It was in 1973 when exchange traded Options were first introduced and since then they are increasingly getting popular as an investment instruments. Though considered complex and risky, Options offer some unparalleled advantages that draw investors towards Option Trading.
Options are highly cost efficient allowing you to own shares with a considerably less investment in comparison to investment required for directly buying the same number of shares. They are also safer than Stocks if used for Hedging and they have potential to generate higher returns. Options also give investor flexibility to manipulate their position depending on the market conditions.
With time we have seen emergence of different types of options like American Options, European Options, Long Term Options and Exotic Options etc. Here we are concerned about one type of option i.e. Binary Options. Binary options differ from other options in number of ways. While in other options your profit or loss depends on difference between the strike price and expiration price, in Binary options your profit or loss is fixed in advance because it depend on the outcome of a YES/ NO proposition. To make it clearer, let’s understand how Binary option works:
Working of Binary Options
In trading with Binary Options, investors make a proposition about the price of an underlying asset at a future time and what the investor stands to lose or gain is made clear before executing the deal. So if the price of that underlying asset reaches the level as predicted by the investor, the investor will get pre-determined return, otherwise the investor will suffer a pre-determined loss.
Conceptually, these options are simple to understand and use but the elements of uncertainty about predicting future price at a given time makes them a risky instrument. As far as regulatory framework is concerned, some binary options are traded on recognized exchanges while other are traded on internet based platforms. Hence Binary Options is blend of opportunities and risks, but there are ways to maximize your gains using Binary Options.
How to make money with Binary Options
- Thorough knowledge about the Underlying Asset: Your chances of correctly predicting the future price of an underlying asset increases considerably when you are well informed about the market conditions of that asset. Knowledge about its products, its market share, its growth outlook, its financial history and the quality of its management team are few things that you should keep in mind while entering in the contract.
- Track of macro-economic conditions: You should track financial news, follow policy announcements by regulatory authorities, condition of foreign markets that may concern the underlying asset of the Binary Option you are planning to execute.
- Start with practice accounts: Even with this much knowledge there are chances that when it comes to practical, you may not be able to use our knowledge in a judicious manner. Hence just like any other skill, if you need to enhance your skills with Binary Options you should make full use of free practice accounts to know how well you are putting our knowledge to use.
- Go for a reputed broker: When it comes to Binary Options, you should always bear in mind that trading in binary options is largely unregulated and hence chances of frauds and default on payment commitment are high. Therefore you should opt for reputed and legitimate brokers having proven track record of working transparently, settling their transactions and meeting their commitments. Further you should compare brokerage charges, sign up bonuses, minimum capital requirement of different brokerage firms. Further before signing up with your selected brokerage firms make sure that you fully understand terms and conditions of their services.
- Be methodical: Chances of our trade going south greatly increase when we are influenced by our emotions. Hence it very necessary to chalk-up a methodology based on research and knowledge for investing in Binary options and working based on data and facts rather than guided by our emotions. A good way to be methodical is trading with Binary Options Robot. You can learn more about the binary robots here.
- Avoiding conflicting positions: In order to hedge, some of the investors unknowingly make trades of conflicting nature i.e. gains of one trade are negated by losses from other because of inter-related nature of underlying assets. Such situations should be strictly avoided.
Though there is not set of rules that can guarantee you handsome profits when it comes to trading in market, but your chances of making money increases considerably if you follow the rules.