Binary options are some of the most popular trading instruments in the world today. They are executed on every continent and are pervasive throughout every continent. However, there are many individuals who are rather new to this industry. Before anyone can expect to enjoy a tidy profit, it is critical to understand how binary options work, their benefits and some of the strategies which are employed.
What are Binary Options?
Any binary options trade is simply defined as the specific movement of a chosen asset within a discrete period of time. Some of the assets used are precious metals, stocks, bonds and even the indices themselves. However, there is one important point to note here. Unlike nearly every other type of investment strategy, money can be made regardless of whether the asset gains or loses value. Instead, the investor simply needs to predict which direction the price will move. Let’s look at this from another perspective.
John wants to take up a short-term position in gold. He feels that within the next hour, the price of gold will drop. So, his trade is defined by three factors:
- The asset.
- The predicted direction of movement.
- The time frame.
Assuming that the price of gold falls within this set period of time, John will be “in the money” and enjoy a profit. This is why the term “binary” is used when referring to binary options. Ultimately, traders need to decide upon which binary options positions they prefer and they must study the markets very carefully.
Another benefit of dealing with binary options is associated with the presence of online platforms. In the past, investors would have needed to employ the skills of a broker to become involved. Not only could this be confusing, but commissions were another very real concern. Online trading has now done away with these middlemen; opening up higher profit margins and greater degrees of flexibility. Some other advantages of online portals include:
- Schemes that offer impressive binary options bonuses and other trading rewards.
- Immediate access to late-breaking news.
- Highly advanced algorithms and charting tools.
- The ability to use social trading and learn from more experienced traders.
Of course, it only stands to reason that not every portal is created equally. Investors should only register with a specific service after having carefully studied what is offered.
Binary Options Strategies
Binary options are short-term positions by their very nature. They are often utilised in conjunction with medium-term assets such as commodities or blue-chip stocks. As binary options can be very liquid, it is important to carefully monitor all fluctuations. Furthermore, an investor should never risk any more than two or three per cent of his or her entire holdings within any single trade. This is the best way to avoid substantial losses.
These are some of the basics that every investor should appreciate. With time and patience, this can be a very lucrative sector indeed.