What is binary trading – practical lesson for beginners
Binary options are a relatively new product on the trading market, so let’s start with the basics. Since the main principle of binary options trading is to predict the direction of the price movement of the asset, the primary task of the trader is to get the right choice of the underlying asset.
If you are an experienced investor and know the ropes of the financial market well, then the asset selection certainly will be easy for you – choose the one in which price behavior you are most confident, because your future income directly depends on it.
We recommend the beginners first to study the market. For a week or even two follow the news of financial markets carefully – choose the assets that behave most clear to you, the assets which price rise or fall in accordance with the forecasts of market analysts.
Before making any financial forecast it is extremely important to examine the situation on the market, to understand the levers that affect the value of various assets and therefore make a reasonable financial forecast that with the right approach almost certainly will be the key to your financial success in trading binary options.
The terms of trading in Binary Options
Another important aspect of trading binary options is the right choice of an option runtime (expiration). When trading binary options an investor can choose the point in time at which he makes his forecast – the end of the hour, day, week or month.
When selecting the option exercise period – the end of an hour or the end of the day – the investor becomes a participant of the short-term trading. Short-term trading has both a number of advantages and disadvantages. One of the certain pluses of short-term trading is the possibility to make a profit fast. However, choosing this path, it is important to remember, even if you know exactly that the rapid growth of the asset in the long term is planned, it is likely that by the end of the hour, for example, the price of an asset will fall. Personally we think that the short-term trading is a more risky type of investment, but as I have said, it has a very seductive feature – the ability to get a quick profit.
Long-term trading is simple – by choosing the end of the week or the end of the month as the time of expiration, you increase your chances of the correct forecast, but if you are successful, you can get the money only in a week or a month.
And the last and probably the most important piece of advice from our personal experience – as long as you do not feel confident in the binary option market, invest small amounts, and only after you have mastered the market, examined the assets and got more trading experience – gradually increase the size of your investments to respectively increase your income either.
About put and call options for Binary Trading
The most important concepts in binary trading are call and put options.
Let’s see what each of them mean, because your financial success depends on the correct understanding of the basic terms.
Call Option – a call option is purchased by the trader in case he considers that the price of the asset chosen by him at the time of the option exercise will be higher than at the time of purchase. Suppose you have chosen gold as the underlying asset and think that there are all prerequisites to the fact that its price will rise by the end of the hour, day, week or month. In this case, you must purchase a call option, and specify for how long you make a bet. If you bought a call option with the expiration of the hour, and at the end of an hour the price of an asset, indeed, grows, you will make a profit.
Please, note that if the predicted growth occurs an hour later or at the end of the day, you will not make a profit. Therefore, it is important to remember that during trading binary options it is extremely important to choose deliberately the terms of the options, because it affects your profit potential.
Put Option – a put option is purchased by the trader in case he considers the price of the asset chosen by him at the time of the option exercise will be lower than at the time of purchase. Here, the opposite is true – if you have a reason to believe that the price of an asset will decline at some point in time; for example, you have heard in the news that there have been changes in the company, there is restructuring and the situation is not very optimistic, it is logical to assume that in the nearest future the company’s shares will fall in price. Thus, the forecast of lowering the price of the asset (in this case, the company’s shares) will bring you the desired profit.
Remember that getting a profit or not depends on the correct choice of the option. Never choose at random (because it can reduce the process of informed financial forecasting to a simple bet on luck as in the casino), but refer to the market developments pointing to this or that movement in asset prices.
For those who are just starting to trade binary options, I suggest to get acquainted with my detailed explanations of all of the functional components of a typical trader’s field:
Knowledge of the basic components should be enough for you to start trading binary options.
How to start trading Binary Options?
To start trading you need to perform four steps:
1: Select the stock exchange asset (index, currency pair, stock or commodity)
2: Select the option exercise period (the end of an hour, day, week, month)
3: Select the call or put option (increase or decrease the price of the stock asset)
4: Select the amount you want to invest in the purchase of the option (the window for the introduction of the sum opens after you choose the call or put option)
Following these four simple steps you will only have to follow the movement of the market and if at the time of the option exercise your financial forecast is correct you’ll make a profit.
However, I want to draw your attention that the more detailed your understanding of each of the components and features of the trading market as a whole is, the greater your chances of the profit are. Checked experience.
That’s all for now. Got any questions? Just ask the expert!