Novice investors and pros alike have turned to binary options for making money.
What are binary options?
It’s a way to grow wealth that isn’t complicated.
Since this type of investment is so simple, there is a lot of debate about it. Keep reading to learn more about how this investment strategy works and how to get started with it.
What Are Binary Options?
What are binary options? Let’s start with the word binary and what it means. Binary code refers to 1s and zeros. Binary options usually mean yes or no.
Have you ever answered a yes or no question? Of course, you have! That makes you qualified to invest in binary options.
There are two parts to investing in binary options. The first is to pick something like a Forex pair, commodity, stock, or an asset.
The next step is to determine whether or not that something will trade higher or lower at a certain time.
For example, right now, the US Dollar is trading at 1.09 to the Euro. You may bid on an option that asks whether or not the U.S. dollar will trade higher than the Euro a week from now at 1:35 pm? You’re answering yes or no.
It’s simple, right? If you ever bet on sports, you might find some similarities. It’s like betting an over-under or betting on whether Lionel Messi scores the first goal in a soccer match.
Beginner traders love binary options because they’re very simple. That’s fine if you just want to gamble like you’re betting on sports.
However, to be a successful binary options trader and actually make money, you have to know more about how it really works. Rather than just guess on a stock or commodity, you need to do your homework.
You need to read and understand the underlying economic indicators that influence the asset you’re trading. For example, let’s say that you wanted to bid on an option of the USD/GBP forex pair. Of course, Brexit is going to heavily influence the strength of the British Pound.
The US Dollar will be influenced by job reports and retail sales reports from the Christmas holiday season.
Understanding these indicators before you place your bid will help you be more successful.
How Do Binary Options Work?
When it comes to investing in binary options, there are a few things you must understand about how they work.
Timing Matters
Since you’re stating whether or not an asset will be at a certain price at a certain time, timing is everything when trading binary options.
This is why research is so important. You want to make the most informed decision possible to make the trade work.
How to Choose What to Trade
Binary options offer a lot of flexibility because you can trade nearly anything. Some binary assets are much more predictable than others.
Binary stock trading can be hard to predict, making it a high-risk investment. This is because stocks tend to be much more volatile than other assets.
Commodities such as gold or pork tend to be much steadier. That may change as climate change starts to impact crops. That can affect the price of them.
Are You In or Are You Out?
With binary options, you don’t win or lose. You’re either in the money or you’re out of the money.
Based on your research, you think that a stock is going to drop once they release their quarterly report. So, you place your option, which is a number between 0 and 100. This is your ‘bet.’
For example, you set your option for $35 that this stock will trade higher 7 days from now at 1:45 pm. That’s when the option expires.
If you’re wrong, you’re out of the money at $35. If you get it right, you’re in the money at $35.
Once you’ve done your homework and started to understand how these trades work, you’ll have to find a trading platform to make your trades.
Finding a Binary Options Broker
Binary options became a mainstream form of investing thanks to a rule change by the SEC. Initially, binary options were only available to traders at large investment firms.
In 2008, the Securities and Exchange Commission changed the rules to allow anyone to trade in binary options. This opened the floodgates for day traders and ordinary investors to do what was limited only to big banks.
Since Binary options are so simple to trade, it’s a great place to start for beginner investors. That simplicity has its downside. There are a lot of brokerages and sites that call themselves trading platforms to take advantage of novices.
They position binary options as get rich quick investments. Some of these sites are downright scams. That means that you have to be very aware when you’re picking a trading platform.
Start by looking at a site’s level of experience. The longer a site has been around, the more likely it is to be a legitimate broker. Take a look at the online reviews to see a typical customer’s experience with the site.
You also want to look at the fees that the site charges per transaction and you want to make sure that the platform offers the type of assets you want to invest in.
Start to Trade Binary Options
What are binary options? It’s an investment vehicle that is perfect for both beginner and experienced investors.
There are a lot of pitfalls with these investments. Like any investment, you have to do your homework to understand the influencing factors of the price of a particular asset.
You also need to pick the right trading platform. You have to make sure that you sign up with a reputable platform, or else you could get ripped off.
Look for a platform with experience, great reviews, and make sure you’re aware of all the fees involved.
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