What are Binary Options?
Binary option is relatively new financial instrument. Let us try to explain what it is and how to put it to usage for profit.
In spite of the same name, binary options have very little in common with the traditional exchange instruments – the usual options (also called "vanilla"). In essence, the general properties are only two:
- In both cases you are risking your money.
- In both cases there in the title is the word "options".
Here all similarities end and begin differences.
The word "binary" means that this option has only two options for completion and each of them brings to the investor a fixed income or a fixed loss, the number of which is known even before the end of the transaction. Many brokers have profit up to 180% investment and loss from 100% to 85% of the investment.
The essence of binary options can be decreased to the following expression: "I hope that by the end of the next day (month, hour, 30 minutes, 15 minutes) the price of my selected assets will be above/below the current level. If guess, I'll gain my pre-agreed with the broker profits. If I am wrong, I will lose the invested funds, but neither more, nor less than what is invested."
The components of a single transaction with the usage of a binary option are extremely simple. However, the brokers suggest greater options of suitable deals to you. Firstly, you can select an asset which will be derived from your binary option. As such an asset can act currency pairs Forex (for example, EURUSD and USDJPY), the action (for example, Apple and Walt Disney), commodities (oil), precious metals and stock indexes (S & P, Dow Jones). Most brokers offer about 60 different assets covering all markets of the world, so that the scope for choice is big enough.
A Choice of a Broker to Trade Binary Options
When deciding for a broker, special attention should be paid to a percentage of payout. At first glance, the difference in the amount of payments from various brokers may not seem significant, but do not underestimate this figure, because in the long run in the end may have an essential influence upon the overall profitability of your trading strategy. If all other parameters are identical, you should choose a broker whose payment is greater.
You should not blindly trust what is written in large print on the front page of the broker. Often in practice the size of payments is less than what was claimed in the advertisement. So do not rush to open a trading account. To start learn trading platform and check the state of payment for the various types of accounts and options.
The platform you are using to trade, its ease and convenience are of great importance in achieving success. What you need less of all is a terminal having a complicated interface that does not let you to timely enter and execute the application. The possibility to quickly create and execute an application is vital for your success and profitability of your trading strategy.
Some trading platforms are too cluttered with unnecessary and totally unnecessary information in the interface that makes navigation in such a program practically impossible. For a comfortable and efficient work you need a well-organized, clean, intuitive interface. Today many brokers offer their users a platform interface which can be changed by the trader in accordance with his personal requirements and preferences.
Leading brokers are capable to suggest hundreds of different assets for your work. However, in the initial stages, it is significant to focus on the development of a few options. In the case of binary options there cannot be a jack of all trades. You can earn much more in the event that will trade a few options that you know best, than you will try to work with dozens of different options about which you know virtually nothing.
Give yourself time to become familiar with the assets provided you with the broker, and choose some of the most understandable and appropriate for you personally. Trying to sell everything can very quickly lead to bankruptcy.
Types of Options
Many brokers with whom you will encounter will suggest you different types of binary options, among which the most popular options are «high / low», «range» and «touch». You will gradually have your personal preference for one or another of their species. Your personal preferences and characteristics of the trading system will have a decisive influence on the choice of those options which you trade.
Deposit and Withdrawal of Funds
You need a broker who can provide you with an opportunity to easily and quickly as possible replenish your trading account and quickly withdraw profits. It is better to avoid brokers that make the transfer of funds unduly confusing and complicated. As a rule, any self-respecting broker has many different ways of account funding and withdrawal options.
Also, you should avoid brokers with a large number of complaints from users about the payments. The company should not give too much time for the transfer of funds, and handling any problems and customer should be immediately addressed and resolved. If the broker has any difficulty with the withdrawal of funds it is a signal that such difficulties may occur again.
Many people underestimate the importance of support services. It is not necessary to repeat this mistake, because quality customer support is a very important component of a successful cooperation with the broker. Most brokers are always ready to provide you with easy access to a team of specialists who tackle your problems. If you want to always have on hand someone well-versed in all aspects of working with binary options, you can call the help desk every time, as soon as there are any difficulties.
Good support is always able to communicate with the client by phone, online chat and they have a set of instructions and responses to solve the most common questions. Make sure that the support staff will be available in the period of time when you want to trade actively.
Are Binary Options for Newcomers?
When talking about binary options, there are absolutely real earnings, and in some cases it is even more than on the Forex or stock trading on the stock exchange.
The main thing is to stick to some simple rules:
- strict adherence to a trading strategy;
- strict compliance with the requirements of money management and trading risks;
- avoidance of emotional trading and trying to "get even" in the event of losses.
By following these simple guidelines, you can easily achieve the desired.
And, of course, never forget to improve, including the financial market, which is often unstable, and always presents unexpected surprises.
On derivatives it is difficult to make money without attachments. You still need money to start getting profit here. The only exception relates to experienced traders who can take someone else's capital asset management and receive profits that are gained by selling borrowed funds of their investors.
At the same time, the trader receives a percentage of the successful management of the investor's account, however, the investor bears the risk of losses as the hopes to get a greater percentage of the invested capital than they can give a conservative investment instruments, such as bank deposits.
Binary Options Strategies
All of nowadays existing trading algorithms are divided into several main categories, which differ in the basic principles of making trading decisions:
- simple strategies;
- indicator algorithms;
- graphic trading system.
All three categories associates one thing – the precise rules. For a better understanding, let us consider them in detail.
Simple trading algorithms are meeting the basic tools, including key market analysis.
They are built on the fundamental principles of pricing and therefore relieve the trader from having to establish additional systems analysis. Among the most popular release:
- rapid breakthrough day;
- strategy of 60 seconds;
- a trend reversal on the top or bottom point of the graph.
All these strategies are primarily designed for beginners. They are simple and convenient to practice, and not require a significant body of knowledge. It is a great option for a profitable start.
The basis of the transaction according to the strategy is the signal, supplied by a technical indicator.
The most common are the following indicator strategies:
- precise entry;
- Index RSI;
- the divergence of the MACD.
Almost every novice trader gives his preference to the indicator system, due to the mistaken belief that this trade is quite simple. In reality it is differently.
To trade profitably using indicators and oscillators, you must have great experience in the making actual transactions, as well as an excellent understanding of the sequence of operation of a particular instrument (technical indicators).
Graphic System Trading
Graphic strategies in trading on the derivatives market are based on a thorough analysis of the price chart. Here the task of the trader is to recognize the emerging chart pattern (a figure which depicts the price on the chart), and use it on time for the benefit of your trading account. Now there are known a lot of graphic patterns, but most tested are: "head and shoulders", Pennant, Wedge and "Three Indians".
All these schemes will help you get stable profit.
Every trader should remember that binary options strategies are not universal for all. Investor picks up the strategy that suits him/her most and which has shown good effectuality. Look for the latest innovations, through binary options strategy reviews and use different binary options strategies.