Trading in Binary or digital options is an interesting and exciting way of yielding high returns with a low investment capital. It’s especially beneficial for day traders. As we understand it, binary is a computer related term meaning two, or zero and one. Similarly when we apply this to trading, a binary option is a trading contract which has just two outcomes, zero or one, or shall we say all or nothing.
Simply put binary trading is the trading of a financail contract which upon the fulfillment of a specified condition or price movement, pays out to the trader a predetermined fixed amount if his contract ends “in the money”. And the contract ends up “out of money”, the trader will receives nothing.
To make money with binary options is no doubt risky, but isn’t risk associated with all forms of trading? Unlike other trading instruments the outcome in a binary trade can be influenced by outside factors. Also the outcome is anticipated with respect to the conditions prevailing at the time of the execution of the trade. The most attractive feature of making money with binaries is that you don’t have to predict the right price or be right by the exact price. If you are right by even a cent, you are successful and that is equivalent to being right by $100. Let’s look at how you can make money in this exciting market.
1. Trade on the most liquid securities: as a trader you should look into those companies or possibly the industry in general which is posting positive results. This implies that if auto imports are doing well and the numbers are turning favorable for a particular company, they could turn out to be good for others too. Therefore choose such securities.
2. Go for the opposite if the market has already risen: if a particular company has jumped the market before you could react don’t lose heart. You can always trade for the opposite. This means you could place a trade for the “end of the day” where you expect the prices to close at lower prices.
3. Quantity is more important than quality: when you want to make money with these options, you should consider quantity over quality. This means that you should be able to take advantage of the aggressive trading actions of retail traders that can trigger price movements in the market. Trading binaries is much more profitable with quantity rather than quality as the traders do not have to worry about the magnitude of the price movement, they only have to see the direction of the price movement.
4. Hedging with binaries: one of the simplest and easiest ways of making money is to hedge your contract. This means that if there is a certain price movement that is in your favor before the expiry time, you should either partially or fully hedge your contract. This strategy would at least lock in the existing profits.
1. High yields: A successful trade could pay up to 91% profit while an unsuccessful trade would cost the trader just the original investment. Some brokers even offer rebates up to 15% of the initial investment for an unsuccessful trade. Also trading can be done with minimal amounts.
2. Quick turnover: The quick turnover of a binary trade is another attraction that pulls the trader towards this form of trading. These options expire hourly or at the most by the end of the day. Thus, this implies that the investment payoff is made within the trading day and you do not have to wait for the payoff for weeks, months or years for your return on investments.
3. Well known securities to trade: Although the number of securities that are available for trading are limited, they are increasing all the time. They are well known and highly liquid, stocks like Google, forex pairs like US Dollar / Yen, and EUR/USD and Indexes like NASDAQ Index and CAC 40.
4. Very beneficial for small cap investments: Another great aspect about of trading in this market is the low barriers to entry. You can open an account with as low as $100 investment and start trading.
All in all the advantages are plentiful, let’s now look at the disadvantages to trading binary options.