Binary options are one of the newest ways to enter the markets and can potentially be a big money maker for investors. If you are unsure where to start when it comes to this potential new money maker, don’t worry you’re not alone. Luckily we’ve got some great tips to help beginners become comfortable with this simple, fun and hopefully very profitable form of financial trading.
What Are Binary Options?
Binary options are a type of option in financial trading where the payoff is designed to be either a fixed amount of an asset or nothing at all. There are two main types of binary options, cash-or-nothing and asset-or-nothing. The cash-or-nothing binary option will pay some of the fixed amount of cash if the option expires in-the-money and the asset-or-nothing binary option will pay the value of the underlying security. This differs from normal trading as the investor never buys any physical stocks or shares but instead just predicts the fluctuation of the individual assets in the financial market.
How to Get Started
- Select a Broker – Your broker will be the person or team that offers different trading options and platforms online. When selecting a broker you are indirectly selecting a specific trading platform. When you decide on a platform you will also be choosing what type of trades are available for trading. Brokers will either use a turnkey solution, which provides easy configuration of features to the individual broker’s specifications or they will use proprietary platforms developed by software design teams to utilize unique features and trading types.
- Choose a Trade Contract – There are several different options available when it comes to trade contracts. In this case it is better to choose one or two trades maximum and perfect them instead of trying to master them all. It is important that you are structuring your trades correctly to maximize earning potential.
- Choose a Financial Asset – You have 4 different asset types to choose from. They are: stocks, currencies, commodities and stock indices. Each asset class has it’s own individual characteristics and you should choose assets based on which asset class you are most familiar with.
- Invest – Now is the time to make your initial deposit based on what you have learned about binary options trading. You should never make careless investments and keep the risk of the trade within proper limits. Your investment should be about 3 percent of the accounts capital maximum. For example, if you have $2,000 of account capital, your total exposure from all of your open positions should not exceed $60 or 3 percent of your $2,000.
- Trade Execution – Before you execute the trade it is important to be sure that all the trade parameters have been entered properly. People will often find mistakes at this stage including having the incorrect trade type chosen or the wrong investment amount has been entered. Pause to make any necessary corrections before you execute and preview the payout for the trade before you enter. This will easily tell you if the trade is actually worth entering or not. Then simply wait for them to expire and see if you predicted correctly.