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Though relatively new to the financial markets, binary trading has grown in popularity since its introduction in 2008. For someone new to the market, the fast and exciting pace that sets binary trading apart from other forms of trading can get overwhelming. Fast doesn’t always mean effective, after all. It does have a lot to offer to someone who’s new or someone changing their venue, if they know what they’re doing.
How does it work, and how do you make money?
Binary options, as the name implies, is a financial instrument that revolves around two options. Either a yes or no, or an up or down. It’s an all or nothing kind of deal where you can either gain money or not at all, without a middle ground to land on to cut your losses. Binary allows investors to predict whether a certain item will go up or down in value based on the trends. You can do this with a number of items, a few examples being the price of Bitcoin, the foreign exchange rate, or even the price of gold.
Once you’ve figured out whether the price of something goes up or down, your broker will give you a percentage of the amount you would have gotten before you officially commit your money to the trade. Afterwards, you put in the amount of money you’re willing to risk, the timeframe for the expected growth, and then you can execute the trade. You then wait to see if your assumptions are correct, and if they are, you gain a profit. If not, then you lose money. It’s easy to understand but can be difficult to get used to.
Compared to other ways of trading, binary has a lot of information on hand for you to work with that can tell you how your trade will conclude. If you know what to look out for, it’s easy to predict how the value of your trade will go and make the right kinds of decisions.
Types of Options
There are different types of options in the binary trade, with the “up and down” trade being the most common. There are other types too, but the premise remains the same. You choose between two outcomes. Here’s a few examples of binary option types:
High/Low or Up/Down Option – One of the common binary options available, you basically make the decision depending on whether a certain item’s value goes up or down.
Range or Boundary Option – Traders using this option basically predict whether the price of an item will go within a certain level or it won’t.
Touch or No Touch – More commonly used for the foreign currency exchange, investors basically set levels for their predictions. They will need to predict whether the value of something “touches” those levels within a set timeframe or not. Unlike the other options, this one does have a middle ground somewhat, where even if an item hasn’t “touched” the levels set by the investor, they can payout immediately if they feel that they’ve set their expectations too high midway through the trade.
Figuring out which of these options work best for you is ultimately down to what your goals are and what you need to do. You’ll have to consider the amount of money you’re willing to risk, and the set timeframe you’re willing to work with, which we’ll be talking about next.
How Long Does a Single Trade Last?
It’s important to keep in mind that some trades have strict timelines you need to pay attention to. You can choose to work in the set timeframe that works best for you or your financial abilities. You can initiate a trade for 60 seconds, 5 minutes, 10 minutes, to an hour, daily or even monthly if you don’t mind waiting.
Before you commit to a trade, the expiry time is quite flexible. Once you do start, however, you’ll just need to sit back and wait for the results. This is what makes binary option trading the basics different, because you can’t simply sell off your purchases at any time you want, unless you’re using the Touch/No Touch binary.
How to Start Trading
Before you can begin, you’ll first need to find a regulated broker that best suits your needs. You then deposit your money via credit card or wire transfer, though we wouldn’t suggest using credit cards because you might not be able to get a return and will have a hard time paying your bill off. It’s also a good idea to only use money you can afford to lose. Never use money that you’ll need for your daily life.
The diversity of assets you can trade in varies greatly between brokers, and you can choose the one that best suits your needs. A lot of brokers offer options on popular assets such as major foreign exchange pairs like the USD/GBP, USD/JPY and the EUR/USD, as well as major stock indexes. Some also offer valuable commodities like gold and oil. Not all stocks are available for binary trading, but you can generally find one that offers the more popular options, such as Google and Apple.
After you’ve successfully created a trading account and put money in it, you can start trading. There are options where you can use demo accounts first, allowing you to practice trading without actually losing money. If you do succeed, you don’t gain money either. Once you’ve gotten the hang of it, you can start trading using real money with real risks. Formulating a good strategy before jumping into the real deal can help you in the long run, but don’t get bogged down by too much analysis. Binary trading revolves around fast decisions and fast trade, and usually has no place for the type of thinking that’s too methodical.
Final Thoughts
Though a lot of people may think of binary trading as similar to gambling, that’s is hardly the case. It can be overwhelming at first, but traders are usually given a lot of information to work with, taking a lot of the guesswork away. Because of the all or nothing attitude that revolves around this option, however, you’d want to do as much research as you can.
