If there are new investors who are not hesitant to do a trading activity, it is all because of binary options trading.
Binary options trading has been around for some time and known for its simplicity as compared to all other investment systems.
Its simplicity is characterized by making a prediction for the price of the underlying asset at a certain time.
If it is above, you have to buy the option.
Otherwise, you have to sell the option.
In review, this type of trading system is focused only on two operating factors, the call, and the put options that are placed along with expiry dates.
What seems simple is not simple at all.
That’s why it is also called as “all or nothing” investment program.
For this reason, it has earned controversial issues that adversely affected the confidence of less experienced traders.
If you search the internet, you will stumble on articles and blogs that denounce the reliability and legality of binary options trading.
However, in this article, you will be prompted with important facts about binary options trading and the recommended methods such as the fundamental analysis combined with some techniques.
So, let’s get started.
Let’s tap the surrounding facts about this investment program and make your own assessment as to whether you should join the group of binary options’ traders from the different parts of the globe.
Or, just stay away.
How Reliable Is the Binary Options Trading?
Despite the ongoing controversial issues about binary options trading, many people are still joining this trading system.
In fact, it has picked its pace and popularity across the globe.
The most probable cause is its simple feature that is quite accessible both for the newbies and experienced traders.
Simplicity has a real catch to the heart because human instinct is not into complexity.
If you will join in binary options trading, you can start as low as $10 investment.
So, the risk is minimal.
In case you are still hesitant, you can use the demo account on the dashboard to learn and enhance your trading skills.
These are few of the simple features it has possessed making it a booming industry.
However, to make a profitable trade in this program is not absolutely all about prediction, but rather a challenge of making your prediction right.
You have the responsibility to make a proper evaluation of the movement of the market.
The rise and fall of the price require some forms of expert analysis by using reliable tools and software.
Otherwise, your trading in the binary options becomes a gamble which happened to those who are in haste to make profits.
And to materialize the legit way of trading, you have to use a reputable broker which is governed by an external regulating body.
There is a dual jurisdiction for binary options trading in the aspect of regulation.
It can be either regulated by financial regulating bodies or gaming institutions.
But the main point is the trustworthiness of the country that regulates the broker for this type of trading.
1. Binary Options Trading Requires Reliable Broker
Finding a reliable broker is a must because you’ll be needing reliable trading platforms and tools to earn profits.
But one thing to keep in mind, brokers offer different assets, trading modes, and payouts.
Therefore, be able to identify what suits your needs before you open an account and start investing or making deposits.
Precisely, be aware that scammers do exist.
Conduct a detailed investigation and gather as many information as you can.
Find out if your prospective broker is complying the regulations designated by the independent body regarding trading business.
Verifying its reliability saves your investment, time, and energy.
Do not fall into the hands of scam brokers.
Scam Brokers’ Performances
- They are dodging phone calls. Communication lines are unstable but they insist on using phone calls if there is any inquiries or assistance needed. If they entertain you, there is no in-depth assistance which is a clear sign of scamming you.
- They demand phone calls and won’t entertain you via emails or chat board as their another tactic.
- There is an innocuous demand for faxing or mailing to them your identity proof which is viable for identity theft before you can withdraw your investments.
- Noticeable technical problems in the time expiry. Some expire earlier or later than what is supposed to be for the purpose of gearing you towards losses.
- Unrealistic high withdrawal threshold making it hard to take your investment and winnings.
2. How Does the Binary Options Trading Work?
Binary options trading works in the simplest way.
It is all about making the right prediction of the price of the underlying asset in the market.
Using the call and put options, you can place your bet and set your preferred expiry date.
Being an all-or-nothing trading system, risk only an investment that you can afford to lose.
Here are the few terms to learn prior to engaging yourself in binary options trading.
Using the reliable broker, you have to choose an asset.
It can be focused on one or more simultaneously, it all depends on you.
Assets can be stocks, commodities, FOREX, and indices.
One thing to keep in mind, before you invest in any of these assets, you should have placed already your risk management plan.
– Types of Trades
Binary options trading platforms have different types of trades offered. You can choose any of the following:
- Above/Below- refers to a correct prediction (in-the-money), above or below the predetermined strike price at the expiration date.
- Touch option- it is an investment that expires in-the-money- at the expiration date which the price of the underlying asset touches the predetermined barrier. It is also divided into two, the “Touch up” if you are certain that the price of the underlying asset touches the high strike price. And, the other one is called “Touch down” which is obviously referring to the price of the underlying asset that touches the low strike price at the expiration.
- Range- relates to the predetermined upper and lower boundary. You are going to predict if the price of the underlying asset stays or go out of the predetermined range at the expiry date. The volatility of the price is what you are going to monitor. In the event that you find it high, you will choose an “Out” of range option. Whereas if you find it not volatile, you place your bet on the “In” the range of option.
- Closed – allows you to sell your option before the expiration if you think it is not performing as planned.
- Extend- allows you to extend the expiration date to increase your chances to be in-the-money.
3. The Pros and Cons of Binary Options Trading
– The Pros
- There is a manageable risk because the return on investment (ROI) is fixed which apparently gives insights into the potential profits or loss. As its return is relatively high and the time frame is short, it makes your trading gains the huge edge.
- Low-time-trading which can be hourly, by minutes, daily, or you can choose weekly or monthly expiry dates.
- Very low initial investment. You can begin trading with as low as $10 or $20. You can freely pick up the amount of your investment as you go along with the trading activities.
- Online accessibility. You can trade using online trading platforms. Just log-in and proceed to the dashboard on your profile page.
- There is simplicity that you only have to make a prediction about the price of the underlying asset in the market if it going upward or downward. But of course, your prediction has to be correct.
– The Cons:
The main culprit in binary options trading is the fee that you are going to pay to the broker.
It has a relatively higher fee embedded in its business model as compared to all other investment programs.
When your trade is in-the-money, you are paid only from 70% to 85% while in the out-of-the-money, you receive only a few percent as the refund to your principal.
It is therefore highly recommended to practice conservative investment strategy to minimize losses.
Risk only the amount that you can afford to lose and if possible adopt diversification.
Don’t put all your eggs in one basket.
Have self-control and never expect big profits at the beginning of your trading activity.
Discipline your emotion and limit your investment to not more than 5% of your overall budget for the trade.
Relevant Methods to Successfully Make Money in Binary Options Trading
As an investor, your main goal is to make profits.
To achieve this purpose, see the following methods shown hereof to enjoy the advantages in trading.
1. Charting Method
Charts give insights about the course of the price of the underlying asset and its future movement.
In this area, you have to be adept at technical analysis.
This may sound a daunting task but it is not!
You only have to look for the basic hints, the support, and resistance levels.
Charting is useful for predicting the trending asset and in a moderately volatile market.
You can do this by looking the average movement of the price over ten days.
You can also adopt relative strength index (RSI) to better analyze the charts.
RSI shows the overbought or oversold market which warns the potential reversal trend.
It is computed by getting the total points gained during up days, divided by the total points lost, multiplied by 100.
Find charting service or software to successfully do this task and make profits in the process.
Look for these following features as follows:
- Market Data Coverage
- Variety of Indicators (ex. bar charts, Japanese candlesticks, point-and-figure charting, MACD, RSI, and Moving Averages, and others).
- Reasonable rates. Don’t buy or pay just any charting service or software. Make a diligent research for a quality one.
- User-friendly platform
- Reputable provider
2. Using Signals Provider
The simplicity of binary options trading is not what it seems to be.
After all, why would you hire for the signal service provider to ensure profit from the trade?
The “signals” are the vital part of a successful trading.
They are achieved as soon as there have been fundamental and technical analyses being done.
Signals provide assurance that your prediction for the price of the underlying asset in the market will be in-the-money.
They can be availed in different platforms such as email, or voice mail or something else that your chosen provider has to offer.
This method saves time, money, and energy as you will be only waiting for alerts as to when to execute the trade.
However, the accuracy of signals sent to you will not always make you profits as they need to be acted upon as soon as possible or, within the contract’s time.
Find reliable signals service provider by going to review sites.
Choose a reputable with reasonable cost and can exactly fit your needs
This strategy refers to the two stocks that are most likely in the same industry and are having the higher correlation.
Both are affected by several factors in the same way.
In this concern, you have to identify the gap between them caused by the weakening of the other similar stock.
In the event that the stock is weak, you have to buy the call option.
Or, buy the put option if the stock higher in price is soon to get low.
In this way, these two assets will take a correlated path which should be a “point of exit”.
4. Fundamental Analysis
This is perhaps the most tedious job as you are going to analyze the overall attributes and performance of the company.
You will be eyeing the health of the balance sheet, cash flow, and income statements.
Also, you have to monitor the satisfaction level of the business partners and employees.
Unlike the technical analysis which is focused more on the number, this method is into the quality performance of the asset or company.
In view of this fact, many of the investors base their decisions on fundamental analysis.
Furthermore, this method is extensive in scope as you will be also monitoring the global economic status by reading global news reports.
In addition, you must be updated with the following:
- Political impact
- Interests rates
- Financial policies
Fundamental analysis uses proper evaluation of the internal and external factors to gauge the movement of the price of the underlying assets.
Indeed, it is a critical part of the trading because of their direct link to the supply and demand.
The supply and demand influence the asset’s price in the market.
The Best Fundamental Analytical Techniques
1. Using the News Reports
News report affects the market’s sentiments which move the market.
To benefit from the news reports, you have to focus on the economic calendar and other factors which play the relevant influence on the behavior of your chosen asset(s).
The economic calendar must be thorough and comprehensive in details.
Look for the high-volatility indicators that are usually affected by world’s top economies.
Gather data from them because they have a huge impact on the currency movements.
The data might come from the following:
- Unemployment numbers
- GDP growth rate
- Inflation issues
- Consumers’ sentiments
- Industrial production
- Retail Sales
2. Finding Out the Profitability Ratios of the Company
Understanding the ratios of company’s profitability will help you size up its performance.
You can use the past data as your viable benchmark to establish a hypothesis of whether its profitability will increase or not.
Then, check out the Return on Equity (ROE) through its shareholders’ equity.
ROE is computed by dividing the net income by the average shareholder’s equity.
The shareholder’s equity is equaled to the total assets of the company minus its total liabilities.
However, ROE is not completely accurate as there are surrounding factors to consider also.
Nevertheless, it is a good technique to facilitate fundamental analysis.
3. Combining Technical Factors
The truth is, the main players in the market’s movement are the buyers and sellers.
Whatever deals they come up or agreed together, influence the price trends.
If there is a large pool of sellers but less number of motivated buyers, the price tends to go down.
Oftentimes, bargain sales take place also.
However, if the motivated buyers are higher in number than the sellers, the price goes up regardless of pessimistic news reports.
Thus, it is also important to combine fundamental and technical analyses to arrive at a better insight.
Say, for example, in the news there is an oversupply of the oil.
Expectedly, the price will go low but to identify the potential risks, you must have the “entry and exit” trading strategies through the technical analysis.
Trading and investment programs have their own associated risks.
As simple as the binary options, still, you’ve got to be wise.
The same rule of the thumb applies, “risk what you can afford to lose only”.
And to prepare yourself for the potential loss, exercise diversification strategy.
It will save your breath when things go wrong.
Nevertheless, strive to be a better trader by learning objectively from the experiences.