What to avoid doing in binary options trading

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Trading binary options. What to expect in 2020. Binary option trading experience

Learning to make a profit from trading binary options

Most of those who have ever been interested in binary options had an interest or a direct relationship to the Forex market or the stock market. Why the binary options market has become so popular. Its main advantage is the so-called simplicity. But this simplicity can not guarantee profit to everyone who wants to. For a person interested in binary options trading, a person sometimes takes the form of a game of chance. In this case, for most people, losing money will be quite a frequent occurrence.

  • To avoid unpleasant consequences in trading binary options you need to clearly understand the principle of their work. Let us single out several main principles:
  • Selection of the underlying asset. Actually, there are a lot of assets. That there may include: shares of different types, the index of equity instruments, currency pairs (USD / EUR – the most common), or raw materials, which in the course of trading acquires the form of goods. Brokers of binary options provide for trading a little more than 100 of the most popular underlying assets.
  • Forecasting the price level of the selected underlying asset. At this stage, when the underlying asset is already selected, you need to determine where its price will go. To do this, you can use absolutely any toolkit for analysis. It can depend on your chosen trading strategy for binary options.
  • We choose a time interval. For beginners, trading on turbo options (which last 1-3 minutes) is not recommended. As a rule, brokers of binary options provide access to various types of options. Bidding for some species can last up to several months.
  • The moment of the conclusion of the transaction: we make the forecast and we wait for the moment of the termination of our transaction. If at the end, your forecast will be correct, you will receive a profit from your investment in the amount specified by your broker. In case of an erroneous forecast, you will lose the invested money. There are brokers of binary options that insure such risk from a certain amount of the transaction. In this case, if the forecast is incorrect, the money will not be lost.

As you can see, trading in binary options is accompanied by a risk of losing your investment. This should be well remembered when making any trading transactions on your trading account.

Binary options are very lucrative. But a high level of risk is an integral part of this type of profit. Most traders are attracted by a transparent risk management system. Other traders attract the opportunity to get a quick result on their trade transaction. In 60 seconds they will be able to learn the result.

So, why binary options have become such a popular form of trading. High risks and the possibility of obtaining high profits are accompanied by many unique opportunities. You will not find them on the stock market or on the Forex market. We have 4 basic features that distinguish binary options trading among others:

Diversification of asset types

There is a desire to trade different types of assets. Want to use hedging of different assets at the right time. You can not just do it in classical trading on the stock market. For each type of asset you will need to open a separate account. The amount of capital investment will also be large. Since you will need to confirm your intention to enter the market of trade a certain asset. And this is not yet a complete list for conducting this kind of trade in the usual market. There are still many other factors that will put a significant restriction on your trading.

All trading assets on one trading account

A feature of trading binary options is the ability to combine different types of assets on a trading account. You can use the shares of the largest companies, raw materials, precious metals as a basis for trading in binary options, all on a single trading platform. At the same time you will not need to own these assets, and the level of capital for operations will be much lower. For the risk management it will be very convenient, so it will not be necessary to calculate everything separately. Manage your profit and risk will be much more convenient.

Clear trade model

The binary options trading model was developed taking into account the orientation towards simplicity and accessibility. This feature makes binary options a universal platform for making trades for both beginners and experienced traders. The binary option trading model is easy to use. In order to make a deal, in most cases, you will need to choose the direction “to increase” or “downgrade.” Select expiration time. Now we can wait for the result.

To develop such a platform, brokers of binary options had to work hard. It took a long time to create a really understandable platform and improve it from the moment the first brokers of binary options appeared. Now the trader will not have to worry about the margin or the leverage, the stop loss levels and the take profit. In most brokers, everything is fairly transparent and clear. All you need to open a transaction is a choice of the underlying asset, its analysis, the choice of the direction of the price movement and the expiry date of the option. Everything is ready, now you do not need to spend time managing an open transaction, experiencing additional difficulties with managing an open transaction.

Tired of waiting

A feature of binary options and their varieties is the possibility of obtaining fast results. This gives an additional opportunity to diversify risks and complement their long-term transactions. This kind of binary options allows instant entry and exit from the transaction. The minimum expiration time is 60 seconds. “Turbo” options are far from suitable for each trader. But in the hands of a professional, they can become a very effective tool for making a profit.

Say no to hidden risks

All traders who dealt with binary options know that the level of risk is high here. On the brokerage sites everywhere there is a warning about a possible loss of investment. The main factor in trading binary options is the absence of hidden risks. Each trader can personally personally assess all risks in advance. It is much easier to make a decision in this case, since it will be much easier to diversify the risks. The trader does not have to look back and overestimate the risks several times. The platform itself has already taken care of this.

What we have as the result

Trading binary options is a good way of making a profit. In it you can note:

  1. Fixed Forecasted Income
  2. Availability of different types of options available for trading
  3. Transparent risk management system
  4. Ability to conduct fast transactions
  5. The ability to manage assets without significant investment

The Truth About Binary Options: #11 Facts

#1 Avoid Unlicensed Binary Options Brokers

Why are unlicensed binary options brokers dangerous? Although officially outside EU/USA it’s not required for a binary options broker to be licensed, it is very much recommended to trade with a licensed broker. Some traders and many governments doesn’t care if a broker is licensed or not and they treat all them the same way, as if license doesn’t provide any advantage or goodwill. Actually, it does.

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There are a few advantages for a trader. First, you have a chance to complain if you face any kind of fraud, like delay of payments, blocked account or manipulation of market data. CySEC has fined many brokers and the fines were not nominal. Second, a licensed broker cares of his reputation, because when a fine happens, this is a huge news in the industry and competitors will be happy to make such case as loud as possible. So in many conflicts you will be able actually to negotiate effectively, just telling the broker, you can go all the way to the regulator.

CySEC, based in Cyprus, is the most widely used regulator and it is also very reachable and active, but there are others, who work with binary options brokers, like UK’s FSA, BaFin from Germany, Spanish CNMV, Indian SEBI, – all good.

Only make sure, that the broker’s license is currently valid, as in some cases brokers were deprived of licenses due to various wrongdoings, or have abandoned regulators voluntarily.

#2 More Than 50% of Traders Lose Their Deposit on the First Day of Trading

How not to lose your deposit on the first day of trading? Unfortunately, it’s a common situation. A person comes to binary options or to forex trading or to any market all and loses all the money he has got to trade during the very first day. So how to avoid this? The strategy is very easy – don’t use the whole of your deposit during the first day.

The first day of trade is your first test. Can you stay cool, can you keep your head cold, can you limit yourself and keep your trading within firm borders of 10 – 20% of the deposit. If you can, you can be a successful trader.

Control your emotions, control your behavior, stick to your strategy,- those are the main qualities of good traders. Knowing how to use the charts and trading tools is secondary.

You will master the market if you can master yourself.

#3 Shady Brokers Will Try To Convince You To Keep The Money (Until You Lose Them)

How to withdraw large earnings from binary options brokers? So, you made it and you have earned thousands, or even tens of thousands dollars on binary options! Congratulations, but it will not be a complete feeling, until you don’t have a significant sum in your pocket. And here are a few moments you should know about withdrawing lots of money form binary options broker.

  • First, a broker will try to convince you to keep the money. Of course, brokers are not really used to deal with winners, only as little as 1-10% of traders win and withdraw significant money. But they have strategies to make the numbers of withdrawals less. They will offer you huge bonuses, a personal manager, risk free trade, secret strategies,- everything to keep you trading, trading big, risking and eventually making a mistake. Don’t succumb. If you have in mind a certain amount of money you want to withdraw, stay cool and stand firm. Get your hard earn profit, celebrate, and then risk with the remaining bank.
  • Second, there are limits. In all the advertising brokers promise 1 hour withdrawal and usually it works with small sums. But deep inside terms and conditions you will find, that a broker actually can be very slow in sending your money, they can start a very slow so-called “confirmation” process, and sometimes it will take months to get your winnings in full, particularly with small brokers.

So trade with a large licensed broker (like IQ Option, Binary.com or Olymp Trade) and have a clear strategy – how much money you are ready to keep and don’t let any “exclusive” offers shake that.

#4 What Are The Three Worst Mistakes Of A Beginning Trader?

First of the worst mistakes is trading on a very short timeframe, when you can’t predict anything and rely on fortuity, not on calculation.

Second, lack of risk management. You must know and control your risks. Don’t do too many deals in a short period, or don’t bet on vey “costly” deals when you use too much of your deposit. Those are the ways to lose everything, in case of mistakes it will be pointless even to analyze them, because you will have no money to strike back and use the experience you always gain from your losses.

Third, choosing the wrong broker. You can be a genius or you can learn to be a very good trader and make lots of profits, but if you choose the wrong broker, you will be cheated and the broker simply will not pay you. So always choose a licensed broker with good reputation.

#5 What Is The Main Quality Of A Successful Trader?

Self-control is the main quality of any successful trader, you will not find a really successful trader who makes rush decisions and keeps braking the borders of his strategy.

You need to set the limits, how much you can afford to lose, how much you are ready to spend on one deal, how much risk you are ready to afford in your strategy,- and stay within those limits.

Before each deal you need a clear idea, why are you doing this and why it will work, if you are mistaken – recognize this, take time to analyze, make new strategy and keep going.

Remember, you need to limit yourself both in situations of losses and high wins, so that you will not lose too much in one case, and leave the game as planned, taking the profits in another case.

#6 How To Double The Amount Of Successful Deals?

The answer is – make less mistakes in your trading. How to do it? Trade on longer timeframes.

Why longer timeframes are better? You will have more time to analyze the situation and make a decision on whether to make a deal or not. The more time you have to decide, the less mistakes you make.

By the way, if you choose not the first class broker, shorter timeframes are even more dangerous, because lots of frauds and cheating on the broker side are carried out with traders, who choose shortest timeframes.

Reduce the amount of your deals, increase the time between your deals – and you will lower your risks and raise your profits.

#7 Why 99% Of Trading Systems Don’t Work?

Lots of brokers offer trading systems to their clients nowadays, as well as other parties on the market, like financial consultants and various market gurus.

There are two reason why most of those systems don’t work.

First, those ideas may have been brilliant at first. But any successful strategy, when it is promoted and offered for copying by many traders, eventually simply stops working.

Second, some strategies are actually designed to work against you, those are the strategies offered by brokers. Yes, you may benefit from them for some time, but in the end the broker wants you to lose and you will lose if keeps working within the inflicted strategy.

The only strategy that works is your own strategy, when you choose the required risk tolerance, trading instruments that you understand, and timeframes that are not too short.

#8 What Are The Three Common Delusions About Binary Options?

  • People see the high profits of binary options trading and lose sight of high risks. Risks and profits are interrelated, if there’s a chance to win a lot, there’s a high chance to lose everything.
  • People want instant success. With binary options you can earn quick money, yes, but this will not last. If you are a beginning trader, who instantly wins, you will probably experience losses very soon. Be ready for a long game and, lots of high and lows and keep control of your emotions in good times and in bad times.
  • Easy money – people think binary options trading is a very easy thing, but it’s not. You will have to learn to be a successful trader, and you will have to pay for that education – with your nerves and with your money.

#9 Is It Possible To Become A Millionaire By Trading Binary Options?

Many people ask the same question: How to make millions by trading binary options? First, there are no credibly cases of millionaire traders, who made fortune on binary options. A more realistic strategy to earn millions, is start with binary options and forex, build small fortune and move on to other markets, where you can earn millions.

There are two things to consider, if you want to make millions with your trading.

First, you can’t just come to the market and become a millionaire immediately, the secret of millionaire traders – they all have vast experience, that helped them to create a unique trading strategy, backed by some brilliant ideas. To have a brilliant idea, that will be a base for a winning strategy, you’ll need to have lot’s of ideas. And that means test lots of ideas and lots of strategy, losing and winning on the way.

So as a beginner you should be ready for a long game.

Second, how much money you make depends on how much you can put in to start with, and to earn millions you’ll have to put in hundreds of thousands. But for hundreds of thousands binary options market is simply not safe enough.

#10 Why You Shouldn’t Trust Your Binary Options Broker?

Whatever your binary options brokers tells in his advertising, he makes profits only when the traders lose, so he is not interested in your success.

Of course, it doesn’t mean that you can only lose. On the one hand, there’s regulation, and good binary options brokers are accountable, on the other hand, there’s competition, and brokers value their reputation and don’t want scandals.

But you should be ready, that even the best brokers will want to cheat you.

First, some brokers offer you managers, that give trading advice, to some extend that advice could be helpful at the beginning, but the broker will not want you to end up with huge winnings, so on later stages advice will be misleading.

Second, the brokers will try to convince you to trade more and to take more and more risks. They will offer exclusive conditions, only to keep you trading. Don’t listen, have your own limits and take out money when you win.

#11 Do You Read Terms And Conditions?

In any industry terms and conditions will contain surprises, that will go against what you see in advertising or what sales people tell you.

In binary options there are several things to consider, so make sure you read terms and conditions before you choose the right broker.

First, some brokers will charge you with 2-5% of the money you want to withdraw, sometimes there’s even a minimum limit of this charge, 10-30 USD (but no maximum limit), so if you withdraw 50 dollars of winning, your broker will want to keep 30 of them. This is not because a broker wants that 30 dollars badly, this is because a broker wants you to keep going, keep trading. So in such case just understand, that your broker charges this money and withdraw your winnings anyway, if such was your strategy.

Second, your broker may have the right to keep your money if they are not satisfied with your documents, officially it is said to be targeted against money laundering. But in fact it is often used to keep the money of hugely successful traders. Your broker doesn’t reject your withdrawal, it just puts it on hold and keeps asking for more and more documents, that may last forever. So trade with a licensed broker, in this case you will have an option to complain.

Finally, there are commissions, and with commissions you can do nothing. Some brokers charge commission if your trading account was inactive for 60 days, some – charge several dollars every month from every trader, others charge commissions on your winning. For this you just need to be aware of.

What is binary options trading?

Binary options trading is a relatively simple way of betting on whether or not a certain outcome will occur. The name ‘binary’ (meaning ‘two’) reflects the fact that you must choose from just two scenarios – yes or no.

In financial trading, this is typically whether the price of an asset will be lower or higher than a certain level at a pre-determined point in time.

The most common type of binary option is a digital option, sometimes broken down further into ‘up/down’ or ‘call/put’ options.

With a simple call/put option, if you think the price of the underlying asset will end at or above the strike price, you buy a ‘call’ option. If you think the price will be below the strike price at expiry, you purchase a ‘put’ option.

If you are correct, the option is ‘in the money’ and pays out a fixed amount of compensation.

This compensation is typically money but in some contracts can be a quantity of the underlying asset itself.

If you are wrong, it is ‘out of the money’ and you receive nothing.

Because of this, binary options are sometimes called ‘all-or-nothing options’.

The attractions of binary options trading

Because you have just two possible outcomes to consider, binary options trading is considered simpler than many other kinds of financial trading.

Typically, all you need to decide is in which direction you think the price of the underlying asset will move.

Unlike with other forms of financial trading where your potential profit or loss is determined also by the size of a price movement, it doesn’t matter to a binary options trader how far prices have moved above or below the agreed strike price when the option expires. With binary options, a winning trade always produces the same payout.

Because of this, you have a clear picture of your risk-to-reward ratio before you enter a trade.

This is in contrast to traditional options, where profits and losses can be limitless.

With binary options, therefore, you don’t have to sit at your trading terminal, anxiously watching prices – once you have made your trade, you don’t need to check in until the contract has expired. You also don’t have to worry about applying complicated risk management tools like stop losses.

Binary options are flexible, with brokers typically offering contracts for a wide variety of underlying assets – from foreign exchange or commodities to company shares or indices like the FTSE or S&P 500.

Contracts can also run for anything from 30 seconds to several months, depending on what your broker offers. This means you can tailor your trading to your own areas of expertise or trading style.

If you’re an experienced trader in other markets, such as foreign exchange or shares, you can apply some of the skills you have already developed.

Fundamental and technical analysis, for example, can both be used to help you form a view on future price movements.

The risks of binary options trading

With binary options, it is possible to lose all the money you have invested if none of your trades are successful.

Careful money management (see Lesson 6 https://learn.tradimo.com/lessons/1278) should however ensure that you do not wipe out your entire trading account.

An example trade

All or nothing call:

The current price of Uncle’s Apples shares is $10. If you think the price will go up and trade above $10 this time tomorrow, you can profit from this expectation by buying a one day binary call option.

Before buying the option you need to decide how much money you put on the trade. This will be your investment (your risk) and your payout will be a certain percentage of this amount. If the broker is offering a 50% payout, it means, if you win, you get your investment back plus 50% on top of it.

Let’s say you invest $20 in a one day Uncle’s Apples binary call option with a 50% payout. You come back same time tomorrow to see how your trade performed. You were right, the price is above $10 per share, that is, your option expired in the money. You get your $20 investement back plus 50%, that’s $10. So you get $30 altogether.

However, if Uncle’s Apples shares were below $10 when the contract expired, the contract becomes worthless. Then the option would be out of the money and you would lose your initial investment of $20.

Other types of binary option

With a ‘one touch option’, you predict that the price of the underlying asset will at some point during a defined contract period touch (reach or surpass) a certain level. If it does, you receive a payout. If it doesn’t, you receive nothing.

With a ‘no touch option’, you predict that a certain price will not be touched during the contract period, and are compensated if you are correct.

With a ‘double touch option’, you define two price levels and predict that at least one of them will be touched during the contract period. You receive a payout if this happens. If the price stays within the range of these two prices and touches neither, you receive nothing.

Note that the closing price at the end of the contract period is irrelevant with any kind of touch option. This makes them perfect for traders who believe that prices will be volatile but aren’t confident about predicting a sustained price move.

They are therefore particularly popular for trading volatile assets like foreign exchange and for very short-term trading with contract periods as short as one minute.

Summary

So far you have learned that:

  • binary options got their name from the fact that there are only two scenarios to consider: the market ends up either above or below your target price when the option expires
  • you get paid a set amount, typically a certain percentage of your investment if you are right or you lose your investment if you are wrong
  • it is because of these two reasons that binary options have gained a huge popularity in the last few years
  • brokers have created a variety of binary options contracts so you can take advantage of special market conditions, such as ranges, breakouts, tests of significant price levels and trending markets
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