Binary options are quite different from regular trade options. While regular options give you the right to sell or buy underlying assets at a certain price, binary options only give you a fixed return if the asset sells at a lower or higher price. The core of binary options trading is making predictions on the future price of an underlying asset. The prediction can only be for an upward or downward movement in price, even if it is by a few cents. When you pay for a binary options contract, you are agreeing to receive a percentage (usually between 65% and 81%) or lose the same percentage if your prediction is wrong.
Given that the entire outcome of the trade depends on you, the trader, you must know how to influence a win, in this case an in-the-money deal. An in the money result happens when your prediction is right, earning you a payout. Some knowledge on market trends and a few tips will help you trade better and increase your gains in binary options. The first thing you should do before making a go at binary options is learning as much as possible about the method of trading. There are many online tools that one can use to increase their knowledge of binary options. Choose a simple course or tool whose teaching guide uses plenty of visual aids.
Second, begin by opening a demo account. Most binary options brokers give access to demo accounts, which hasten the learning process for the new trader. A demo will enable you keep track of changes in the binary in real time, without risking losing money. It is a great way to learn strategies, know how the trade works and learn the best approaches to take. When you are finally confident of your demo skills, you can make a go at trading with real currency.
The demo account is largely tied to the kind of broker you use. A good broker should be able to provide a good platform in which to trade. In addition to user friendly navigation tools, they should provide customer support, helping you where you are stuck. Choose a broker who has been in the business for a while and has a proven track record. Brokers dealing in binary options tend to specialize in this method alone and so are able to provide the best instruments and terms of trade.
It will pay to understand how the market works. Do not attempt to try your hand in binary options trading just because everybody else is doing it. Take the time to study what is required, know all the rules and regulations, find out what factors are likely to affect the value of the asset and any other important detail that would have an effect on the outcome of your prediction.
Know when to enter or exit the market. This is very crucial for the person who wants to make money. Just like the stock market has seasons, this too has its good and bad timings. To get to the stage where you can correctly predict the movement of asset prices, you will need to dedicate a lot of time to learning about the market. If you are using a good broker, this will be easy as they will provide all the advice and technology needed to give you in depth information. Charts and graphs that you can interpret and a history of market performance are just some of the tools that can help you know what the best times to buy into the market are.
Take advantage of stop loss strategies. The stop loss is used widely across all financial platforms as a way of minimizing loss for investors. Each market tool has its own unique stop loss terms. Understand what the terms are for the tool you choose to trade in so you can use it to your advantage at the right time. The market you are trading in will also determine the type of trade loss used. Average markets tend to have tougher stop loss strategies than volatile ones so if you are buying a contract for one such market, you must understand perfectly well how the market operates and how to make the right timing to invoke a stop loss.
If you are new to binary options trading, you may find that you have a very low level of risk tolerance. In this case, you will need to invoke the stop loss to protect yourself from high losses. As you gain experience, you will gradually adopt strategies to minimize your risk of loss. At this stage you will find that you no longer require stop loss strategies as much as you previously did.
If possible, buy options in a market that you are somewhat familiar with. This will reduce the likelihood of making the wrong predictions as you already know the market pattern and what to expect. If you have invested in the commodities market before, you might want to consider starting your binary options trade with a contract in the commodities as opposed to one in the forex market. You are likely to have more confidence in your prediction/decision when you choose a market that you are familiar with.
Again, stick to the less volatile markets, those whose performance is rather predictable. With these markets, you will in most cases know how certain happenings in the market affect the value of the asset.