Binary options trading can be a very profitable enterprise, but there are no guarantees that investors will succeed with every contract. The main reasons that these options are so popular is that they require minimal investment and risk is capped at a fixed level. However, rewards are also limited due to the nature of how these trades are set up. Learning how to succeed with binary options involves a lot of research, good instincts and working through a stable and reliable trading platform that has a large group of participants.
Trading is based on the speculation over future movements of specific financial instruments or indexes. They are not intended to serve as long-term investments since each contract has a fixed expiration date. Binary options also do not involve the actual purchase and ownership of any assets. Money is made and lost based on the outcome of the terms of each individual contract, and each trade is settled once it expires.
Profits stem from the combination of the correct speculation of the performance of a particular asset at a specific time in the future, the amount paid to buy into the contract and the value of that contract upon closing. Losses occur if the price of an asset falls below the predicted amount or, in some cases, when the purchase price of the contract falls below its final value. Learning how to correctly balance these factors is the bedrock of success of trading in these types of markets.
Each trading platform offers investors a range of products as well the possibility to speculate on various conditions that relate to the anticipated performance of an asset. In other words, there are lots of ways to make money with these options. The trick is to find the right platform that provides investors with what they are looking for. Some offer simple up or down trades on a few indices such as the Dow Jones or S&P and basic FOREX pairings. Others give traders the option to speculate on the spread between highs and lows of a particular product. Some allow for 5 minute trades and others focus on the performance of options over the course of a few weeks or months.
The good news is that there is something for everyone, which is one reason that binary options are becoming such a sought-after alternative to trading on traditional markets. They are also free from day trading rules and high account deposits that are commonly associated with mainstream brokerage houses. Fees per trade are generally substantially less than what brokers or platforms charge to buy or sell in real-world markets as well.
Another benefit to trading in these markets is that profits and losses are capped at $100 per trade. If you buy a contract for $10.00 and it expires above the stipulated level, your profits can be close to $90.00 in addition to getting your original money back. If you purchase a contract for $40.00 and the asset expires below the stipulated level, you will only lose $40.00. The actual amount that you can collect or lose will depend on the fees and commissions that the broker or platform assesses as well.
There are no hard and fast rules that guarantee success in these markets despite the limitless amount guaranteed money-making trading strategies and guides that market “gurus” promote on a regular basis. Of course, this is no different than the material that is available to help guide investors who are participating in traditional markets as well. At the end of the day, experience and instincts generally steer investors toward making speculative decisions that may or may not pay off. If you are looking for “how-to” guides, try to avoid ones that make grand promises and promote false assertions. Stick to those that teach you about the various nuances of this trading option instead.
One thing is for certain: There is a lot of money to be made in these markets despite their lack of regulation. Traders with the skill and aptitude for interpreting market conditions and speculating on the future prices of assets can stand to make more then they lose over the course of time. The trick is to find the right platform, develop an appropriate strategy, calculate risk vs reward and place orders accordingly.