Binary Option Example

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Signing-up with a broker and placing your first trade can be very intimidating. Hopefully you already have experience with a demo account and are now thinking about making a deposit into a live account—it’s natural to think that demo accounts and live accounts aren’t much different, but this couldn’t be further from the truth.

Reading an example of a binary options trade should help to put your mind at ease and enable you to place your first trade without worry. Throughout this article we’ll tell you why examples are important, we’ll provide you with an example of a EUR/USD trade, and discuss the importance of a demo account.

Here's Why Examples Are Important

When new traders start with binary options, you’ll often find that they don’t do enough analysis before placing a trade; they rush into the trade and this can often result in them overlooking the whole trading process—which just amplifies the problem.

Trading examples are important for traders because they allow for a much calmer learning environment; the trader’s capital isn’t at risk but he/she is still able to go through the trade in their own head. Ultimately, this leads to much better results.

An Example of a Binary Options Trade with EUR/USD

The current price of EUR/USD is 1.0871, and our trader believes that the price is going to be higher in the next 24 hours because of the Retail Trade figures set to release at 10:00 AM (GMT) tomorrow.

Our trader then buys 10 “call options”, set to expire at 10:20 AM (GMT) tomorrow, meaning that he will receive a return on his investment if the price of EUR/USD is higher than 1.0871 at the time of expiry.

The risk is known by the trader before he opens the trade, each call option has cost him €20 so his initial investment is €200 and this is also the amount that he has at risk. The profit is also known by the trader before the trade is opened, in this example our trader will receive €500 if the trade is successful, which equals a profit of €300.

The Retail Trade figures come in better than expected and the price of EUR/USD is 1.0952 at the time of expiry. The trader receives his initial investment of €200 back, plus €300 profit.

The Importance of a Demo Account

Hopefully you know have a much better understanding of binary options and how the trade process works. Even though this is going to be beneficial for you when it comes to trading, by far the best thing you could do is sign-up for a demo account and create your own examples.

A demo account is a risk-free alternative to trading with a live account i.e. with real money that you have deposited. This makes them ideal if you plan to gain some experience or want to try a new trading strategy before making any sort of financial commitment.

Closing Notes

As we have discussed above, one very common problem with new traders is that they rush into a trade; this means that they don’t take the time to do the necessary amount of analysis, they often overlook the trading process, and they put their money at risk every time they open a trade.

You can overcome this problem simply by following the advice and guidance given above. Make sure to read through the example so that you understand the trading process, it’s more important than you might think.