Getting The Path As A Binary Options Trader
Hello again, dear traders!
Binary options are types of options where the traders operate (open or refrain from opening positions) for the value of a deposit while they are awaiting either the profit or the loss.
Therefore, operations with binary options are easy to understand – certainly easier than the other types of options.
Binary options, essentially, work as settlement contracts, because their execution occurs on the day of expiry of the specified time period. If, at the end of the transaction, they become an «option in money», the seller or the buyer is credited a certain amount, specified in advance, in U.S. dollars.
Upon the transformation of binary options into out of money options, all of the participants get nothing. So, this makes it relatively easy to estimate a level of risk and potential profit.
A full payment for the options of this type is being made, regardless of the absolute amount of the rise in prices, in comparison with the strike price of the option. There is another common name for binary options – «digital options». This is mainly used in the currency market.
1) You should explore two kinds of options:
A trader, working in this market, is obliged to predict the expected direction of the price movements of initial assets. Two platforms are «Call» and «Put».
A «put option» is a predicting of the decrease of the asset prices, while the «call option» is a predicting of the increase of the price. You don’t need to know the amount of movement from ordinary options.
It is enough to make the correct prediction whether the finishing price of an asset is below or above the strike price. Today everyone can trade in binary options.
2) You should determine your position:
You should estimate a current market situation regarding the chosen asset, predicting whether its price will rise or fall.
If you made a correct prediction, the crediting price of your contract will go into your deposit. The level of profitability, culminating in the profit of the transaction, is determined by brokers and always known in advance.
3) You should find your ways to determine the contract price:
The price of a particular contract reflects the market’s perception of the probability of occurrence of this event.
For example, at a price equal to one hundred dollars, with the latest trading positions equal to 96 dollars, we can say that 96 percent of participants in the market predict that the event will take place, and the contract will be «in the money».
4) You should define the advantage of operations with binary options:
Trading in binary options is simpler, because you just need to correctly predict the cap of the price movement from the initial one, chosen by the trader assets.
You should guess the volatility of the movement, for the regular options. Actually, the assets of the owners do not change, so the placement of «stop loss» and the changing of asset ownership is not a part of the process.
Binary options always provide the trader with knowledge of the risk and profits and their ratio; the indicators are known in advance at the time of purchase of the contract. The regular options have no rigid borders of risk or profit, so the losses can be of any volume.
When you work with binary options, it is available in all kinds of hedging strategies and trades that are used with traditional options. If you want to improve your accuracy of predictions concerning price movements, you should use technical and fundamental analysis.
Before you open a position, you should run a market analysis first. Making a decision about the increase or fall of the price of the chosen asset at a particular point of time, you need to consider a large number of factors. The risk of losing money increases substantially without analysis.
You should understand the interpretation of prices in binary options. The price at which it is traded reflects the chances of successful execution of the contract.
Before you make a final choice, you also should consider all of the service options that the brokers make available to you.
You must pay attention to the type of trading platform, terms of contracts, the standard of profitability, types of assets, and the availability and quality of educational materials. Any of the listed elements is essential to making a profit in the future.
You need to understand clearly that there is a strong relationship between profit and risk in operations with binary options. When the probability of successful execution of the option is lower, the profit is higher. A rational and experienced investor always estimates a new contract for these two parameters before he opens a position.
You should correctly identify the time for a proper exit from the position. Otherwise, you can suffer serious losses. The trader, using his intuition, usually acts quickly.
You can get maximum detailed information about your chosen capital asset. The financial indicators of binary options are removed from the capital asset.
You need to ensure that you have complete and accurate information on selected assets in the current market situation in the sector where the asset is traded before you start investing in binary options.
A payout of binary options is not proportional to the rate of execution of the contract, unlike a payout of traditional options. The successful trader becomes the owner of all of the fixed amount of profit, even at the end of «one tick».
The binary options assume contracts for a short period. There are markets in which contracts are completed many times during the day, while some contracts have an annual duration. There are also brokers that offer contracts with a half-minute duration. It expands the range of investment opportunities and flexibility, because markets have a temporal variability.
5) You need to make accurate calculation of your operating expenses:
The brokers of binary options don’t take commission for opening positions or any other commission.
You should decide what is the time period most suitable for your profit in operations with binary options.
Additionally, there are different conditions, for instance, a «strike price» for each of the parties of the transaction. If the differences are big enough, it is quite reasonable to assume that the movement of the capital assets is significantly different from the one assumed by the prediction of the seller.
The market is able to surpass this prediction in extreme situations, meaning that for the trader, the considerable transaction costs have fully or significantly «eaten up» all of his profit.
1) Upon trading binary options, you need to avoid the various «bonuses». The practice of such transactions demonstrates that the broker can completely block your finances until you receive profit in excess of the size of the particular lot of the amount of your contribution with the size of the «bonus».
2) You should remember that the discussed type of financial transactions is absolutely connected to a certain level of risk. You can’t get any guaranty that you definitely will earn any specific amount on binary options.