I still marvel at how easy it is to trade online as compared to a decade ago. Moreover, you don’t need large sums of money or a team to make huge profits. Obviously, one still needs to research and read beyond the headlines. Binary options have become very popular due to the perceived ease and low investment required.
What are binary options?
Traders are required to put a wager on the movement of a stock, commodity or currency. There is a stated expiration date. Most binary options platforms enable users to change the expiration date before each wager. If the trader gets the direction of the stock upon expiration correct, they make a profit on their investment. Most platforms offer profits of 80% and above.
Notably, one can execute a number of wagers within a few seconds. As compared to traditional forms of investing such as shares, binary options traders can make more money more quickly with a lower initial investment. This combination of factors makes this form of trading more popular by the day.
How to make smart binary options trades
You can sign up for a binary options account, invest as little as $10 and start trading in 10 minutes. The low barrier to entry attracts a lot of casual investors. They lack knowledge of why stocks, commodities and currency change in price. As a result, they lose a lot of money very quickly. In order to make long-term profits with binary options, you need to take many factors into account before making each trade. I will delve deeper into that later in the article.
The reason why binary options platform can offer relatively high potential returns (60%+) is due to the fact that most investors lose money. A regulated platform is required to tell you the percentage of losing investors. In most cases, this can be found on their homepage. In short, some of the money from lost trades is used to pay winning investors. Here is some more information on how binary options brokers make money.
Before you make a single trade, follow these steps. This will help put you ahead of most traders.
1) Trade on the right platform
Some platforms aren’t properly regulated. As a result, you aren’t ‘protected’ in case of a dispute. This is very important. There are so many horror stories of people losing large sums of money through no fault of their own.
Secondly, some platforms are easier to navigate than others. Binary options trading requires a lot of quick, high-level thinking. The last thing you want is to fumble for a button and miss out on a trade. If the platform has a demo account functionality, use it. This will help to develop your trading strategy.
2) Get the right information
The world’s top investors, such as Warren Buffet have one thing in common: they are always learning. The world’s economy is dynamic. An event in one country can affect the price of a commodity in another. I use Binaryoptionsexpert to stay updated. It helps me to spot opportunities and plan investments.
The Economist magazine isn’t free but also gives a lot of insights into the world’s economy.
3) Managing your money and investment strategy
Binary options can make you a lot of money very quickly. You can also lose a lot of money very quickly. Besides making data backed trades, a big part of your strategy is managing your money. Only trade with money you are willing to lose. If you don’t, you might get into the routine of ‘chasing your losses’. As a result, instead of making calculated decisions, your trading patterns will resemble that of a gambling addict.
Binary options platforms are designed to be exciting. This encourages investors to invest a lot of money without realising it. You need to stay disciplined. Decide how much you are willing to invest in a day. This should be an amount you won’t miss. Don’t go over this amount. Also, decide how much of your winnings you will withdraw. There is no point in trading if you simply reinvest all your winnings.
For example, I like to trade 10% of my disposable income in binary options trading. I also withdraw 70% of profits from trading. If I lose all my initial investment, I stop until the next month.
The fast-paced nature of this trading type means that there are plenty of opportunities to invest. I only invest when all indications look right. For instance, a breaking news story can send the price of USD/GBP plummeting over the next 30 minutes. There is no pressure to conduct a trade. Timing makes a big difference. You might find a strategy which works better for you.
It is worth ensuring that your finances are in order before trading binary options. Here are some free budget templates.
Frequently asked questions
1) I heard about the terms “put” and “call”. What do they mean?
In binary options, investors press the call option if they think the value of an asset will rise by the expiration time. If it does, they make money. On the other hand, they can select the put option if they think it will drop by the expiration time.
2) Can you make money with binary options?
Like with any investment platform, more people lose money than make it. However, dedicated investors who go in with the right strategy stand to make a lot of money. There are less risky investment options; however, the returns are much smaller. In my opinion, binary options is the most accessible investment type.
4) How do binary options compare with CFD trading?
Many people make comparisons with CFD trading. Here are some similarities.
– Small investment required
– High-profit potential
– Easy to understand and register
The difference is that CFD trading uses margin. As a result, depending on the price movement and your stake, you could make many times more per trade than binary options. However, a losing trade could be much higher than your investment. As a result, CFD trading is much riskier than binary options.
If you want to know more about how CFDs differ to binary options, check out this guide.
5) Can I invest using my smartphone?
Many top platforms have apps for trading on the go. However, I advise against doing so. A slow, unstable internet connection could cause an input delay. This can affect the accuracy of your trades. It is better to trade at home using a computer connected to a high-speed internet connection.
In conclusion, I hope you found this article useful. Binary options trading has high potential returns but do your homework.
Featured image credit: Unsplash
