Binary Options 101

We get hundreds of enquiries on a daily basis from people looking to make some extra money or to replace their current income by becoming a trader. Some have had trading experience without much success, and others have no experience whatsoever. Many of them have never heard of binary options, so for those who are wondering how binary options trading works, read on….

Experiencing success in trading digital or binary options— or in any other business endeavour — relies quite heavily on just how well you understand the basics of the system. Expert traders will say that trading binary options is really very simple, and although this is very true, there are still plenty of things you will need to learn before you can confidently and successfully make a trade.

Put simply, binary options, when traded, yield a predetermined payout or nothing at all. These short-term investments involve speculation on the direction that the chosen asset’s value will take within a particular time-frame.

As the name suggests, binary options give traders two possibilities to choose from: either the value will rise at the expiration of the trade or it will fall. If you make a correct assumption as to the asset’s future value, you will then collect the profit. If not, you will lose the entire investment on that option and collect nothing. This payout system is the reason behind binary options’ other common name: all-or-nothing options.

There are a few things that our aspiring traders must understand so that they can confidently engage in binary options trading.

The first is to know exactly what kind of option is being traded. Assets that we generally trade in this system include foreign exchange, indices and commodities, to name a few. It’s important to know what kind of option is being traded as there are different factors that can influence their values. (Although we give you every assistance there).

In addition, traders new to binary options should also understand how these options must be traded. As I mentioned earlier, there are two possible outcomes at the end of a trade: the asset will either rise in value or drop. These two outcomes are called by different names in options trading.

If you expect an asset to rise in value, then you need to choose “call (or buy or ask) option”. On the other hand, if you expect that the asset will fall after at trade expiry, then you must choose “put (or sell or bid) option” instead. If you’re new to trading it’s easy to find this terminology quite confusing, so it’s important to get into your head the difference between “call option” and “put option.”

The last thing you need to understand is trade expiry. Expiry dates (or in most cases, times) are important because you can’t purchase an option without setting one. Binary options trading contracts can last for very short time periods — sometimes only minutes. You can set longer expiries, but the unpredictability of the market can be a drawback. Short-term trades can offer better security, since it’s easier to predict how the market will turn out and you are in the market for a minimal amount of time.

Let me show you an example.

You have received an alert telling you to look for a “put” trade on the USD/JPY in the zone between 80.20 and 80.32 – the following picture will show how that set-up will look on the Bet On Markets platform.

You have set up the trade expiry (for a 15 minute duration), your payout should you be successful will be $90. The cost of placing the trade (and the amount you risk losing if you are unsuccessful) is $47.86.

When you are ready to place your trade (after reviewing your charts and trade plan of course!) it is simply a matter of clicking the “falls” button.

Placing the trades couldn’t be easier, but knowing when to place them is a little bit more difficult and requires you to learn exactly what to do to maximise your chances of success. You need the strategy, an education and a plan.

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