Binary options for dummies

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Binary options provide a method of profiting from the movement in value of different stocks, shares, assets and commodities. They are estimates of the way an asset will perform over a specific amount of time. In this article we will explain binary option step by step for dummies.

What are binary options?

In the case of regular investments the trader is buying the asset they have chosen to invest in, the profit they make is determined by how the asset performs, be it stocks or shares. In this scenario when the value of an asset increases the buyer can make a profit if they sell it on at the right time, but if it’s sold on to the market when its value has fallen, they make a loss. Binary options are different in a number of ways, primarily because they are a more simple way of investing in the markets. Both the risk and the potential reward are fixed, so traders are aware of every possibility before choosing to spend their cash.

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Fig. BDSwiss trading platform

Binary options are so named because they are a ‘one or the other’ type of choice, just like an on/off switch or an up/down lever. In computing language binary refers to a 0 or a 1, another ‘one or the other’ choice. As a trader you need to ascertain whether a specific asset, be it a currency, a commodity or a stock, is going to rise or fall in value over a set period of time. The prediction you make could be compared to a bet. Before the transaction takes place you will be made aware of how much money you will make if you predict correctly. If you get it wrong you lose the money you wagered. For people who get it right they win back not only their original money, but a return. Values vary but most returns are between 70% and 85% of the original amount.

How do binary options work?

Here’s an example of a binary option trade. As the trader you predict the price of Brent Crude Oil will rise from its current price of 48.61 USD (United States Dollar) within the hour. Looking for the best trade you find one that offers a return of 80%, so you choose to place a $100 investment on the idea. When the binary option contract closes it is immediately pronounced as a win (in the money) or a loss (out of the money). Let’s say you were successful and Brent Crude Oil went up, you get the $100 back, plus a return of 80%, that’s $80, in total $180 - regardless of how much the price of the commodity rose.

How can I trade in binary options?

bdswiss appTo begin trading carry out some research into the best regulated binary options brokers, look for ones with good reviews and those offering the most generous payouts. Once you’ve decided which one to go for, take a look around their website to ensure their trading platform is straight forward and makes sense to you. Executing a trade should be as easy as choosing an asset, selecting how much you’d like to risk, clicking the up or down option and finally pressing the ‘trade now’ button.

Most brokers offer four types of binary options, high/low is the most common and it asks you to judge whether the price of an asset will rise or fall. The three others are slightly more complex. One Touch options pay out if an asset reaches a certain price at any point within a timeframe. Boundary options ask traders to judge a whether a price will enter a specific range, and lastly, the 60 Seconds trade is just like the classic high/low option, but set within a 60 second timeframe.

On most broker platforms, you start by clicking on an option and opening a trading window. Prices will be displayed clearly and often the latest financial news will be visible in a side or top bar. These elements are designed to help you make clever trading decisions in a short space of time.

What are the requirements to trade in binary options?

To start trading, find the right broker and then open an online account with them. Once you’ve registered most will ask you to make a deposit of around $ / EUR / GBP 250 - even if the company is based in the Europe, UK, USD are a commonly used currency. Once the transfer of funds is complete, you are free to start trading.

What are the pros and the cons of binary trading?

Like any form of gambling, binary trading can present you with great wins but also significant losses. However, the risk is clear and upfront; you will never lose more than you placed on a trade. Similarly, unlike with Forex trading, you cannot be affected by leverage. The return is also transparent and easy to understand, whether you win by 0.1 USD or 100 USD you’ll receive the same reward. There are also no hidden costs and no previous financial experience is needed to win a sizable payout.

For some people the simplicity of binary options is a drawback, everything comes down to a yes or no choice and it can seem as if little expertise is involved. Also, you never obtain ownership of the assets you trade on, you just make predictions about their future value.

Should I try binary options?

Anyone can begin trading in binary options and have a chance of making money. However, to make it profitable in the long run it’s important to work on your strategy and think about ways to lessen your risk. Read the latest tips on trading websites and gain a deeper understanding of the markets in specialist newspapers like the Financial Times, to be a better judge of price action.

 

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