Binary Options-The Basics
Binary Options-The Basics
In 2007, the SEC in the US made Binary Options trading a recognized part of an investment portfolio. Since then, the trading of Binary Options has grown to be one of the fastest and most popular trading activities online.
Attracted by its simplicity, speed and high returns, people from all walks of life have been trading binary options. Anyone with little or no financial knowledge or experience can place a trade and stand a high chance of winning. So, what exactly is Binary Options?
How it Works
Binary Options trading is an investment into the direction of an asset. You are not purchasing the asset itself, rather predicting the direction it will take and will be at the end of a specified expiry time. The asset can be any Stock, Currency Pair, Commodity, or Index and the expiry time can be anything from 30 seconds to one month.
Each asset is given a target price, also known as strike price, and expiry time. You have to decide whether or not the asset will be higher or lower than the target price at the set expiry time. If you predict correctly, your investment ‘in-the-money’ and you receive a return somewhere between 60-85% of your investment. Should your prediction fail, you are ‘out-of-the-money’ and you lose your investment.
The outcome is nearly always binary; your prediction is either correct or wrong, either in the money or out of the money, hence the name Binary Options.
How to Trade
Choose an Asset – a Stock, Commodity, Currency Pair or Index
Choose the Direction – Will it be higher or lower than the strike price
Choose the expiry time – Anything between 30 seconds to one month
Choose the amount to invest – The amount varies, anything from $1 – $1 million dollars
Is it Gambling?
Because of the simplicity of Binary Options trading, there have been many comparisons to casino gambling. However, there is much more to trading binary options than just making a coin-toss type prediction. As with all financial trading, the application of some knowledge and strategies will greatly increase your chances of long term trading success.
It is important to take the right approach to binary options trading and treat each trade as an investment and not a bet. Research the markets, use trading charts and study your assets and you will find Binary Options is both nothing like gambling in a casino and a form of investing that can reap long term rewards.
Choosing a Broker
There is no shortage of Binary options brokers to choose from and in many ways, you are spoilt for choice. What is highly recommended is to choose a regulated binary options broker to trade with. There are a few that adhere to strict European regulation which offer a level of security and assurance that non-regulated brokers cannot.
When choosing a Binary Options broker there is a simple checklist to follow:
Are they regulated? – look for a license with a reputable financial authority
What is the customer service like? – Try their live chat out to gauge their level of professionalism
Read the small print – Check their terms and conditions to see if there are any hidden charges or fees
Check their Reputation – a quick Google search will tell you if others have had positive or negative experiences
Other areas to look out for are:
The Returns they offer, the variety of assets and their banking procedures; most notably their withdrawals process.
These are the basics of Binary Options. There are plenty of areas that need covering – most notably choosing a strategy that works for you. Now that you have the bases covered and have a good idea what exactly is binary options trading, it’s time to learn and practice a strategy or two. You can view any number of binary options strategies online. The important thing is to try them out on a free demo account. Only when you are ready and have a grasp of money and risk management is it recommended to begin what could well be a long and profitable binary options career.