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How to Trade Binary Options Profitably
Every trader is looking for the edge. Traders are always in the pursuit of ways to increase their trading profitability.
Many are of the view that there is a simple solution to their trading profitably. They think that they need to follow a simple strategy, method or use certain software that will lead to endless returns.
Unfortunately, nothing is that easy. Trading Binary Options is just like any other undertaking in life. In order to really well you have to devote some time, effort and have strong discipline.
Although there is no such magic formula, and it depends on individual circumstances, there are certain things that you can do to increase your chance of trading binary options profitably.
Set Realistic Goals
Too many people who get involved with Binary Options have completely unrealistic goals and expectations around what they can realistically achieve trading. They have a view that they merely have to place a few trades a day and their bank account will grow exponentially.
Indeed, this was probably as a result of the many binary option scams that seemed to litter the internet. It made many new traders think that they were invested in some sort of revolutionary product where the simple rules of risk and return did not apply.
In financial markets, the efficient market hypothesis states that markets are perfectly efficient. What this implies is that traders are rewarded more in profit for taking more risk. If there is a situation where the returns are not roughly equal to the risks, it would be quickly priced out of the market.
Moreover, psychologically having unrealistic return objectives can hamper effective trading decision making. For example, if you are “only” achieving 10% a month you may think that your performance is far from what is reasonable. You then start taking more risks and using really inefficient and dangerous strategies.
Therefore, you need to have the right goals and return objectives in place when you trade binary options. Even if you are “only” able to achieve 10% returns per month on your trading objectives this should be looked at positively. It is probably still better than the returns you can expect on the S&P 500 or FTSE 100.
Start from the Basics
Binary options are derivative instruments on other assets. This means that their value is derived from that of some underlying other asset such as equity or forex. Therefore, before you can actually trade binary options profitably, you have to have a basic understanding of what drives the underlying asset price and how to trade that.
This means that you will need to brush up on your knowledge of basic economic principles as well as how various factors impact on asset classes. What is the interest rate parity relationship and how will interest rate announcements move the Euro Dollar? How will the latest company earnings results impact on the share price of some of the largest companies?
This does not require an in depth analysis and Economics / Finance are vast disciplines that incorporate numerous different concepts that are not relevant. It is merely required that a binary options trader knows what could move the needle and impact on the price of the asset while they are trading.
You should also decide which asset class is the most interesting for yourself to trade. Stocks and Equities are more “traditional” as people have a fair idea of what the company does and there are usually a defined list of factors that will impact on the stock price. However, if you would like to trade out of hours or overnight, the Forex markets are nearly always open which could allow you to trade binary options after work.
It is also important for the trader to focus on a particular asset type and possibly even an individual asset. This is because traders who are able to specialise and zone in on only one asset are generally more proficient at it. If one trader is able to study everything there is to know about that asset then they can be much more profitable doing it. Although this may seem quite narrow for an open minded individual, the main goal is profitability and in trading one can’t really be a “jack of all trades”.
Understand Binary Options
Once you have an idea of which underlying asset you would like to trade and how it moves, you need to take the time to understand the basics of binary options. Traditional OTC (Over the Counter) binary options that are traded on Wall Street are indeed quite exotic and complicated instruments. There are a number of factors that goes into pricing these options.
However, in order to trade binary options profitably, the underlying theory behind it is not really required. However, knowing exactly how the payoff structures work as well as all of the inputs is essential. There are also a number of different binary option types that the trader can make use of at some brokers. Knowing how each of these are used combined with the strategies that we talk about below can really improve your profitability. There are numerous binary option education resources online for you to read up on.
Trade with a Strategy
This is where nearly all new traders’ profitability tends to take a knock. They just jump into trading binary options without having any strategy. Too many traders treat trading like gambling and merely enter and exit trades based on their feeling of whether the market will move in the direction that they have assumed. Although some traders may enjoy this type of trading, those who want to really be profitable need to be structured.
When it comes to developing a trading strategy, there is no one size fits all. Trading strategies are usually split into two different types. These are technical strategies and fundamental strategies. These are synonymous with technical and fundamental analysis which is the study of these strategies.
Fundamental analysis is the study of the underlying economic factors behind the asset. These fundamental factors are things like interest rates, GDP, inflation and balance of payments when looking at Forex. They are also such numbers as earnings, ratios and financial analysis when taking a look at stocks and equity. If you are the type of trader who likes to deeply analyse numbers and trade over the slightly longer term then you would be more interested in fundamental analysis.
Technical analysis is the study of charts, indicators and key price levels. It is based in the belief that trends follow the same pattern with regularity. Hence, they study different charts and learn to spot key resistance / support levels. This strategy is focused more on the short term and is used to a large degree by day traders. If you are interested in fast paced trading and have a keen eye for patterns then technical analysis could be of interest to you.
Of course, the best traders have an understanding of both and don’t trade only one strategy in isolation. You would need to have a vague understanding of how general fundamental numbers will drive the binary options that you may be trading with a technical based strategy.
Apart from the trading strategies, you also have to have an effective money management strategy. This strategy can really impact your Binary Options profitability. A trader cannot merely invest a continuous amount of funds when trading binary options. They would need to decide how much they should invest based on a number of factors. This is also where discipline comes in. Emotion can often lead a trader to invest more or less than they should which is based on factors which have nothing to do with the numbers, “fear” and “greed”.
Find the Right Broker
Where most traders see their profitability plummet is when they use an ineffective, or even worse, dishonest broker. This is probably why so many people are scared to invest with these instruments. There are any number of stories about binary option scams which has led to some traders giving up on trading all together.
This is unfortunate as a little due diligence on the broker could have gone a long way. It is not just about jumping with the first broker who gives you a call and offers you endless riches. It is about trying a number of different brokers and asking them all the really important questions.
When you are deciding on what binary options brokers to use you should make sure that a few fundamental boxes are ticked. Is the broker regulated? What are their policies with regards to withdrawals and what are the spreads? More importantly, what tools do they have on their platform and is it functional? If most traders ask these questions, they will greatly improve trading profitability.
Of course, finding a broker that does tick these boxes is great, but you cannot be certain that this is indeed the best broker or platform for you. That is where the binary option demo account can be extremely handy. Not only can this give you a chance to see how efficient and functional the broker platform is, but it also allows you to get a better sense of how the broker operates.
Similarly, because the demo account is free, you can open as many as you like with other brokers. You can test out a number of different brokers and see which platform works best for your trading style. Another great benefit of a demo account is that it allows you to practice your trading strategies mentioned above in a non-threatening manner.
Most brokers would give you more demo funds if you were to run out and hence there is no downside to using a demo account to your heart’s content. It also allows you the opportunity to adapt your trading strategy and tweak it should you not be achieving the profits you will have liked. It may be a cliché, but in binary options trading as in any other discipline, practice makes perfect.
Persistence to Profitability
One of the most important ways to trading Binary Options profitably is through persistence . There may be times when a strategy that you have previously used did not work according to plan. This is sometimes not as a result of your trading but due to abnormal market conditions. This should not deter you from trading any further. Even some of the best traders in the world have been through periods of losses. However, they have sometimes come back with a vigorous and profitable return.
When you have had a period of losses, this could merely be temporary. Markets often tend to revert to a mean and a long term trend line. Hence, if your strategy has been profitable over a certain period of time in the past then a short term loss should be looked at in the context of a longer term horizon. This is another very important reason as to why you should not have unrealistically short time horizons as your expectation.
Sometimes, a strategy itself does indeed break down and what has worked in the past is no longer the case. This should also not be a reason for you to throw in the towel. Trading is a never ending learning experience with opportunities to refine or adapt your strategy at every corner. Try to understand why your trading approach is no longer working, think about whether it needs to be scrapped or merely adapted.
Trading Binary Options profitably also requires constant development. As an online trader who usually operates on their own account, there is usually a lack of interaction that is one would find as standard in other industries. This is why trading communities such as the Binary Trading club are a great way to interact with fellow traders. This will give you the opportunity to bounce ideas off of other traders and ask them for help in shaping your binary options trading strategy and making it profitable .
Learn How To Trade Binary Options Successfully And Profitably
How to trade binary options, is a question frequently asked by beginners including our readers. So, we aim to give you a proper solution through this article.
Binary options are popular because of its simple trading nature, with a fixed return percentage. Despite its simplistic nature, many traders use on their binary trades far more often than you think.
It boils down to reasons such as lack of trading knowledge, experience, or choosing the wrong broker. Whatever the reason may be there must be a clear plan ahead of trading, so you don’t face ill-consequences in your trading result.
Before enlightening you with the step by step guideline on how to trade binary options profitably, we will give a short brief on what binary options are.
What Are Binary Options?
We are going to explain a basic concept on binary options here, but for detailed information, read what is binary options trading article.
Binary Option is an investment type where you have two outcomes, all or nothing. It has also a fixed expiration.
You have to accurately predict the outcome with an expiry time to make a profit. Either you will win a trade or lose all the money that you have invested for a particular trade. Moreover, you can perform binary trade in two ways.
- Manual Trading
- Automated Trading
In manual trading, you do all the hard-work and place the trades yourself using trading strategies . But in auto-trading, automated trading software does the trading for you, using a build-in trading strategy.
Which method you use for trading depends entirely on your preference. If you are a new trader, you might take help from a trading robot in exchange for a price. Or you can learn the basics of trading, and do it yourself.
Binary Trading Example
You already know through our citation that binary options give you a fixed payout and loss amount. To power-up your trading journey, you must have to follow some rules.
Before jumping to those specific points, we will try to connect your existing knowledge with a small example.
James Chen from Investopedia explains binary options trade with the help of an example.
Assume stock XYZ is currently trading at $64.75. A binary option has a strike price of $65 and expires tomorrow at noon. The trader can buy the option for $40. If the price of XYZ finishes above $65, the option expires in the money and is worth $100. The trader makes $60 ($100 – $40).
If the option expires and the price of the stock is below $65, the trader loses the $40 they put into the option. The potential profit and loss, combined, always equals $100.
5 NoteWorthy Steps To Trade Binary Options
What you are expecting from this phase?
Hang on! Let me guess. Maybe, you might think that we will share with you a spell so that you can earn a lot of money. But, the section will focus on the 5 noteworthy steps on how to trade binary options.
- Choose a regulated broker
- Analyze the market and asset
- Practice on a demo account
- Make an initial deposit
- Start Live trading
As each step is very powerful, so our recommendation is to read each step without skipping.
# Choose A Broker
Choosing a broker without evaluating some factors can bring disaster. On the other hand, the retail investment market is large and have a lot of scopes. According to a report of SEC,
approximately 7,600 investment advisers registered with the SEC that serve retail investors, with over $12 trillion in retail client assets under management, and approximately 34 million clients.
Isn’t it crazy!
The actual craziest thing is that one has to choose one or more than one broker from thousands. Here, we will mention some factors that you should keep on mind before selecting any broker.
- Demo account
- Minimum initial deposit
- Ease of use
- Variety of assets
- High Payout percentage
- Fast withdrawals
- Multiple modes of payment
In addition to that, you refer to our list of binary options broker . It’s not necessary that you have to stick to one broker. No broker is perfect, and one broker may not suit all your needs. Don’t hesitate to trade with multiple brokers.
Taking all the above factors into consideration, we have prepared our list of recommended brokers that you can trade with.
These brokers meet all the requirements such as regulation, offering a demo account, huge asset index, high payouts, fast withdrawals, easy-to-use trading platform, and much more. Here is the list of brokers Binary.com , IQ Option, and BinaryCent that we think will offer you the best binary options trading experience.
# Analyze The Market & Asset
The trading market is unpredictable and changes every sec. Three main types of analysis bring an optimal trading result.
- Fundamental Analysis
- Technical Analysis
- Sentimental Analysis
Here, an economic calendar works as a ground from where traders use data to forecast the market movement. As there is “no” best method of analysis, so you have to pick the most viable option depending on time-frame and asset information.
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# Practice On A Demo Account
Registering an account is free of charge with most brokers. All it takes is your vital information such as an email address, your first, and last name. Once you have created an account, you need to practice trading through a demo account.
Train yourself with the help of a demo account until you create an unbeaten situation. Educate yourself on the basic concepts of binary trading. Understand what strike price, expiry time, call, and put option, etc. Familiarize yourself with the different ways you can trade binary options.
Just because the funds and the outcome in demo accounts don’t hold any real meaning, it doesn’t mean you should trade recklessly.
Trade on the demo account exactly how you would live trade. This practice will develop your trading skills and build valuable experience.
There is no fixed duration on how long you have to practice on a demo account. Take as long as you need. Finally, when you feel confident enough, you can step up to real trading.
# Make An Initial Deposit
The initial deposit amount varies from broker to broker. You need to deposit on the trading account to carry out live trading. On the other hand, there is a big difference between an investment and deposit.
An investment is a price what you pay to get the future value. Meanwhile, the deposit is a certain amount of money that one needs to open an account.
It is wise to start with a small deposit amount like $10 to $20.
# Start Live Trading
You can start trading on a real account once you are familiar with the ins and out of binary trading. Select your preferred asset and choose your investment amount. Depending on your prediction, buy a call or put option.
Place your trade, and wait until your trade expires. In the next section, we have listed some tips and techniques on binary trading to make your trading successful and profitable.
How To Trade Binary Options Successfully And Profitably – Best Way To Trade
We already discussed a few steps above. Those steps are the principle that one trader should follow whether he is professional or not. After that, you need to turn your binary options trading into a successful profit machine.
Don’t miss out the chance by skipping points that we covered below. Follow these tips to ensure you don’t lose money while trading binary options.
- Choice of assets
- Start trading with small
- Eliminate emotions from trading
- Choose the right expiry time
- Follow the market news
- Risk management
- Knowledge is power
Choice Of Assets
As you can trade with a large number of assets, so trade those assets that you are most familiar with. Do not take unnecessary risks by trading in markets that you cannot predict.
Successful binary trading depends on how well you can predict the market. Follow the market news before executing trades. Diversification of your portfolio is one way of reducing your overall trading risk. But it doesn’t mean you should diversify to assets that may not be profitable to you.
Stat Trading With Small
You may have heard about the risk management where you have stick on either 1% or 2% rule. It is a general rule of thumb for traders.
90% of traders failed in trading because they have lack of knowledge on money management. Investing a huge amount of money will not help you to increase profits.
So, at first, start with a small amount like $10. After gaining valuable experience, you can start increasing your trade size. No matter how much you practice on a demo account, trading on a live account is a different scenario. As there is real emotion involved, which brings us to our next point.
Eliminate Emotions From Trading
Professional traders are not super-human. They also fight to control their trading emotions. Eventually, all traders must go through a cycle of market emotions.
Controlling emotions is not sky-rocket. However, you will find a difference in gratitude of a winning trader and a losing trader. No wonder, a low expectation level can save you from a massive failure.
Stop dreaming about to get rich quick and follow the 7 secrets that will help you to improve your trading emotions or psychology.
Choose The Right Expiry Time
It is may seem like a matter of preference or a trivial issue, but even expiry time is a crucial factor when it comes to binary options trading.
For example, a trend was supposed to reverse within an hour. But if you placed a trade with 2-hours expiry, the trend would have reversed by then. And, you had lost the trade.
Follow The Market News
Whatever underlying asset you may trade, you need to be informed on the latest global events, and news associated with that asset. Many traders build strategy depending on the market news. So don’t skip on that, and act accordingly.
For example, if there is negative news regarding the gold and a price drop is imminent, log in to your binary options trading platform, and open a put position on gold.
Reacting appropriately to market news can bring in more trading success than you think.
Risk Management (Hedging)
Unless you are a pure gambler looking for absolute results, you should make use of hedging. Hedging is a money management strategy used to protect your profits. In this way, if you are wrong on your prediction, you lose money from your call option, but you regain that back from the put option.
Protecting your investment by buying a binary option contract opposite to your initial contract is hedging. Hedging may reduce your overall profit potential, but it also protects your capital.
If you quite confident about your prediction but still want to hedge, invest the lesser amount in the hedge position compared to your main position.
Knowledge Is Power
Trading education is one of the big factors that play a vital role in success. You need to constantly educate yourself with trading knowledge. Even though binary options look easy and simple, there is a lot that goes into constantly turning your trades into a profitable one.
Moreover, you are less likely to commit mistakes and perform better trading analysis when you are equipped with trading knowledge.
Learn To Trade Binary Option (Manual Vs. Automated Trading)
You can either manually trade binary options or can use binary options software which will do the trading for you.
When you trade manually, you choose the asset, the expiry time, and most importantly, the decision to call or put. Everything depends on you alone. Moreover, you have to set a strategy using indicators and trend lines to make a decision.
In the case of automated binary options trading, a binary robot does all the work for you. It is a programmed software that makes decisions based on certain algorithms.
On the other hand, most binary options robots allow you to customize settings such as investment per trade, risk level, indicators, and choice of assets.
However, if you want to completely leave your fate at the hands of the trading robot, you may do so. Or you can put manual effort also by building strategy.
We would recommend a mix of both auto and manual trading for the best results. We have compiled and reviewed the best binary option trading robots for you.
7 Binary Options
The Basic Tools for Successful Binary Trading
Binary options are complex, exotic trade options, but these are particularly simple to utilize and understand the way they work. The most familiar type of binary option it the high-low option and it’s relatively simple to comprehend. This technique is also referred to as the fixed-return option and provides access to commodities and foreign exchange, indices and stocks.
Trading with binary options is easy, and you do not need any previous experience. Below are some basic guidelines that we have compiled to help you start trading in a few minutes.
- To be a successful binary options trader, you need to use more than one broker. Choose one or more from our compiled list of brokers.
- Register with your chosen trading platform and deposit money to start trading. The minimum deposit for some trading platforms or binary options robots is only $ 100.
- Select the asset to trade. Trading platforms have assets such as currencies, indices, commodities, and stocks. You can choose to trade in currencies, the popular one being EUR/USD.
- Decide on the amount to invest. When investing in an asset, you will see the payout or the returns for the asset, which can go up to 91%. Make your prediction on the movement of the price of the asset. If you predict the price of the asset to rise, select Call (up). If your prediction is that the price will fall, select Put (Down).
- When the trading closes after the given time, for example after 60 seconds, if it is a 60 seconds investment and you have made the correct prediction, then you win. An investment of $ 100 with a 90% payout means that you will have made 90 dollars in a few minutes.
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