Meta: Are you a new binary options trader struggling to understand the basics of binary options trading? Read on to learn about binary options and their many advantages.
Many traders worldwide have adopted online trading as their main source of income, especially after the rebranding of binary options in 2008. While traditional forms of forex and stock trading are still popular, binary options trading has significantly gained ground and popularity, attracting novices as well as professionals globally. Before we get to the meat of our topic today, let’s first briefly review the history of binary options.
The Birth of Binary Options
Binary options trading has been in existence for centuries now, dating way back to 1841. Back then, only a handful of wealthy individuals, banks and institutions participated in options trading. However, over the years, binary options trading changed with the latest ‘evolution’ being the major rebranding in 2008 when these options became available to the public. That is, binary options were introduced publicly as a tradable asset on the Chicago Board Options Exchange (CBOE). As a result, from this year, trading binary options became the online trade of choice for many traders as a result of the many advantages this form of trading offered.
Where to Trade Binary Options
Before 2008, binary options were mainly traded over-the-counter (OTC). However, today, binary options are traded online with a binary options broker. This means that in order to trade, you will need to gain access to an online trading platform which is provided by the many brokers in the industry today. Many of these platforms are provided by third party software providers such as SpotOption and TechFinancials yet some brokers have developed their own in-house platforms. Fortunately, there are more than 300 brokers in existence today offering a wide range of financial instruments and services as well as lucrative payouts.
How to Trade Binary Options
Trading binary options is a piece of cake especially if you have previous financial trading experience. Even if you have no prior experience or understanding of the markets, you too can trade binary options. To start, first, you have to select the underlying asset from the range of assets offered by the broker. The underlying asset in this case can be a currency pair (forex), a stock, a commodity or a stock index. Also, you are required to secondly select the trade option as well as the expiry duration of the trade. A trade option defines the general trading parameters and is used to determine the final outcome of a trade. Usually, different brokers offer different types of options and interestingly, one of the commonly offered options is the Call/Put option. Other options include Pairs, 60 Seconds, Long Term, One Touch and many others.
Unlike with other financial markets, binary options trading only involves predicting which direction the market price of the underlying asset will move by the expiry of the trade. That is, either up or down. The outcome of a given trade is determined after the trading duration lapses. That is, if the prediction is correct, the trade is said to end in the money and the traders receives a predefined rate of return. If the prediction is incorrect, the trade is said to end out of the money and only the investment amount is lost. Simple!
Advantages of Trading Binary Options
Easy to trade
Before the rebranding of binary options, traditional stock and forex trading were the order of the day. One huge downside of stock and forex trading is the fact that trading can be complicated which holds beginners to a disadvantage. In addition, a trader is exposed to excessive loss should the market not move in their favor.
On the other side, trading binary options is very easy and as mentioned earlier, this form of online trading only involves predicting the direction of asset price movements. This means that even with little understanding of the markets as well as no experience in online trading, a novice trader can step into the binary options trading arena and make a trade.
Have you ever tried your luck on gambling? Did you notice how difficult it is to make a profit? Well, this is mainly because a ‘gambling’ event can have multiple outcomes which can further complicate your chances of winning.
However, it’s a very different chapter with binary options trading. A binary options trade can only have two outcomes or in some cases, three. That is, you can either win a huge payout or lose the invested funds. Also, in some rare instances, you could be refunded your investment if the price of the underlying asset at expiry does not change. In addition, a trader knows exactly what they stand to win or lose even before they trade. The rate of return is clearly defined on the trading platform and this does not change based on how much the price of an asset moves. This means that binary options trading is concerned with the direction of price movement and not the magnitude.
Making a profit is always the bottom line when it comes to financial trading, and binary options trading does not disappoint in that regard. Actually, of all the financial markets, binary options trading offer the highest returns which are usually expressed as a percentage of the invested funds. To rake in a big profit trading forex or any other financial market, the market price of the underlying asset must make substantial movements since the return is based on the magnitude of the price movement.
Although payouts vary from one broker to another, basically, most binary options brokers offer payouts ranging from 50% to 90%. In addition, with high yielding options, such as Touch options and Ladder option, the payout can be as high as 1000% for a successful trade. This means that if a broker offers a payout of 90% and you invest a total of 100 dollars, the total payout will be $190.
Risk management is an important aspect of financial trading and if you are not good at it, failure is imminent. In forex trading for instance, in case a trading risk occurs, it can deplete your trading account within a matter of minutes. Fortunately, in binary options trading, your investment is exposed to fixed risks. That is, you will either win or lose a trade and if you do make an incorrect prediction, you can only lose the invested money and not a cent more.
Trade customization can help a trader to win a trade as it enables a trader to adapt an existing trade based on their requirements. For example, many brokers offer a wide range of risk management tools which help one to reduce the risk of trading while securing the profits. For example, the Rollover feature enables a trader to extend the expiry time of a trade for a small percentage of the invested amount. This is an excellent feature especially when a trader assesses that their trade needs a little more time to move in the desired direction.
Trading binary options is as fun as it is profitable. This is since a trader can even make a handsome profit in just a short duration. For instance, most brokers offer the 60 Seconds trade option. This means that in only one minute, a trader will know the outcome of their trade and they can make a profit in such a short space of time.
Binary options trading is the newest entrant to the financial arena and it has since gained a huge following as a result of its ease of trading and profitability. As this space evolves, traders will get the opportunity to trade with more assets and options, making this form of trading suitable for all types of traders worldwide.