Binary Options Trading for Dummies
Binary Options Trading for Dummies 5.00 / 5 (100.00%) 1 vote
The word binary means to have two different parts. This is largely what trading binary options is all about. It’s all about predicting whether a certain underlying asset’s price will move up or down. Predict correctly and you win, make an incorrect prediction and you lose your investment. Here is a step by step guide to trading binary options. Coupled with market analysis skills and a great trading strategy and you’ll be making profits in no time.
Step 1 – Market analysis.
A big part of making a better informed decision when trading binary options is based on the extent of the market analysis done prior to trading. This will help you to make an informed decision on the price movement of the underlying assets. The confidence in your decisions is rooted in the extent of the market analysis helping you to make more accurate predictions on price movements by specific expiry times.
Step 2 – Find out how the contract prices are calculated.
Binary options contract prices are roughly determined by the overall probability of the binary statement coming true. An example is that if a contract holds a settlement of $100 and the last trade on that contract was $95, it indicates that more or less 95% of the market trusts that the statement is true and that the contract will close in the money. Ensure that you are clearly aware of the payouts offered by the broker you’re trading through.
Step 3 – Select your outcome.
The very essence of trading binary options is to correctly predict the direction the price of the underlying asset will move. It is very common to refer to the two options as Call or Put. When the trader chooses the Call option, he or she is predicting the outcome is that the price will increase. Opposite to that is choosing the Put option which predicts that the outcome is that the price will decrease below a certain point. This point is referred to as the strike price of the asset.
Step 4 – Select the asset and set the expiry time.
Now that you understand the different positions, various outcomes and the contract payouts, it’s time to select the asset and specify the expiry time of the binary options contract. The expiry time is used to determine when the contract will close. The contract will either end in the money, meaning you will win the predetermined payout or it may end out of the money where you stand to lose all your investment on that trade.
Step 5 – Choose the investment amount.
This is the final step where you are expected to enter the amount that you wish to invest. Once you have entered the amount, you should have the option to commit the trade. Once this is completed you sit tight and wait for the expiry time to determine whether you have ended in the money or out of the money.
By using this step by step guide you should be able to execute a classic trade with binary options. Although this explains step by step how to trade, it’s advisable to open a demo account to practice these steps until you are comfortable to trade on a live system with real money.