| Updated: October 30, 2024You will learn about the following concepts
- Binary options as a simplified way of trading
- Learn how to combine your skills
- Risk management and knowledge
- In and out of the money
- Accurate forecasting
In the previous article we discussed why now is the right time to begin your binary options trading career. Now we want to help you realize why binary options trading is one of the best ways to generate profits and increase your households income. This might sound too good to be true, but with the right trading strategies and technique you have a big chance of becoming a winner.
Basically every person who is involved in online trading to some extent will tell you that Forex is not easy to master, especially over a short period of time, and that it will require a large initial investment. Trading both currencies in the Forex market and binary options carries a high risk and can wipe your account, especially in the first months of live trading. However, binary trading has considerable advantage regarding this aspect as it does not require to fund your accounts with thousands of dollars in order to start. Thus, you are exposed to a smaller capital risk. Moreover, unlike Forex, and especially in the beginning, you don’t have to learn a considerable amount of complicated strategies just to generate a small profit.
Learn how to improve your skills, risk management and knowledge
Binary options are a composition of knowledge, skills and risk management, which however are incorporated in a simplified trading method. This is why binary options are considered as a revolution in online trading. They are ideal for novice traders while at the same time the experienced traders are not left aside – they can use a variety of tools that will help them capitalize on their trades in the best way possible.
The simplicity that stands behind the word “binary” means only one thing – the price can either go up, or down, and this philosophy is one of the major reasons this type of trading is so popular among people who want to become traders. It doesn’t matter whether you have a financial background or if you have no trading experience – there are levels for any type of trader on the field of binary options.
If we have to sum up everything said so far, it would add to saying: every binary options trader tries to forecast the future direction of currencies, stocks or commodities (it is a matter of personal choice, but more on that topic later). Explained in its simplest form, everything is about going up or down, and if you want to become a winning trader, you will have to be able to predict the prices direction of movement. Therefore, as the name “binary options” suggests, there are only two possible outcomes – win (in-the-money) or lose (out-of-the-money).
We have an “in-the-money” scenario when the trader has correctly guessed whether the assets price goes higher/lower, which will give secure a return varying between 60-90% on top of the original investment.
An “out-of-the-money” scenario unfolds, if the trader is incorrect and the price goes opposite to his suggestion. Then most of the initial investment will be lost, if not all.
The binary options approach to trading provides other advantages over traditional trading methods as well. For example, the removal of ask/bid spreads, hidden fees and leverage makes it extremely easy for beginners to master the way of trading and keep track of their capital risk. Also, since you have only two possible positions in any given binary trade, there is no easier way to take your knowledge to markets.
Accurate forecasting
Essentially, there are two important questions that every new binary options trader should keep in his mind. First, how much to invest in a certain position, and second, will the asset fall or rise in a given period of time.
Once you master the ability to make those choices and lock the trades, there is nothing else to consider. You will just have to wait and see whether your forecast will turn out correct. The best part is that there are no stop-losses to manage and no way for an open position to leave you exposed because all the information a trader needs is simply available before any trade is being committed.
One of the most attractive and important aspects of binary trading is the transparency they offer. Thanks to the pre-calculated risk levels a person can choose exactly how much to invest and for how long. By having this knowledge, you, as an experienced trader, will be able to implement robust money management, which is also one of the most important aspects of binary trading. Thanks to the simplicity of trading, market players have more time to focus on the trade itself rather than the details of every open trade.
Example
Below you will find a brief example that will help you realize why binary options trading is so simplified, especially compared to other trading methodics. Let’s assume that a trader wants to place a bet on the EUR/USD currency pair via spread betting and binary options trading and see what the main differences are. For this example, let’s also assume that the Euro is going to strengthen its position against the US dollar. The trader bets $20 per pip, meaning if the difference is 10 pips, the profit will be $200. (10 pips x 20$ per pip).
The first disadvantage in spread betting comes from the fact that the trader has to buy 1 pip above the market rate and sell it 1 pip below the current rate. So if the pips have increased by 10, this means your profit will actually be 8 pips (buying 1 pip above the current price, selling 1 pip below the future price). Even if you win, this might be considered as a 20% loss.
On the other hand, in binary options trading – there is no spread. It doesn’t matter if you are right by 10 or 100 pips – as long as you predict the right movement – you win. Usually the returns are fixed and the percentage circles around 75%. With binary options, all the trader has to do is to place an “up” or “down” option on the currency pair, chose the sum he wants to invest and select expiry time. If you win and you have invested 2000$, then you will generate a profit of 1500$.