Introduction to Binary Options
The Binary language is used by computers to determine one outcome or the other, nothing else in between. It’s just either 1 or 0. When it comes to financial marketing Binary Options are trading instruments where the result can only be one of two things; you make money or none at all, nothing in between. It’s also called “cash or nothing” options.
How to trade in Binary Options
To trade in Binary Options a buyer virtually buys these options on any financial product for a price called the strike price. If in the future maturity date the price of that instrument is above the strike price then the buyer is paid the amount that has been fixed. If the price is equal to or lower than the strike price the buyer gets nothing.
In Binary Options trading a buyer can also virtually sell this instrument at a price and if on maturity the price is higher than the strike price the buyer gets paid. If the price is lower then all gain belongs to the dealer.
Trading in Binaries is Not Easy
Do you think Binary Options trading is simple? You have to remember that while you stand to gain if you win you are also putting your money at stake. Binary Options trading involves a lot of risk if you don’t map out your strategies intelligently. Here are some of the trading basics you must be aware of before you consider entering this market:
Call or Put Options
Choosing between Call and Put is another binary choice, nothing in between. Call means the right to buy while Put means the right to sell. While an investor buys a call he is buying the right to buy the instrument and while buying a put he is buying the right to sell that particular instrument.
A seller of binary options has to deposit some amount of prescribed money with the broker with which he is associated, this is called Margin Money. Depositing the margin money is mandatory for the security of the buyer.
Binary Options trading has different trade cycles. There are one minute, one day, one week, one month and also 3 month binary options. Despite that, it still follows that the prices that have to be compared to determine profit or loss is the one on the date of buying and one on the maturity date.
Here are some trading tips that can help Binary Option investors earn more profits:
Get Information About the Stock
Before buying any stock it is wise to have complete information about it. You have to know the background of the company, any information about mergers, acquisitions and profit declaration. You must also know if the government has any announcements regarding any restrictions about the stock. All these will have a direct effect on its price.
Balance the Portfolio
Your portfolio should never be inclined towards just one position. Rather, it should be balanced in a way that there is the least possibility of losing everything. For instance buying a call of higher strike can be managed against probable loss due to heavy downfall in price through the purchase of put of same strike. Other trading strategies can also be worked out such as straddle, strangle, butterfly etc. to manage the portfolio efficiently.
Find the Trends
Trends show how an asset performs under the pressure of bulk buying or bulk selling. By observing the trend in the asset you are investing in you may be able to predict immediate fluctuations in the stock. This is why it’s so important. When analysing trends you should consider previous maturities of the stock over a period of time.
How Binary Can Help in Dealing with Forex Risks
Forex trading can offer high yields, but also involve very high risks. This is because of the many factors influencing forex rates including foreign funding, the foreign supplier credit period and the longevity of contracts.
The binary options trading presets the forex conversion rate on the future date and supplies the balance of increase or decrease in that rate upon the maturity date. This is how a conversion rate is fixed. If on the maturity date the actual spot price is less than the strike price and the dealer wants to trade in the spot market then he can easily do so. His losses will only be the premium paid at the time the options were bought.
It’s Trading, Be Prepared to Lose Some
Nothing is certain in something as volatile as the financial market, the few things certain are that there will be market fluctuations and that there will be winners and losers. Be realistic, you will not win all the time. How can you make sure you end up winning more than losing? Trade intelligently.
How do you trade intelligently? Learn all you can about it before you even dip your toes in. Start small, don’t go for broke immediately. Once you’ve gotten used to trading, learn even more. You might be tempted to consider yourself already an expert, but it might surprise how much you can still know about trading.