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How to Trade Binary Options – a Step by Step Guide

Loretta is a DIY and lifehack enthusiast always researching on better productivity and management methods to make life easier and stressfree

how-to-trade-binary-options-a-step-by-step-guide

The art of buying and selling is as old as man and as simple as it might be, there are many forms of it. Stock trading is one of them, however, the stock market in whatever shape or form you transact on it can be anything but simple. With several trading options, all more complex than the last, one of the most popular stock trading options involves speculating using binary options.

This extremely risky investment trading option offers an exciting all-or-nothing margin, allowing traders to profit from any market movement, whether negative or positive. To help you understand more about this interesting trading option, here is a beginner’s guide on trading binary options.

What is a Binary Option, and How Does it Make Money?

The binary option is an asset derivate. Assets are items like currencies, precious metals, company stocks, indices, etc. that are traded on the stock market. Correctly predicting the movement of assets on the stock market is what constitutes successful binary options trading.

For example, if the asset of a binary option is based on the value of a company being traded on the stock market, we don’t buy the company stock and hope for an increase in price for a profitable sale like in a traditional stock trading way, instead, we speculate on the company stocks’ market value i.e., either (call option) that market value of the company stock will rise or (put option) that it would fall. At a particular date.

The difference between binary trading and other forms of stock trading options is the interesting ability to profit from assets that are losing value because profit is not determined by the value of the asset but by correctly speculating the movement value movement of the asset.

how-to-trade-binary-options-a-step-by-step-guide

How to Trade

You can trade binary options by registering and using a trusted and legitimate online broker. These trading platforms give you access to the stock market where you can choose the assets that interest you and make your calls using software that allows such transactions.

a. Choose a Broker

The broker you choose to carry out your binary options trading transactions is very crucial. A lot of trading apps offer incentives and lure beginners but if you start with a broker that doesn’t have the right software and tools to enable you to trade properly it could be disastrous to you. Not all binary trading apps offer the best tools that you need, to get a fitting service, you would need to review a list of the best binary options brokers, providers, and apps like Binoption. To do this, you should find these by checking review sites to get a clear picture of the information these apps provide. Review sites test these platforms and give you feedback based on their performance and service.

However, when checking reviews on binary trading apps or providers, here are some of the important factors you should check out for because they are essential;

b. List of Assets

You might have a specific asset you feel more comfortable basing your binary trading and speculating, so checking that the asset list has your available preference is important. So always check to make sure the asset list of the platform is what you are interested in.

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c. Regulation and ESMA

Market regulation is an important factor in the capital market, it protects the market from bad players and bad practices. The government sets up regulatory rules and regulations which include the requirement of a license to be able to function as a broker, so ensure that the broker you choose is a regulated binary options broker, licensed to operate in your country.

The sale and marketing of binary options as a trading method for private investors have been banned and prohibited by the European Securities and Markets Authority (ESMA). This ban applies to every EU-regulated broker so you have to choose a foreign broker and review the rules to ensure that they accept EU traders, for example, the Australian Securities and Investments Commission (ASIC).

Another option available to private investors is to register as a professional trader, there are experience and asset requirements. If you meet them, you can register.

d. Trading Strategies

This is likely one of the most important factors you need to begin binary options trading. In everything you undertake in life you have to have a strategy in order to expect success, and trading the stock market in whatever shape or form requires strategy. You need to analyze the market and review your budget in order to make smart and informed decisions. Failure to do these could lead to bankruptcy and debt.

In addition to all the above, there are several other crucial factors to be considered. You can review historical analysis to be able to determine the behavioral pattern of the market and be able to correctly speculate the next likely range of value to inform your binary move.

e. Trading

Everything you have learned leading up to this has to be implemented now. Now you trade with binary options by picking the asset that your option is a derivative of, choosing the expiration date and the amount for investment, and speculating whether you expect the asset value to rise or fall. Now that you are done with that, you wait for the outcome and your profit or loss.

The Trading Process is broken down into:

  • Choose a Broker
  • Analyze your intended investment decision
  • Chose the Asset
  • Now make the Pull or Call Option
  • Set the Expiration Date
  • Wait for the result.
  • Repeat

Conclusion

Binary trading lets you analyze the stock market and speculate how an asset's value will move. It is very risky and the result would always be a great ''fixed profit or total loss''. This option for trading is easy to understand so you should work towards controlling your risk as well.

For beginners ensure you choose a good broker that has good tools, analyze the market before making all decisions, and don’t get greedy.

This content is accurate and true to the best of the author’s knowledge and is not meant to substitute for formal and individualized advice from a qualified professional.

© 2022 Loretta Osakwe Awosika

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