Trading professionals have purposely created technical sounding financial jargon to intimidate the amateur trader. When you strip it all away, you are left with binary options, something anybody can trade simply by answering a yes or no question.
What are binary options and how can I trade them?
Earning money online through trading is not really that complicated. In fact, the technical jargon used by financial professionals is made purposely complicated to confuse people into thinking they need help. If people realized they can trade on their own from home, the professional would be out of a job :). The reality is, trading online is as simple as yes or no. Do you want to trade? Yes or No? Do you want to take the time to learn how to interpret whether stocks, currencies and other commodities will go up or down in value? Yes or No?
The simplicity of the yes or no question is the foundation upon which binary trading is built. If you answered yes to the two questions I posed in the previously, it may be worth your while to review binary options as a viable alternative to traditional vanilla options.
As I mentioned, binary options are built on a simple proposition, will the price of an asset (stock, index, currency pair, commodity go up? Or, will it go down? It is as simple as that. If you think the price trend of the asset will go up, you can purchase a CALL option. If you think the price of the underlying asset will go down, you can purchase a PUT option.
I’ll give you a real life example. Let’s say the S&P 500 Index (The S&P 500 is an index of 500 stocks which is used to gauge the health of US equities.) is trading at 2,021.86 and based on a combination of your fundamental and technical analysis, you forecast the index will trend down. All you do is purchase a PUT option for a specific timeframe. If your analysis is accurate and the trade expires in the money, you can earn a nice return on the money you put down on the trade.
For more introductory information try checking out this guide.
Which platform should I use?
The underlying concept of binary options is simple, as I discussed in the previous section. The next logical question you are probably asking is “If it is so simple where can I trade?” The answer to this question requires a bit more research.
The internet is awash with brokers that offer trading platforms. Most of them provide different benefits to account holders, so the most important thing you need to decide, before beginning to find the right broker, is decide on your trading goals. Your trading goals can be constructed from your level of risk aversion, the amount of money you are looking to generate and in what time frame. Really, all you need to do is ask yourself – what are you trying to gain from trading? Once you have the answer to this question, finding the right broker will be much easier.
There are a couple of key factors you should look for in every broker:
1. Make sure the broker is regulated – The Internet can be a scary place. This is especially true in the world of finance, a world you want to enter. To make sure you are sufficiently protected, verify that the broker is regulated by a competent, internationally recognized financial regulatory authority.
2. Make sure the broker offers a demo account – Demo accounts are invaluable to novice traders as well as to experienced traders. With a demo account you will be able to trade on real market data using imaginary money. Utilize this opportunity to familiarize yourself with the platform and perfect trading strategies all with no risk.
3. Make sure the broker offers bonuses – From welcome bonuses for signing up to bonuses for additional deposits, brokers offer all sorts of benefits to account holders. Use these offers to your advantage!
What instruments are available to trade?
Once you’ve settled on a few brokers that offer services that help you meet your trading goals, now is the time to investigate each broker a little deeper. It is important that the broker you choose offers a wide portfolio of trading instruments for you to choose from. Having many different trading instruments will allow you to look across markets for the best setup to make a winning trade. In trading, patience is a virtue, having access to 10’s or even 100’s of instruments means you can be a little less patient between trades :).
You can find many online resources that clearly explain what trading instruments are as well as the pros and cons for each. In general, the financial instruments you’ll find on binary platforms are international stocks, indexes, currency pairs, and commodities.
How do I know if the market trend will go up or down?
If you’ve gotten this far in the article, you most likely answered ‘yes’ when I asked if you want to learn how to interpret the market. Market analysis can be largely broken down into two categories: Fundamental Analysis and Technical Analysis. Both methods are important to understanding price movements. In fact, the top traders generally use both when making decisions about market sentiment.
Fundamental analysis uses information surrounding the markets to help inform your analysis. Everything from a company’s annual financial statement, to a speech from a government official, to an environmental report can be useful in deciding people’s behaviour and how they react to the market. Unlike Fundamental analysis, Technical analysis uses only the actual market data to inform analysis. This data is often displayed on a chart as a naked chart or with indicators such as bollinger bands which help make the process of analysis easier.
Because of the short time frames that you will ultimately trade within binary options, it is important that you feel comfortable with technical analysis to make the right decision quickly. I would recommend you take the time to really learn the ins and outs of technical analysis using a demo account on your favorite platform to test your knowledge in real life situations. Learning tools are readily available for you across the web. Most sites that focus on trading, as well as brokers, will offer educational areas, which have libraries of information on technical analysis and fundamental analysis.
About the Author
Jack Knorler – 6 years in financial trading. 5 years in binary options. Graduated in Birmingham. My passion is online financial investments being a pioneer in new trading methodologies