Binary Options are the new retail investment option that are allowing new traders the opportunity to make a lot of money online. Given the relatively simple structure of a Binary Option, trading on the financial markets is no longer only the realm of experienced investors on Wall Street or in the city of London.
What is a Binary Option?
A binary option is a simple investment instrument that can result in one of two outcomes. This is either to land up in-the-money (positive pay-out) or out-of-the-money (loss of trade). When it comes to actually investing in the option, the initial investment is the price of the Binary Option (the premium). This is the amount that is being staked on the trade.
There are also two types of Binary Options and they are a CALL and a PUT. When an investor purchases a CALL option, the investor is hoping that the asset price will go up in price and be above the initial trade level at the expiry of the Binary Option.
When an investor purchases a PUT option, he / she is hoping that the asset price will decrease in value and be below the initial trade level at the expiry of the option. In both cases, the expiry time is when the payout will be calculated. The expiry time can range anywhere from 30 seconds to 6 months.
Why are Binary Options so attractive?
Unlike traditional trading in Forex and Stocks, an investor in Binary Options will never lose more than the initial option value. This is usually as little as 20% of the potential pay-out if the trade ends up in-the-money.
For example, assume that an investor would like to bet that the Euro is going to increase in value relative to the US dollar within the next 5 mintues. They can enter a Binary CALL option for $20. If, in 5 minutes the value of the Euro has gone up, the investor will have “won” the trade and the payout will be $100.
In the example above, the investor has made $80 on an initial investment of $20 within 5 minutes (%500 return). The investor could also enter a PUT option on the assumption that the Euro will decrease in value.
How to trade a Binary Option?
When an investor decides to trade a Binary Option, he / she has to decide on which direction the asset is going. This asset can be nearly any stock, Index, Currency or Commodity. Once the investor has decided on the asset they would like to trade on, he will have to take a view on whether the asset will go up or down in value and whether a PUT or a CALL option will be entered.
Once this has been established, the investor will choose the Expiry time. This is based on when the investor expects the asset to reach this level. After the trade has been entered, the investor should wait to the end of the trade period to see whether he has won the trade.
How to win trades consistently
When trading Binary Options, one can employ a number of different strategies. These strategies fall into two different categories, namely technical and fundamental strategies.
Fundamental strategies take advantage of Economic events such as the release of Economic numbers. They also fall into company level fundamental analysis such as earnings announcements and news releases. Depending on the expected impact on the asset, the trader could make a profit by betting the trade in the correct direction.
When it comes to technical analysis, the investor will use the past behaviour of the price to take a view on where the asset will go over the trade time period. The investor will take a look at key charts such as the moving averages, volumes, relative strength etc.
There are endless Binary Options educational tools available online in order to help you learn these strategies.
As new investors in Binary Options, a wise move would be to make use of the expertise of other seasoned traders. These traders manage Binary Options accounts for their investors. These traders consistently monitor their clients trading accounts and are best able to take full advantage of any profitable opportunities from both a Technical and Fundamental standpoint.