Binary options are a very simple to use financial instrument that offer very high profits by taking advantage of asset volatility.
If you are interested in the world of trading and willing to jump into it, you have surely heard of binary options. They are one of the simplest financial instruments. It consists of just three elements that are very easy to configure.
The trader needs a broker or platform to trade and choose an asset. This asset will have a reference price. To open a trade, the investor needs to set an expiry time, apply a value to that trade and decide whether the asset will rise or fall relative to the reference price.
Binary options allow the trader to profit by correctly estimating on whether the price will go up or down.
What are binary options?
They are a financial instrument that gained popularity after the great crisis of 2008. Retail investors turned away from the markets out of fear. It was then that the use of binary options came back as a simplified and accessible element to bring retailers again.
It is considered a high risk financial product. With the highest risk investments, you can make a lot of money, but without the proper training, you can also lose it. You must speculate with asset prices. For example, ‘BTC binary option will go up in the next 2 minutes’.
An option is a contract in which you decide whether an underlying asset will go up or down over a short period of time. This time frame is up to you to determine. If your prediction is good, you can earn up to 100% of the investment. If, on the contrary, you do not get the forecast right, you only lose that investment.
Binary options consist of just three elements:
- Underlying asset
- Expiration time
To operate with binary options you need a platform or broker that gives you access to the candlestick chart where you can see in real time how the chosen asset rises or falls.
The interesting thing about brokers is that you can operate from devices with an internet connection, such as cell phones, tablets, computers or notebooks. Trades can last from a few minutes to seconds.
We will explain how you can start trading binary options and guide you step by step.
How to trade binary options
It is a very simple type of investment. You must make an initial deposit with a broker, choose an asset to trade and adjust three elements. You have to decide the expiration or expiry time of the trade and decide whether the price goes up or down in that range.
- Choose the asset and expiration time
Brokers have a number of assets to trade with. You have to choose the one you know or feel familiar with. These assets will depend on the platform, many use currencies, stocks, indexes, commodities and even cryptocurrencies.
If you know the world of cryptocurrencies better and want to invest with Bitcoin, it would be interesting if you could choose a brokerage that operates with this cryptocurrency to be able to use it in binary options.
When choosing the asset, you must take into account that the high volatility of the assets is a factor that benefits binary operations. Higher volatility allows the asset’s price or value to rise and fall in a matter of seconds.
You have already chosen the asset on which you are going to trade. It’s time to determine the expiration time. If you want to do a lot of operations in a short time, you can choose the times to be a few minutes. If you prefer to do few large quantity trades, you can set an expiry time of several hours.
Generally, in the broker’s control panel there is a box in which you will enter the trading hours. It could be an hour or just a few seconds. Once the operation time interval has been defined, two lines will appear, a line that marks on the graphic panel when the operation starts and another that indicates when it will end.
- Choose the investment amount
Now you have to choose the amount you are going to invest in the trade. When accessing the broker, you will have to make a deposit that will be the total with which you can carry out several operations.
In the best brokers you can invest little if you want. With 5 dollars you can perform an operation. Our advice is to go slowly. If you want, you can increase your investments as you gain experience.
Some platforms have demo accounts. In them you can operate without risk of losing, as they are simulators. They are very useful for testing certain strategies and understanding the broker’s mechanisms.
Keep in mind that you can earn up to 100% profit after closing a successful contract. If it doesn’t come out as expected, you will only lose the investment for that operation, nothing else.
It is advisable that you do not invest more than 2% or 5% of the total capital. Especially if you are just starting to use binary options as an investment. It is preferable that you do several operations and see how it works.
- Estimate the price fluctuations
You have an asset you are going to trade on and you have already determined the trade expiry time. After making the deposit with the broker, you also chose the amount to invest in that trade.
Ultimately, you must predict whether the asset will rise or fall relative to the price at that time which will be the reference price. On the operation panel there are two buttons; the green indicates that it will go up and the red that it will go down, just click on the option you think will happen.
If the data and your strategy show signs that the price will remain above the reference price, you will click on the green button. If, on the contrary, your prediction is that at expiry the price will be below, you will click on the red button.
Your first binary options trade is already in progress. You just need to wait for the expiry time, which you selected earlier, finish and see the result of your prediction.
After the result, if it is correct, you will have the possibility to earn up to 100% of the investment in that operation. If, on the contrary, you were not successful, you will lose what was applied in that operation.
Let’s simulate how a binary options operation is done with a practical example. It can serve as a guide for you to make your first investment. Good platforms are very easy to use and intuitive. You won’t have any difficulties.
Before trading, it is important to know the market and the asset you are going to use. Within a binary trade you will combine two important elements: money and risk. To be able to do so with certain guarantees, it is recommended that you know as much as possible about the type of market in which you are going to operate and that you are familiar with the asset you are going to use.
By understanding asset volatility and how the market reacts to certain events, you will have a wealth of data that will help you implement the best strategy.
Study in depth and learn the best strategies to trade binary options. You will see that not all of them will be useful to you. Adapt your knowledge and the style of trading you are going to do with the strategy that suits you best.
- Risk management
Every good strategy incorporates a risk plan. This plan will help you make important decisions like when to enter a trade and when to stop trading. This helps to minimize losses and gain profits over time.
Controlling losses, knowing how much you can earn and, most importantly, how much you can lose in a day of trading are detailed indicators in a risk plan. Don’t trade without it.
Learn as much as you can and keep up to date. You will need to be aware of new strategies and consume specific information about binary options to have a repertoire to work with more professionally.
For example, if you are interested in the world of cryptocurrencies, you need to know what your system consists of and how it is supported by technology. What advantages does it have and other related topics. There are many online courses, bootcamps and MOOCs that work really well.
- Emotional control
It is essential to remain calm in the face of unexpected events. You can get into a negative spiral if things don’t go as they should. Or in excessive euphoria if you enter a series of consecutive gains. In both cases, you need to have a great deal of emotional control to be successful in the long run.
Almost all successful traders cite in their interviews that emotional control is one of the key points when trading. Even more so when volatility and changes occur at an accelerated rate, as with binary operations.
Earn money with binary options
It is possible to make money with binary options like any other financial instrument. The beauty of binary options is that they offer the possibility to earn almost double the invested amount in a very short time.