The term binary options refers to trading of price or currency movements. It is similar to stock, futures, and Forex trading, with the difference that traders do not by an asset. They simply place bets on whether the price of a particular asset will go up or down. Binary options are very easy to understand, and it does not take long for individuals to understand how the business works. That’s also one of the reasons why binary options are a highly popular trading variety. One can trade in multiple assets like stocks, Forex, futures, gold, silver, oil, wheat, corn, etc.
Binary options are based on Yes and No decisions. In the trading world, they are called Call and Put options. When you place a trade and believe that the price will go up, you pick the option Call. When you think that the price of an asset will drop, you pick the option Put. So, your task as a binary options trader is to open an account, deposit and simply bet on the price movements.
If you are interested in this kind of business, finding the right broker is mandatory if you want to avoid losing your invested money.
Valid Binary Options Brokers
Rule number one when looking for a broker is to check the license(s) of the broker. Are they registered with a regulatory agency? Also, make sure that the regulator has a good reputation, too. There are many great regulatory agencies that do their job and keep the market fair and safe and who notify the public on any malpractice of each broker. Your broker should be approved by such regulators. People who come from other countries should check if the broker obtained a local license. This means that you need to be protected by the laws applied in your country.
Check with the regulator (or on their website) if your broker has ever been fined and what for. Decent regulatory agencies keep records of brokers’ business conduct, so it will not be hard to obtain this information. Also, if they regularly call to persuade you to invest more money, it is probably not a decent broker company. Trading signals are often used with binary options trading, and you have to be careful with that, too. Never make a deposit for a robot which does not show all the settings. Also, do not believe the testimonials and comments, because they are often not real. Automated trading is tricky because you give free hands to a third party to handle your account, which means that the software can place trades without consulting you. This really depends on the quality of the automated signals and robots.
Important characteristics of Binary Options Brokers
When you’ve found a broker with a clear history and a good reputation, it is time to think about other qualities the broker offers. These include:
- A convenient trading platform that meets all your needs
- Mobile trading platforms for smartphone devices
- An account relevant to your trading experience
- A variety of trading assets (some brokers offer 200+ assets)
- Brokers with a high return rate
- An efficient customer support available around the clock ideally multilingual
- Separate accounts for clients’ investments
- Fast payouts without delays
- Quick withdrawal processing policy (up to 24 or 48 hours)
- Multiple payment methods (Credit Cards, wire transfers, E-wallets)
- Generous bonus offers (which do not require additional deposits or hidden requests)
- No commissions or fees on deposits and withdrawals
All of the above-mentioned features are part of a good business deal between you and your binary options broker. Always look for brokers with the best offers and with the best assets. The business is already hard on its own, and you need a solid broker to guide you through the dynamic process.
Binary Options Trading Guidelines
Once you’ve reduced the circle to brokers that are legit and decent business partners, we advise you to choose multiple brokers to increase your success rate in general. Also, you can compare their offers to see the differences. The average minimum deposit is $100 (but can be higher or lower). Beginners should be careful with investments and start small. They should not get carried away by the betting element, but rather keep a cool business head. Your next move should be to choose assets you want to place your trades on and the variety is almost limitless (stocks, bonds, commodities, futures, etc.).
Binary Trading Options
There are few more categories besides the Call and Put option (often called the High Low) which is based on predicting if a price goes up or down within a specific timeframe. Other options include the Range and No Touch option. The No Range option refers to selecting a price range for a selected asset and betting that the asset will not surpass that price range. For example, let’s say you choose a price range between $1,3456 and $1,2567 for the wheat price in a 3-hour time limit. If the wheat price stays within these limits, you win, and if not, you lose your investment.
The No Touch option refers to the selected price that the selected asset is not going to reach or surpass in a given timeframe. Close Trade option is a facilitating feature that enables traders to close their trades before the expiry date, and secures, at least, a part of their initial investment. Unfortunately, this feature is offered only by a few brokers so far, and it is not mainstream yet.
Short and Long Term Trades with Expiry Date
Expiry dates or expiry periods are the main feature of binary options trading. They represent the given time limit for placing and executing a trade. There are trades that are as short as 30 seconds. Others include 60 seconds, hourly, daily, weekly, monthly, and even yearly expiry dates. Very few brokers offer annual expiry dates, even monthly trades are considered to have a long waiting time in this fast market. Mainly, short trades are the rule of thumb, and people who engage in long-term trades are very rare. Brokers favor short-term trades more too, for their own reasons (better profit chances). Short-term trades require quick decision-making skills and investors have to be ready to act quickly.
The Trading Platform
One has to familiarize with the features of a platform especially if you are new on the platform. Study the platform in and out to be sure to know every aspect of it. Many beginner mistakes start with bad platform management. Many do not know to read the graphic chart where new trades are signaled and miss out on great trading opportunities. Also, you should have a prediction on price movements in advance.
Use the Demo Account
Use the Demo account to test your trading strategies. In that way, you will know what strategies are offered and opt for one of them. The upsides and downsides of each strategy can be observed; you just have to look for them.
Study the Market
If you already want to join this market, you should make a little inquiry on the market conditions and a little study on currency movements. You can also watch and follow the news to gather relevant data. This might be time-consuming, but it is still a great strategy because you form your decision on statistical and technical data.
Broker Monitoring (again!)
As we said, a regulated broker is more than necessary to enter the business, but it is also good to study the broker more thoroughly by analyzing their strategies and if they give you the best offers.
Binary options trading is known for the mass-use of trading signals. Bollinger Bands are very popular trading signals which let you know if the market is overbought or oversold. They can be set as a default option on your account. They are manifested by three lines, a central (indicating average movement) and two side bands/lines which indicate deviation.
Other Automated Trading Strategies
There is a number of available apps that watch, observe and monitor the binary options market for you. The only catch is, you need a really good one. Apps (high-quality) will gather relevant data and information and based on the results they will place trades for you. The data processing and decision-making are based on a set of algorithmic calculations performed by experienced and professional traders.
The term refers to assets which are traded in the same market and under very similar conditions. Observe and wait for one of the assets to drop in price creating a gap. At that point you can opt for placing the Call option for the asset of the higher price or a Put option for the lower-priced asset. Eventually, they will even out in the price again, and that is when you should exit the trade (with a profit).
Be Smart and Cover Both Sides
The whole binary options trades revolve around Put and Call. Why don’t you use both? Carefully observe the asset movement and when time is right, place Call if you believe the price will go up, but at the same time place a Put trade on the same asset to avoid the risk.
Combine All Binary Options Trading Strategies
The best thing is to take a little bit from every strategy. Take all indicators into consideration and then make your trading decisions. Binary options work in many ways, and you have to be prepared and on the watch all the time if you want to trade successfully. Try these binary options guidelines in your upcoming trades and watch your account grow bigger. If you are a beginner, please apply the strategies on the Demo account to have the ideal start with a live account later.
Pros and Cons of Binary Options Trading
One of the good things of this still vague business is that the risks are known, as well as the profit. The potential money rewards are fixed. Liquidity and market changes are not of crucial importance like for the Forex market given that no assets are bought, and the traders’ decisions are what dictates gain or loss. Unfortunately, as with betting, the chances to lose are greater than the chances to win. It is not enough to win once in a while; only a stable success rate makes up for all the investments. Lost investments will always be greater than winnings (at least, in general, there are exceptions). The other thing is that many view it as a betting game and get slightly addicted to trading. One of the basic rules is that this is not a gamble, but a serious business with strategies and tools that can help you earn money based on knowledge. It cannot be stressed enough to watch out for scammers and fraudsters who are everywhere in the market. If you discover a crooked broker, report them. Every individual’s impression and opinion help to get rid of malpractices and manipulations.
Self-Discipline and Control
As we’ve already stated, if you regard this as a game or betting opportunity, you can count with high losses. Emotions play a big role and trick traders into making wrong decisions sometimes. Traders should always rely on common sense and take an objective point of view. All your decisions should be made according to market behavior. Common mistakes traders make are:
- they back out if they had a series of losses
- they stop trading for the day if they reach their desired profit
Professional traders are consistent; they strategize, think, and observe the market continuously. Their self-discipline is at a very high level. Also, as a trader, you have to learn to control your emotions and to keep a cool head even when it gets tough.
Be a trader, not a gambler!