Want to learn how to trade binary options? Binary options contracts are easy and simply structured. After understanding the underlying market, what steps do you follow to trade? Find out here.
5 Easy Steps to Trade Binary Options
When compared to other trading techniques, binary options trading produces higher returns. And although trading binary options is a short-term and high-risk contract, many traders have followed specific steps and strategies to earn well.
This article will show you five (5) easy steps to follow in trading binary options, starting with the basics.
What is binary option?
Trading with binary options is a sort of trading where the reward is completely based on how a yes-or-no proposition turns out. Because of this, it is known as “binary.”
It usually involves making a prediction about whether the price of a particular asset will increase above or decrease below a particular price (strike price) in a particular amount of time. If your forecast is accurate, you will receive a set payment; if it is incorrect, you will incur a loss.
For instance, if you forecast that over the course of the following hour the price of a Gold stock will increase over your strike price, you will earn.
Steps to Trading Binary Options:
The steps listed below will show you how can you trade with binary options:
Know the market trends
To begin trading with binary options, you must become acquainted with the news- everyday lives, politics, world affairs, technical and financial market analysis. This is because trading involves market knowledge and precise predictions. You make predictions that determine your trade win or lose.
A well-informed trader was first a well-informed individual. Knowledge of business developments, technology releases, and international relations can affect the market. Hence, you should know about them and follow financial news and economic calendars.
Pick the market you want to trade.
Generally, there are four markets you can trade on with binary options: Forex, Events, Stock Indices and Commodities. The market you choose to trade is a crucial element that makes up your binary options contract.
If you’re a new or experienced trader, Fidelity is one the best brokers out there to try out. They have offerings like retirement funds and cash management services. Learn how to trade options on Fidelity, and you’ll find out how easy it is, as they have no minimum deposit and no account fees.
Picking a market to trade can depend on many factors, such as opportunities, duration, and interest. You must determine the ideal market that offers the right opportunities according to your trading plan and goals. Also, the market differs by contract duration. These durations show when you can buy or sell and can be intraday, daily or weekly.
Select a strike price and expiration
You need three elements to succeed at a trade; a plan, a strategy and a prediction – they determine your trading success or otherwise. Selecting your strike price is one of the most challenging decisions in trading, especially for beginners. In binary options, the contracts are well structured. However, you need to plan tactically and not just jump at it.
While there is a possibility of losing trade, striking a balance after thoughtful evaluation, and considering the probability and trading risk, will guarantee success. You should bring your knowledge of market predictions and analytical thinking to the table here.
Place your trade
After you must have decided on your strike price, then you place your bet. To place your trade, click on strike on the chart or the left-hand side of the screen. A pop-up of your order ticket will appear. Click between buy and sell buttons and market or limit orders.
Furthermore, you will fill a size box with the number of contracts you want to buy or sell. Toggling between these options will help you see the potential profit or loss calculated under them. Then, place an order when you are ready.
Wait for expiration, or close out your trade early.
The next and final stage is to wait, monitoring your trade until expiration. Expiration is the end of the duration you fixed for the binary option contract. Understand that trades sometimes go differently than planned, so it is advised that you only trade with capital you can risk.
If before the stipulated expiration date, you find that the market is moving against your prediction, you can close out the trade early and limit your losses. On the other hand, you might as well want to close on a trade that is moving in your favor to take a smaller but guaranteed profit.
If you follow our step-to-step guide showing you how to trade binary options from start to finish, you will not only become a better trader but also make better decisions that impact your trade.