In a world where advancements in internet technology have made it possible for anyone to tradefinancial assetsFinancial assets are categorised in terms of stocks, indices, currencies, pairs and commodities.,binary trading have become a lucrative way to navigate through the financial wilderness. But what are binary options and how do you trade the binary way?
In layman’s terms, a binary option is a type of financial option in which a trader assesses and predicts the future price movement of an underlying asset. For example, if you believe that theExpiry rateExpiry Rate is the value of the asset at the expiration time, relative to the value of the asset at the start of the trade, which determines whether your trade has been successfulof an asset will be higher than theStrike rateThe strike rate refers to the price of the underlying asset at the time at which you chose the direction of the option, you purchase aCall optionA call option is the decision/choice that the value of a financial asset will increase in price by the time of your chosen expiration– usually denoted by an up arrow. In order for the trade to be successful or In-The-Money, the price of the asset at the time of expiry must be in agreement with the direction you anticipated when you entered the position.
Conversely, if you believe that the Expiry Rate will be lower than the Strike Rate, you place aPut optionA put option is the decision/choice that the value of a financial asset will decrease in price by the time of your chosen expirationon the asset- usually denoted by a down arrow. For ease of reference, note that Strike Rate is themarket price The price of a financial asset when sold in a given market.of an asset when you enter a position while Expiry Rate is the market price of the same asset at Expiry Time.
Binary options trading can indeed be lucrative providing that traders have a good knowledge of this method of online trading. That’s why our best experts have worked together on an ebook to help traders like you succeed in their trading journey. You can download The Definitive Guide to Binary Options here.
The classic way of trading an asset using binary options is a simple 4-step process.
Depending on the trading tool used to place the trade, the steps above may vary but the general idea remains the same. At Expiry Time, if the asset moved in the direction you anticipated, the trade is “In-the-Money.” If not, the trade is considered “Out-of-the-Money” and the trader loses his or her initial investment.
When trading with binary options, one key decision is selecting the asset you want to trade. Investors can choose assets from four different asset classes including:
Stocks are amongst the most popularly traded assets. This is perhaps explained by the fact that the stock market is quite volatile, giving rise to numerous trading opportunities. Top events that influence stocks include quarterly earnings reports, currency fluctuations and the launch of a new product or service. Read more about Stock Trading.
The foreign exchange market is the largest financial market. It offers many perks to traders including easy accessibility and analysis and 24-hour trading. Currencies are always traded in pairs where the currency on the left is known as the base while the currency on the right is known as the currency. Read more about Currency Trading.
Commodities like gold, oil and silver are real-world resources that are heavily traded in the binary options arena. They are sensitive to events including surplus production, political conflict and natural disasters. As a result, the commodity market offers many lucrative trading opportunities. Read more about Commodity Trading.
An index is fundamentally a collection of stocks measuring the changes in an economy or a section of the economy. There are indices for markets all over the world including FTSE 100, Nikkei 225 and S&P 500. Top factors that influence indices include industrial production, GDP and oil prices. Read more about Index Trading.
Trading with binary options is one of the most simplified methods of trading, providing great flexibility and investment opportunities. This trading experience is further refined by our team to offer an intuitive trading platform with 10 in-built trading tools.
Aimed at new and experienced traders alike, Classic Binary Options is the simplest trading tool available on the platform. To trade with the tool, traders only need to predict the future price movements of the underlying asset. The tool offers extra features for a more rewarding trading experience including Double-Up, Rollover, Sell-Options and Strategy Advisor features. Learn more about the Classic Binary Options Tool here.
60 Seconds is a uniquely functional tool on the trading platform. It offers characteristically short expiry times of 60 to 300 seconds, highlighting an opportunity to rapidly test your trading skills. This tool is especially useful in times of important economic events, which can have a positive or negative impact on the global financial market. Learn more about the 60 Seconds Trading Tool here.
In stark contrast with 60 seconds,our Long Term trading tool offers expiry times of up to 1 year. Due to its long-term characteristic, this tool is particularly suited for traders with a wider perspective of the financial market. It is useful to strategize and capitalise on a few good trends and trading opportunities. Learn more about the 60 Long Term Trading Tool here.
Ladder is a trading tool that generates exceptional payouts of up to 1000%. The tool requires an analytical approach to trading because the trader has the opportunity to make 5 predictions about the price movement of the underlying asset. For successful trading, the price of the asset should go through these 5 Strike Prices like the steps of a ladder. Learn more about the Ladder Trading Tool here.
FX/CFD trading is one of the latest trends in the binary options industry. On our platform, the trading tool allows traders to lay the terms of their success by defining their Stop-Loss and Take-Profit levels as well as their leverage. Tradable assets include currencies, commodities and pairs of correlated assets such as Gold vs.Silver. Learn more about FX/CFD Trading here.
Brought to traders to increase the opportunity for successful and lucrative trades, Option Builder is a trading tool that allows a range of customizations. For example, the expiry time can be defined down to the hour and minute. Additionally, the tool also allows traders to choose their own risk level and potential payout percentage. Learn more about the Option Builder Tool here.
One Touch is the one of the few trading tools on our platform that allow traders to win trades even before the set expiry time. With One Touch, traders either touch an up or down arrow to predict the price movement of an underlying asset. As long as the asset breaches the Goal Rate once in the lifetime of the option, the trade is In-The-Money. Learn more about One Touch Options here.
TradeReplica is a new tool on the platform. It allows traders to conquer markets by following and replicating the trades of top performing traders. The biggest appeal of the tool is that it minimises the need for market analysis as you hitch a ride on the success of experts. Learn more about TradeReplica here.
Limits is a trading tool that allows traders to set a Target Rate for an asset. As long as the asset reaches the Target Rate at least once in the lifetime of the option, the trade is In-The-Money. This tool is very similar to One Touch with 2 added features: You choose your own Target Rate and Expiry Time. Learn more about Limits Trading here.
Pairs is a trading tool that compares the performance of two assets against each other. A successful trade happens when a trader correctly predicts which asset will outperform the other by Expiry Time. With Pairs, traders retain the ability to generate returns whether a market is going up, down or sideways. Learn more about Pairs Trading here.
Binary options are popular with traders because of the flexibility and transparency of trading the binary way. For example, the potential payout percentage is stated ahead of time. With binary options, if the payout percentage is stated at 80% and the asset moves in the direction you anticipated at Expiry Time, you receive 80% of your invested amount as profit.
The different tools on our trading platform offer different payout percentages. To choose the right tool for your trades, consider:
These questions will inform your choice of trading tool. There is no one universal or best trading tool. The best trading tool for you will depend on your investment style and financial goal.
This simplicity with which financial assets can be traded with binary options also outlines one major pitfall: The simplicity can be misleading. Traders tend to forget that all investments carry a certain level of risk. We highlighted 5 reasons why traders fail here, however, in binary options, the risk is limited to the amount of money you place on each trade and a string of losses can result in a significant loss of capital. To help preserve capital, one of the most important things is to determine your position size or investment amount for each trade.
Other pitfalls of binary option trading include:
With binary options, you run the risk of losing 100% of the investment placed on a trade if you make the wrong prediction. So take the time to think your trading strategy over. Binary options also derive their financial value from the underlying asset so it’s wise to conduct market analysis before risking substantial sums of money.
All investments in the financial market carry a certain level of risk. To make successful trades, let your knowledge- and not your emotions, guide your behavior. An intuitive trader knows how to act promptly when he or she feels that a trade is going to end Out-Of-The-Money at Expiry Time..
And finally, before investing large sums of money, get enough experience trading binary options with small investment amounts. Traders should also understand the relationship between risk and reward. In general, the less likely a particular outcome, the greater the reward associated with it.