Tips for Trading Binary Options
As with trading options in general, trading binary options means knowing the best practices of successfully navigating the option marketplace and knowing what to buy – and when to buy it. While there is no magical system that will generate the perfect choice every time, you can nevertheless improve your trading with a few timely tips.
Here, we will talk about a few tips for trading these intriguing and potentially-profitable assets.
One of the best tips is to experiment and practice. The magic of the Internet makes opening a practice account with virtual money a must for anyone breaking into the field. Many brokers have these practice accounts and they can be invaluable to help hone one’s skills.
Know Your Asset
Trading binary options involves risk, and one way to mitigate that risk (and make more money) is to understand your asset. It’s not just a numbers game, and definitely isn’t gambling. Research and knowledge go a long way toward success.
For example, understand what moves prices in your asset. If you trade options in stock, understand what makes a company’s stock price move, and look at historical trends and values. If you trade in currency, follow the major economic events that primarily move forex, like policy announcements from major banks.
Trading binary options means knowing when to buy and when to avoid the market. To help, try and get a feel for the ‘momentum’ of a particular market. This is more applicable to stocks and futures, but it is still applicable to other, less-volatile assets.
For example, if a stock or currency is experiencing a significant breakout, be careful about waiting too long to put in a Call option. Look for slowing momentum and a peak, and think about a Put option.
The same can be said for devaluing assets. If a stock is getting hammered over a long period of time, all other things being equal, a bottom is probably near. Consider a Call option to profit when the stock recovers.
Learn the Advantages of All Types
There are three general types of binary options: above/below, touch and range or boundary binary options.
Above/below requires that the asset price close higher or lower than the asset price when you buy it. So, if you buy a contract when X is at $10, an above position profits if it expires at $10.01.
A touch option requires the value of the option you invest in to reach or exceed a certain value at least once by expiry time (example: one hour, one day, one week). So, if you invest in a touch option on EUR/USD for 1.4000 that expires in a week, it means that the value of the EUR/USD currency pair must at least “touch” or exceed the value of 1.4000 by the end of the week.
Touch options are riskier, but they pay more. Know your risk tolerance and pick the appropriate method accordingly.
Range or boundary binary options require the value of the option to be trading inside or outside of a certain range or field of values by expiry time. So, an example of a position one could take on a range option for Google stock might be that Google stock value would be between 616 and 618 by expiry time. Another possibility would be that Google stock would be outside of this 616 to 618 range.
Similar to above/below binary options, range binary options require one to decide whether the option will be inside of or outside of a certain range of values by expiry time.
In addition to the above tips, researching and learning about binary options is always recommended. Know as much as you can; it is the only way to really succeed in this field.