You may be wondering what binary options are and why you should care. Binary options put simply, are a type of investment that allows people with limited funds to participate in things like the stock market. Since it started in 2009, more than $10 billion have been invested in binary options - making it one of the fastest-growing asset classes of all time.
This is not a get-rich-quick scheme, but real cash can be made in binary options as long as you understand how they work and you have a plan of how to invest your money wisely.
So, what is binary options?
Binary option is simply a way of investing in the market using options strategies. This is done with an account that is aimed at providing a safe and secure environment for investors. Binary options do not aim to make huge gains like other investment instruments but it does not mean that you cannot make money.
How do binary options work?
A binary option works by providing investors the chance to predict if a specific asset will be above or below a certain value at any time within the set time period. The odds of winning vary depending on the asset and the time period.
For example, if you predict that a stock is going to be $15 per share within the next 30 seconds, then you can get that price or more by buying one binary option contract. If you are right, then you win a specific amount. If you are wrong, however, then your investment will go down in value and it won't provide any return at all.
How to start with binary options?
There are many brokers who offer binary options trading platforms and since there is so much hype surrounding them, it is important to choose wisely.
Binary options require a minimum deposit of $250 and the monthly volume needed to trade with this amount is anywhere from $2,500 to $25,000. Being able to meet these requirements is necessary if you want to get involved in binary options investment.
The broker that you choose will depend on your budget, trading style, and how much of a risk-taker you are. If you do not have any money to invest, then they will allow you to start off with virtual money. This is not the same as demo trading because it still has real-time pricing for the assets but your trades will not be real until you deposit money into your account.
Once you join a broker, you will need to get familiar with how the platform works and how to set your trading objectives for different asset classes. It is important to also have a strategy before you start investing in binary options. Having an idea of where you want your money, allows you to develop a decision-making process that will allow you to trade the same assets consistently.
What are the factors that affect binary options trading?
The time period in binary options is usually between 60 seconds and 10 minutes. This means that there are only two factors that affect the price of an asset: supply and demand.
The supply in binary options is the number of contracts that are available to trade at any point in time. This also includes the bid and ask price as well. When a trader sees an asset that they have been monitoring, they often go to the bid and ask prices to decrease the cost for buying. The supply determines how the price of an asset changes throughout the time period.
Demand, on the other hand, is determined by how many people are interested in buying an asset at that particular time period. For example, if there is a contract for one lot but one million people want it at that time, then there will be a bidding war between buyers. This will affect the price of an asset because there are many people who want it. Demand can be affected by volatility in the market and news that is being released about a particular asset.
Some binary options brokers allow investors to take advantage of long-term trading options while others offer short-term deals that are as short as 10 minutes only. Regardless, you should choose one based on your reasons for investing in binary options and how much time you have to trade them successfully.
What assets can I choose from?
There are several assets that you can invest in when it comes to binary options trading. The list includes currencies, equities, indices, commodities, and several other things.
The most common asset choice is equities. You can invest in stocks, options on stocks, or commodities. The most common asset to trade is equities because they are the easiest to understand so it is easier to learn how to invest in binary options with them.
There are several types of exchanges that you can use when trading in binary options. Some of them include:
Settlement-based price exchanges - The settlements always occur on the day after expiration and this means that you have to use your time wisely if you want to receive compensation for your trades because these settlements will reduce your profit significantly.
Price-based exchanges - These exchanges will determine the price of an asset at expiration. This is the easiest to use because you can place trades with a very short time period. However, your investment amount will not be guaranteed to be returned to you.
Everything-based exchanges - This type of exchange will determine the price of an asset at expiration but it will also include other factors such as volatility, supply, and demand. This means that this type of exchange has a larger range for prices and there are more possibilities than in any other binary options trading platforms.
Now that you have learned what kinds of trades you can make in binary options, it is important for all traders to understand how to trade them effectively. You may also want to sign up with a broker and trade binary options for real money.
The process is simple: you open an account with the broker, enter your contact and email information. Then, you deposit some funds into your account to have a starting point for trading. You can start with a small amount and then gradually increase it as you become more successful in trading.
