investor predicts that the price of a given asset will depreciate or fall.
Selecting a particular asset to make a prediction form the first step in the investment, for example one may be interested in share price or foreign currency or even gold or any other precious metal. To make the right prediction one need to be familiar with the specific asset; this increases the chances of making the right prediction.
In some quarters, binary options are described as exotic investment products but this has been challenged since the instruments are simple to understand as well as use.
Types of binary options
In binary options trade there several types of options that an investor can select. Each of the given type has specific characteristics and profit rations. With the right information, it is easy to select the best option, one that fits your trading trend or habit. Experts are of the opinion that selecting the right option is as important as choosing a right broker since it will finally define the type of assets you trade in as well as the profits which will be realized in the trade, therefore it is necessary for any trader whether you are starting out or are well experienced in this kind of investment to choose the options well as it will dictate the gains at the long run.
The types of options are: High – low, touch and range, 60 seconds, boundary options among others. With this in mind now we can look at each type in details so that when selecting a given kind of an option, the investor can do so from an informed point of view.
High- low option
This is the most common type of binary option, it is also referred to as fixed return option, this is due to the fact that it has an expiry time as well as a strike price. In the course trading, an investor will predicts the direction which a given asset will move within a specific time, if the predicted price is on the right or correct side of the strike price, the investor will be paid a fixed return regardless of the distance that the instrument moved. On the other hand, if at the expiry of the specified time the trader’s prediction is wrong, he or she loses the investment.
If the trader decides to trade in gold, he or she needs to make a prediction whether the price of gold will be above or below a specified price, which in this case is the strike price at the end of the specified time. The investor in this case must have a prior knowledge of the price movements, if one makes a prediction without prior information on the trend of the given market, this can be termed as unwise since chances of losing are very high. This is something that clearly differentiates between gambling and options trading. Here you need to have known how a given asset has been performing in the market, for example if it is gold, the prices might have been moving in one direction, that is, increasing. With this knowledge you can make an accurate prediction.
If an investor beliefs from the analysis that he or she has conducted is right and that the price will be higher than the strike price, he or she will buy a call option. On the other hand if the own analysis indicate that the price will be lower than the strike price, the investor will buy a put option.
In low –high option, the trade can easily know how much money can be made in a given prediction. The risks are also determined by the trade right before the beginning.
This type of option is based on the principles of foreign currency exchange. It is recommended for the beginners are they can easily learn how to make gains. The drill here is whether the asset will touch on the strike price on the specified time. If the investor makes the right prediction and the asset get into the strike price, the option is said to expire in the money. When this does not happen the term which is used is “out of money”. A correct prediction normally brings high returns which can be in the tunes of between seventy five and eighty five percent.
Touch options has already predefined rates, the trader here is not simply supposed to make a prediction whether the asset price will decrease or increase value, the level must also be right. The investor is supposed to determine or predict the level the price of a given asset will reach or not reach.
The options is normally bought at the weekend when the market has closed, it will then trade in the course of the week. If the asset has passed or touches a given level by the time market closes on Monday, the system will automatically declare a win and the investor will get a predetermined payout.
Range or boundary or tunnel option
Types of assets that can be traded as binary options
Binary traders have wider varieties of assets they can trade. Actually it is said that without assets, there would be no binary options market, it is like having a marketplace where there is no market, something that does not make any sense at all.
Forex is one of the popular assets which are traded in the market; the major currencies here do the rounds. In normal circumstances we buy and sell currencies but in this type of trading, there is no such a thing, what we do here is make prediction on the movement of the currency in the market. This means that we should have a thorough understanding on how the currency is performing in the market. We should have a clue on the price that the currency is trading and also the possibility of it either depreciating or appreciating within a given time. Such information will help us in making a prediction that is in the right direction. We can choose to predict on any of the major currencies in the world. Euro, dollar, pound, yen are the most common currencies in the trade.
Stocks or shares also form a big portion of the assets that used for trade. There are actually thousands of stocks that are traded here, all from different parts of the world. Here you trade on shares based on their prices only. For example you can trade on the basis of Google share price, making a prediction that the price will move in a given direction within a set timeframe. Just like currencies, it is important that a trader clearly understands how a stock is performing in the market. There are some which are volatile while other makes no moves at all, such that using their prices would obviously mean losing your payout. Experts are of the opinion that somebody who is using the stocks as the assets of trade need to clearly understand the price movements just likes any other investors trading in these instruments. They need to have some information on the company as that forms a big part as far as understanding how the price will fair is concerned. The number of stocks available for trading might depend on the broker, there are some which have thousands while other have as little as fifty. If you are looking for a broker who has a variety, you need to find out what they are allow first before embarking on trading on these instruments. A broker who have a few options will be limiting your capability , but also those who allow almost every other company might end up causing confusion to traders, therefore it is important to balance out so that you do not get disadvantaged and have less options or get into deep confusion in the course of trading.
Indices are normally made up from a number of selected stocks, here the goal of the investor is to select whether a given indices will either rise or fall. Each of these indices will be open at different times. The indices actually represent different stock exchange markets such as Such as, Dow Jones, Nikkei, NASDAQ, FTSE and many others. Again just like stocks, indices need a clear understanding as far as when they open and the prices movements. These means following the price movements in different markets across the world. You also need to know when the actual market starts trading; this will give you an opportunity to follow on the price movement. For example Nikkei will open earlier than Dow Jones, such information is crucial as the prices in one part of the world might affect the other. The fact that the world is a global village, one event can have serious repercussion on the performance of an index on a different part of the world. Having this information is very important, although at times one can rely on experts for advice but is advisable to follow up on some of these issues; that is what makes somebody a better trader.
Indices also allow the trader to diversify their risk, as they will be spreading the investment as opposed to just dealing with a few assets. It makes some sense that when one stock performs poorly in the market, others will actually not perform any better, therefore putting all your eggs in one basket is a greater risk, and diversification is the rule of the game as far as binary trading is concerned.
Commodities such as gold also form a big part of the assets that are traded in binary options. One thing that anyone starting out in this trade need to understand is that physical commodities do not count, just like in other assets , you are not dealing with the actual stocks or currencies , here your interest is only on the prices. You are only making a prediction of whether the prices of oil will either rise or fall within a given period. The actual trading involves buying a commodity when the price is low and waiting for the price to rise so that you can sell, binary options trading is totally different , although you are interested in the actual price, you are only making a prediction. Obviously the price will move in one direction within a given time. Here you only lose the payout and not the profit that you would have made were the price of the commodity to rise. Other commodities that are common include, silver, corn, coffee, tea, cocoa and many others. It is also important to understand how the markets for these products are performing, this gives the investor a clue on how to make the prediction, and sometimes it would require the investor to make a close follow up.
Commodities are normally said to carry a low risk and can form a reliable part of investment especially for those who are entering the binary option trading for the first time. When you have bought securities, it is advisable to diversify and the first assets to land on should be commodities. One should also keep in mind that trading in binary options normally carries a higher risk that when you are dealing with the particular commodity itself, therefore caution is advised, one should not bit more than they can chew, it is often said that one should not risk more than they can afford to lose, this rule applies in this type of trade just like any other investment where risk is the part of the game.
Learning about each and every asset that is used in the trade gives the investor a good view of the types of binary options which are available for investment. This means that when they start trading they will have a clear understanding on how the trade is run. It is advisable for any trader to have a thorough understanding before they engage in real trading; practicing in a demo account would help a great deal before moving to the actual market, one becomes familiar with the trade increasing the chances of making the right predictions.
Binary options brokers
For an investor to trade in a binary options market, he or she needs to engage in brokers. Just like any other trade, you need to select your broker carefully. One thing with the binary options broker is that they do not have re quotes or slippages as one would expect with most brokerages. However there are some issues that confront other brokers, and they equally apply in this trade, therefore it is important to look for the best binary options broker. These are the issues that one should consider when selecting an options broker.
Regulation: A market which is properly regulated places greater confidence on the investor or trader for that matter. Regulations ensure that all the players abide by the rules which are actually meant to protect the investors. For binary options trade, regulations are there to make sure that the funds which are invested are actually in the safe hands and that each trader will be paid out their profits accordingly.
Customer service also forms a greater part in selecting whom to trade with in any type of transaction. As a customer you will go where you are treated better, where all the information is presented and allowed to make decisions from an informed point of view. If you find that a broker is hiding some of the crucial information, get packing as he or she means no good. You ought to be treated as a king or a queen wherever you go, you are taking business to them so if they are mistreating you no doubt that a broker does not count among the best binary options broker. As an investor select a broker who is available to chat with you live and also has staff available round the clock to address issues as they arise. You do not want to be stuck at the middle of the night and have no one to turn to.
The variety or ranges of trades available also should play out when selecting a type of binary options broker. Some brokers will places all types of limitation which actually make it very difficulty to make money on their platforms. To newbie , these restrictions or limitations might not be very obvious, therefore if you are starting ,find out about them and get more information as this will have a great impact once you start trading in real assets. Always work with a broker who provides a transparent platform where conditions are known right before hand.
The trading software also need to be considered , there are those which are user friendly while others are just difficulty especially to someone who is starting out in this type of trade. If you spend most of your time just trying to navigate around the software then you choose the wrong broker. The difficult the platform the high the chances of failing, do not set yourself to fail , choose a binary options broker who has a software which is easy to use ,navigate and is generally user friendly.
Payouts vary from one market options to the other, there are also known to be variations among brokers, therefore choose a broker who has a good record as far as pay out as concerned. You are in this business to make money therefore if you cannot make enough with a particular broker for one reason or another, avoiding them would be the best option.
The Upside and Downsides
When it comes to usage; binary options are easy use, the investor only need to make one decision, is there are given assets that will move up or down. Also there are no liquidity issues; the investor is not the owner of the assets. The investor can access multiple assets in the market, the global markets open at different times and an investor only needs to identify the most appropriate and convenient time to trade. A market will always be open at one end of the global, therefore a trader can invest in any time of the day, this is in comparison with other markets which only operate within a specified time of the day especially those that are can only be found within a small region.One of the major drawback of binary options is the reward not being equivalent to risk, therefore the trader has to be very careful when making prediction and mostly when selecting the type of option to trade in. The trader must try by all means to be within the right percentage and in this case a higher one to ensure that losses are covered.
Traders need to know how binary options are regulated in their countries; this will help them when making a decision to open an account. In some countries such as United States there are tight regulations on binary options and traders might experience some issues. It is necessary to know before hand what is required to trade on binary options in your country. Binary options brokers outside United States will be operating illegally if they engage investors who are US residents. It is not that binary options are not traded in United States, they also exist on the exchange markets and are normally structures in such a manner where greater transparency and tight regulatory oversight characterize the market. Traders in United States are also free to participate but have to ensure that they operate within the laid down rules and regulation. Binary options trading is gaining popularity, it is a trade that needs a lot of precision and care , the risks involved and high and that is why traders are advised to gather as much information as they can before making a decision to trade in a given asset, it is the only sure to making gains. Binary options is not a game of chance , it involves dealing with the real market, once you make the right analysis and move on the right direction, one can never go wrong. As an investor trade in more assets, get the necessary information and the market will favor your moves.