When it comes to learning how to trade binary options, risk-averters need not apply. Binary options have earned their title due to the trade’s nature of only having two possible outcomes: either the option makes the trader money, or it doesn’t. Learning how to trade binary options boils down to this fundamental concept; the rest of the details can easily be picked up as the trader starts working with the options.
Every binary option comes with a short-term maturity date, after which the value of the option is measured. If the binary option meets or exceeds the value that the trader called it at, the trader gets a pay-off; if the value has sunk below the call option, the investor gets nothing. This all-or-nothing approach to binary options is exactly why risk-taking traders and brokers thrive on this trade; for a single payment, a trader could end up making quadruple the binary option’s value.
In the world of binary options, the payoff can be broken down into one of two categories: either the trader receives a cash payout, or the trader receives an asset, which is usually in the form of the option’s underlying security.
Not sure what all of this means? Let’s say that you’re a binary options trader who’s looking to buy a cash-all-or-nothing contract. At 12 pm, you buy 10 call options at $40 each, with the belief that a strike price (the fixed price of the option) will close at EUR/USD 3.25 at 5 pm. If 5 PM rolls around with the strike price at or above 3.25, you will make a profit of $600. If, however, the price falls below the predicted strike price, you will lose all of your original investment ($500).
If you want to learn how to trade binary options – and trade them successfully! – then follow these quick-fire tips below:
-Work with a specialized binary options broker who understands how the market works. Like with any market trading, you don’t want to start sinking your money into risky investments without understanding what you’re doing. A broker or someone equally as knowledgeable will guide you through the process, which will ensure that your money remains where it belongs – in your pocket.
-Break down how much time you have to devote to learning how to trade binary options. Binary options are usually traded over the short term, which expiration dates ranging from five minutes to the end of the day. If you’re just starting out in the world of binary options, select the shorter expiration dates, as this will help you get a feel for the market without having to analyze long-term market chatter.
-Finally, select which type of binary options payoff you’d like to receive: cash or assets. If you’re just starting out, opt to receive a cash payoff. Once you’re more comfortable with the binary options market, you can start trading options with lucrative underlying securities.
Learning how to trade binary options isn’t difficult; in fact, once you get the hang of it, you could make it a full-time – and extremely profitable – career.
