Using binary options is the perfect way for traders to profit from short term price predictions. Binary option traders predict whether a market will go up or down within a specified amount of time. Traders buy a binary option if they believe a market will be above their selected price at the option’s expiration. In turn traders sell a binary option if they believe a market will be below their selected price at expiration.
The best thing about binary options trading is that the risk and reward is always defined before a trade is placed. If a trader’s prediction on price is correct the option will be worth $100 at the option’s expiration. If a trader’s prediction on price is incorrect the option will be worth $0 at the option’s expiration.
Getting started with binary options is easy. Most binary options brokers offer a free demo account to practice trading. U.S. traders should open a demo account with NADEX (www.rockwelltrading.com/nadex
), the North American Derivatives Exchange, where they can practice trading on a simulator. Traders can open a live account with NADEX (http://www.nadex.com/why- nadex.html) for as little as $100. There are many international brokers that offer binary options trading. However, traders should do their research when deciding on a broker outside of the U.S. One broker with a good track record that has been around for more than 15 years is IG Group, also know as IG for short.
Once you have a sim account you can practice placing simulated trades. As a binary options trader you will need to determine the market that you want trade (like the S&P, the DOW, Crude Oil, Gold Silver, currencies and others). You will then need to select the price you believe the market will be above or below (also know as a strike price). You will then need to decide on the expiration. Binary options usually have intraday expirations (expiring in minutes or hours), daily expirations (expiring at the end of the trading day), and weekly expirations.
When you first start trading binary options, the first thing that you realize is that prices are all based on the probability that a market will be above or below a specified price at the option’s expiration. There are many strategies and techniques for trading binary options, but one of the most fascinating concepts is to use market probabilities to select your price, your expiration, and whether the market will close higher or lower at expiration. Rockwell Trading (www.rockwelltrading.com) has simplified this process by providing daily probabilities for the most popular binary options markets. These probabilities will let you know if a market is likely to close higher or lower. On average these probabilities are 70-85% accurate.
With practice new traders will become familiar with their trading platform and strategies, then their confidence will increase. Practicing with a demo account will teach a trader how to place trades, experiencing both wins and losses. A demo account will give traders the ability to experience real life trading, without risk.
Binary options have been around for a while, but their popularity is growing each day because of their limited risk. This short term trading vehicle is filled with potential, but there are risks. Before starting this trading venture, the risks implied can be substantially reduced by practicing on simulator and incorporating market probabilities with every trading decisions.