Trading Binary Options – Getting Started
Trading Binary Options – Getting Started
March 5, 2012Binary options are simple financial instruments traders can use to make money trading online within a short period of time. I will try to explain the basic concepts and initial terminology in binary options trading so hopefully this can help you derive insights and succeed.
Binary options are one of many financial instruments you can utilize to start trading online and make money. Binary options offer a plethora of financial assets from various categories you can select. In most cases you will notice trading on the indices (i.e NASDAQ, Dow Jones, NYSE & so on), commodities, currencies, and stocks. Also known as “digital options”, the guiding rule behind these two names is pretty much the same. Much the same way a binary code, that uses 2 binary digits (0 and 1 for example), in binary options trading you need to decide if you want to invest on “call option” or “put option”.
Put Option
If you predict a “Put Option”, then you believe the price of the underlying asset will fall in period of time that goes by between “strike time” and “expiration time”.
Call option
The meaning of “Call Option” is a prediction that the price of a certain asset will rise. This goes into effect when the strike time expires (strike time is when the option is purchased) and the option expiry time.
When you trading binary options online you have a few core decisions that need to guide your decision-making process:
1. How to Choose the Right Asset – Today’s binary options websites offer traders a variety of assets they could purchase, some of these assets have a strong media presence such as google or apple stock. Usually they show up first on the financial tickers and trading news bars news on the bigger financial news sites like FT.com and Bloomberg, less known assets are also being offered to traders, however the lack of available information and transparency in figures creates a higher risk factor.
You might want to start trading with more well-known stocks. There is never a guarantee of success but when you have a lot of volume on specific stocks the transparency levels have to be higher because of the auditing mechanisms that are out there. Nobody wants to be the next Enron and deal with similar outcomes.
2. Expiration Time – usually you will find 2 expiration times for every option – the first is an hourly expiration and the second is the daily expiration time. The daily expiration ends when the trading day ends. The hourly expiration ends an hour after the strike time.
3. Amount of Money to Investment – Binary options websites advertise an 81% profit for option expiring “in the money”. This type of return on investment is considered to be a massive payoff when compared to Forex options trading (foreign exchange), or other more traditional financial instruments, however the risk levels are considered higher as well.
As recommended in all cases, when it comes to money my motto is “Start Slowly”. Seasoned traders as well as novices need to get a feel for the trading environment and how they interact with the software. Everyone can click on the wrong button by mistake or miscalculate – especially on a new site. So lets start modestly and minimize the risk factor until your level of confidence increase and you feel more comfortable investing and trading in larger volumes to get a higher turnover rate.
To sum up, just like everything else in life the key is knowledge and getting access to the most relevant information in order to make the right decisions. The more you information you have about the underlying asset, the better your chances are to understand what direction you need to put your money on. Finally – and this is probably the most important. You just need to predict if the asset price will go upwards or go take a dip, the amounts of change have absolutely no influence on the final result as long as it you predict the right direction.
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