Trading on financial markets can be overwhelming for those without some kind of knowledge or guidance. There are usually massive amounts of information to process to get the best possible return on your investments. Even after doing all of the due diligence needed to make smart trades, you can still lose. How much you lose or gain is directly related to how much risk you are willing to assume. There is now a growing trend in trading that makes the act of trading seem much less daunting for the casual or new trader. It’s called binary trading. Now as most of us know the binary language consists of only two parts, ones and zeros, or in this case yes and no. Here are the basic principles governing binary trading.
The Basics of Binary Options Trading
Yes or No: It seems simple right. It is and it isn’t. When you trade on the binary market you are making a prediction on whether the item you are trading on will be above or below a certain price at a certain time. For instance if you want to trade gold on the binary market you will have to answer a simple question such as, will the price of gold be over or below $1000 at 1:30 on Monday?
Limited Risk and Reward: Binary trading will always be priced at $0 to $100. As with other financial trading markets there is always a bid and ask price. If the bid price of the gold binary option mentioned above is $44.00 at 1pm and the offer price is $42.00 and you buy at that moment you will pay $44.00. If you decide to sell at that moment you will sell for $42.00. But if you bought the option at $44.00 and at 1:30 the price of gold is above $1000.00 then your option automatically becomes worth $100 and you have made a profit of $56.00.If the price of gold was below $1000.00 at that time your option settles at zero and you lose the $44.00. The prices of the binary options vary and are set by the traders. But either way it’s a nice low risk way to venture into the market.
Binary Options Trading with Bitcoins: Bitcoin is a web-based cryptocurrency that was created in 2009. It gained its popularity very fast, as it can be used anonymously and because of the fact that there are no transaction fees involved. Lately, leading brokers started to offer bitcoin-based binary options trading services, mainly because of the growing public interest in using this cryptocurrency as an advanced and exotic investment tool.
It’s a Zero Sum Game: All binary options trading end up settling at either $0.00 or a $100.00 each option is bought and sold by the traders. The traders must put up the capital to purchase the option. So what you make on an option, someone else loses. What you lose someone else makes. So when each option expires the sum is back to zero on that option.
Picking Your Options: Choosing the timeframe on your options is one the decisions you will have to make. Traders can choose from options that expire hourly, daily or weekly. Hourly options allow day traders to get an established return even in the quite times. Daily options expire at the end of each trading day and are useful in hedging other daily trading options. Weekly options expire at the end of the trading week and are often traded by swing traders throughout the week.
Advantages and Disadvantages: What’s different about binary options from other stock and forex options is that the binary options are capped therefore limiting the risk of price slips or gaps. So it’s not possible to lose more that the purchase price of the option. The other side of that coin is that your profit is always capped as well.
So as you can see binary trading options are a nice and easy way to make your way into the trading market without putting yourself at excessive risk. There are fees to make binary trades but those are capped as well. Each Nadex trade cost $.90 to enter and $.90 to exit. The fees are capped at $9.00. So you could purchase 15 trades in one lot and still only pay a $9.00 entrance and exit fee. While there is still a limited risk you should do your research on any trades you intend on making. So now you know what binary trading is all about and you ready to get started. What will you trade?