Initially introduced in America in 2008, binary options trading has fast garnered popularity among a diverse group of investors, from those who are just making their foray into investing to seasoned players looking for a way to diversify their portfolios.
But what is binary options trading?
Essentially, binary options trading is making a prediction about the direction an asset will take. That asset may be a currency pair, a stock, index or commodity. Another important feature of binary options trading is the expiry date. That expiry can range from as short as a minute up to a day’s length. In binary options trading, an investor does not buy an asset. Instead, he or she only has to predict whether the value of an asset will go up or down within the expiry period.
Here’s a brief glimpse of how trading works. First, you choose an asset that you would want to trade. After choosing an asset, you will have to make a decision whether to make a Call, which means that you are predicting an increase in the asset’s value, or a Put if you think that the asset’s value will go down. Afterwards, you will need to set the amount you want to invest and then wait if your prediction is correct. Profits from a trade can range somewhere between 60 to 95 percent.
Numerous investors have been attracted to binary options trading for several reasons — first, because of its simplicity. Unlike other investment platforms which practically require specialist knowledge, in binary options trading, almost anyone can learn the underlying concepts and begin trading in a short span of time. Another benefit of trading binary options is the low barrier of entry. Unlike buying and trading assets, an individual can invest in binary options without having a huge capital. Because of the short expiry periods, an investor can immediately reap the rewards of a successful trade.
Although there are minimal risks in binary options trading, there are a few pitfalls that new traders should avoid. First, binary options trading is a form of investment. And just like any investment, traders must first have a thorough understanding of how this investment platform works. Second, rookie traders make the mistake of thinking that trading binary options is similar to gambling due to the thrill and excitement of winning streaks. In turn, this can lead to poor investment decisions.
In order to reap the benefits of binary options trading for the long term, it is crucial to learn and understand its concepts and find suitable strategies. Traders should also learn how to keep their emotions in check to prevent making haphazard decisions. This will involve knowing when to call it a day and stop making trades instead of waiting for the breaks to reverse in their favor.