Online trading is becoming increasingly attractive when we are looking for ways to increase and secure our capital. Among the many trading options, binary trading has several advantages that make this method easy to understand and calculate risks. This can make it suitable for beginners, while options like leverage attract expert traders.
What exactly are binary options, how do you trade with them, and which brokers offer the best trading platform for binary option trading?
What is a Binary Option, and How Do You Make Money?
Strictly speaking, binary options are not an asset but a trading method. When you are “trading binary options”, you are actually trading with derivates. These use the value of a regular stock market asset as their base value and copy their market movements for the duration of the trade.
How Do You Make Money with Binary Options?
- When we talk about trading binary options, we select which asset we want to base our derivate on, pick a trade amount, and set an end date for the trade. We then decide whether the base asset value will have risen or fallen when the expiration date hits.
This binary win-or-lose result makes binary option trading very easy to understand. The premium we pay to the broker and the money we would win or lose are pre-determined and can be calculated accurately. This makes it easy to perform risk management and calculate which trade amounts we can afford to invest.
This is the most basic form of binary options trading. There are more complex strategies for this trading method we can make use of, for example:
- speculating in ranges or with specific trigger points the base asset value must reach
- speculating with leverage, where the broker pays forward parts of the investment sum
Which Markets Trade Binary Options?
Regular national stock markets rarely offer binary option trading. Instead, they are offered on OTC (over the counter) markets. We can access these markets with online trading platforms.
Here, the brokers are market makers. They determine their premiums, prices, and pay-outs the traders will receive, and do not necessarily stick to the stock market pricing.
What are the Benefits of Binary Options Trading?
[Graphic: Advantages and Disadvantages of Trading Binary Options]
How to Trade Binary Options
When you want to trade binary options, you need to follow several steps:
1. Research
Trading always comes with risks. In order to make informed decisions, you need to put in some research first. By learning about trading and the market trends, you can better predict the market developments. This way, your trades are based in data rather than leaving the results to luck.
2. Pick a Binary Options Broker
Finding the right broker for binary options trading is a significant step in this research process. The information you gather can lead you to the best provider and their service can give you additional resources to teach yourself about trading. The broker we choose determines to which markets and assets we have access.
3. Risk Management
When we are trading online, we need to keep a close eye on our capital. Careless speculations can significantly impact our finances. Especially when we are using risky methods like leverage, we need to avoid bankruptcy. Luckily, the pre-determined percentages make it easy to calculate exactly how much we can risk and spend.
4. Select Assets, Strike Prices, Expirations & More
Based on this risk management and our research, we can find the best derivates to trade and find out which strike prices, trade amounts, and expiration dates we should pick. The research helps us determine whether we should expect the value to rise (call) or fall (put).
5. Place Your Trade & Wait for Expiration Date
Once you have decided on a market, asset, price, trade amount, expiration date, and the call or put option, you can close the trade. All that is left is to wait for the expiration date to find out whether your prognosis was correct or not.
These Criteria are Important when Choosing a Binary Options Broker
The broker you choose influences your trades in multiple ways. Both the security of your finances and data, as well as the general trading experience, depend on your choice. Here are the most important factors to look out for:
● Regulation & License
The license is the most essential criteria. When a broker has a license, it is regulated by the related regulatory body. Depending on the authority, the provider must stick to strict laws and regulations. However, some countries have banned the use of binary option trading for private investors. In these locations, you need to look for offshore brokers with trustworthy licenses.
● Support, Tools & Resources
Different brokers offer varying degrees of support to their users. Part of this support are the resources the broker includes in their service to help the traders get informed about trading, market movements and more. The best brokers have demo accounts for free and unlimited use. Here, you cannot gain or lose any money, but you get hands-on experience with the service and binary trading itself.
● Terms & Conditions
The terms and conditions have the most important information about the broker’s service, fees and co. Here, an untrustworthy broker can hide conditions that could limit your options and hinder you from receiving pay-outs.
● Fees, Pay-Outs, Returns & Minimums
Since binary options brokers often set their own premiums and prices, you can find more beneficial percentages with some providers over others. The same applies to the fees for their service altogether or separate actions. Significant factors are whether the broker has a minimum amount you need to invest monthly or a minimum amount of money you need to collect before you can be paid out.
● User Reviews
User reviews about the broker are the best tool to find information about the available brokers and the mentioned criteria. These reviews include the user experience and features of the service, as well as facts about the trustworthiness, legality, and security of the trading platform.
Conclusion
Binary options are an easy-to-understand trading method where the results are binary and have pre-determined percentages for your wins or losses. You don’t need to learn complex strategies to trade and can calculate risks and chances for our finances.
To have a good trading experience, it is important to find a good online broker. User reviews help you find information about the service scope and security of any available providers. Additionally, demo accounts can give you hands-on experience with a specific broker.
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