More and more people look for lucrative ways to invest their money. But investments that are really profitable, usually also bear a high risk of loss. On top of that, they can be rather hard to comprehend – particularly when it comes to indirect investments such as derivatives. Binary options on the other hand aren’t just easy to get the hang of, but also put forward a clearly defined and therefore calculable risk. These traits make binary options a very popular financial instrument for both experienced traders and beginners.
What Is Trading Binary Options?
In order to trade successfully, it usually takes a lot of knowhow and practice. That’s not necessarily the case for binary options. Of course, you´ll need to understand how binary option trading works, but the popular derivatives are fairly comprehensible. As there are only two possible outcomes – the loss of your deposit or a fixed return – there is only one decision to make for investors:
Will the underlying asset be above a certain value at the time that the option expires – yes or no? Even though one might assume that the outcome of binary options mainly depends on the odds, successful binary options trading has a lot to do with timing. That’s why a fair understanding of the market and the asset you place your binary bid upon can be really helpful.
This Is How You Can Start Trading Binary Options
The first thing UK-based investors should know about Binary Options is that they cannot be bought through UK-based online brokers. Investing in binary options with a foreign online broker, however, is legal for investors from the UK. Once you´re sure about wanting to invest in the so-called all-or-nothing options, you should pay attention to the following steps:
Build Your Strategy
There are different approaches to building a strategy for binary options trading. Trial-and-error is one of them – as the name suggests, investors apply different trading strategies in order to figure out which one works well for them and which one doesn’t.
The combination of different indicators such as price levels, chart patterns and more can be another approach. No matter what binary options strategy you deem the perfect one for you, make sure to stick with it – otherwise, following your gut instinct can be fatal.
Calculate the Returns
If you´ve predicted the right outcome, you win – but you´ll register a return of about 80%. If you lose, you lose your entire deposit. That means, one won bet doesn’t completely compensate for a lost one. You´ll need a strategy that puts forward a rather high success rate in order to generate a plus in profitability.
Money Management Strategy
Hesitant investors tend to only make small deposits so as to limit their risk of loss. As binary options already come with a clearly defined risk, that’s not necessary. In fact, it’s better to start out with a deposit that is high enough for about 100 trades in order to avoid being wiped away by a possible losing streak.
Choose Your Binary Options Trading Broker
Just like with stocks, cryptocurrencies, precious metals, commodities and other assets or financial instruments, the choice of online broker can be crucial for your success. Make sure to trade with a brokerage that is regulated by an official authority like the ASIC. The cost structure is another important indicator of how successful you come out of your trades in the end.
Create and Fund Your Trading Account
Once you´ve made your choice, sign up with the binary options broker and check whether you´ll have to go through a verification process. Your first deposit should be high enough to cover about 100 trades.
Begin with Your First Trade
First, choose the option and determine how much money you want to bid, then commit yourself to an expiration date. Click “put”, if you expect prices to drop, and “call” if you expect them to rise until the expiration date.