Last Updated on Mar 26, 2020 by James W
Binary options are newest methods of investment with low risk and higher returns when compared to other trading methods. It requires trader to speculate future prices of various underlying assets like Stocks, Forex Currency Pairs, Commodities like Gold and Silver, market Indices etc. based on the market trends. It also requires less investment amount when compared to other forms of trading like stocks and bonds.
As the name indicates, Binary options trade can result in only two possible outcomes. Either the trader will win the trade by correctly speculating the price movement and will earn as high as 85% returns on his investment or his speculation might go wrong and he will lose all the money invested in that particular trade. In order to predict the price movement correctly, the trader has to understand the market trends and learn to use various technical indicators which can help in speculating future prices.
First you should open a trading account with legitimate broker if you want to make money by trading binary options. Also you should know the basic terms involved in binary options as below,
The Strike Price: The predetermined price you expect the asset to reach at the expiry of trade.
Expiry Time: The duration of the binary option trade. If your binary option is not In-the-Money during Expiry time, your trade will expire.
Put option: Traders will use put option when they are speculating asset prices to fall down.
Call option: Traders will use call option when they are speculating asset prices to surge.
In-The-Money: When the traded asset reaches the Strike Price during expiry time, it is said to be In-the-Money and the trader will win the trade and get huge returns.
Out-of-The-Money: If the traded asset does not reach strike price before expiry of trade, it’s said to be Out-of-The-Money and trader will lose that trade.
Also you can start trading binary options by following very simple steps. First you open a trading account with regulated broker and choose the asset you wish to trade. You should choose the assets based on your market knowledge and experience. For instance, if you have good market knowledge on commodity prices like Gold and Silver, you can trade binary options using Gold or silver as underlying assets. If you have very good understanding of stocks, you should choose stocks as underlying assets. Once you decide the underlying asset, the duration of trade and the strike price, you can choose a “call??? or “put??? option depending on how you expect the asset to move.
You can really make money using binary options if you follow certain trading strategies and watch market news regularly which will help you in predicting the market trends. It’s important to learn how to trade before investing and in order to become a successful investor using binary options, you should first analyze market trends using technical indicators and find the perfect entry/exit positions for each trade.
You need to have an economic calendar always handy with you and keep watching all the market news and important financial announcements. Whenever there is an announcement like US Jobs Report, Interest rate hike or Quarterly results of popular companies, there will be changes in market trends.
For instance, when US Government announces an interest rate hike automatically the prices of commodities like Gold and Silver will go down since investors will start selling those commodities. You can capitalize this trend and make money using binary options trading by purchasing a “put??? option against Gold. Also if you are going to trade binary options using certain company stocks as underlying assets, you should regularly watch Quarterly reports of those companies. If the quarterly results are good, obviously their stock prices will increase and you can purchase “call??? options against that particular stock as underlying asset.
Watching market news and following market trends is very important if you wish to make money using binary options trading. Binary options have minimum risk when compared to stocks or Forex trading. You should also open trading accounts only with regulated brokers who don’t charge any hidden fee or huge amount as commissions.
Also there are lots of brokers who are scam and manipulate the market quotes to fool the traders. You should be very careful about such fake brokers and read binary options broker reviews before opening an account with any of them. Also you can follow various trading strategies such as trend trading, breakout strategy, correlation strategy or reversal strategy to increase your chances of winning the binary option trades.
Fundamental analysis and use of technical indicators will help you in nailing the future price movement of various assets accurately. Some of the commonly used technical indicators to predict market trends by binary options traders are Moving Average Index, Candlestick Charts, Fibonacci retracement, Pivot Analysis etc.