A binary option is such an option which gives only two possible outcomes in lieu of the payoff. Those two possible outcomes are:
➢ Fixed amount of some asset in terms of money.
➢ No outcome.
Binary option is of two types:
➢ Cash or nothing binary option.
➢ Asset or nothing binary option.
Cash or Nothing Binary Option: In this option you will get a fixed amount of money if the option expires.
Asset or Nothing Binary Option: In this binary option if the option expires, the value of underlying security is paid to you.
The potential return offered by any binary option are certain before the purchase. You can buy binary option virtually on any financial product. The purchase of any binary trade option is bidirectional which means either you can go for a “call/up” option or “put/down” option. Binary options are only offered if a fixed expiry time is there.
Rather than considering it as an investment platform, some people consider binary trading as gaming platform. The main reason for this is that in binary trading, there is no need that user should have the knowledge of stock market for trading.
Binary trading also requires the knowledge of few strategies of putting odds on its side in order to get long term profits same as stock trading. There are two types of trading strategies, thus used in the professional world of trading. These types include the following:
➢ Technical analysis
➢ Fundamental analysis
Different Binary Option Strategies are:
Trading with technical analysis:
The technical analysis is also known as chart analysis. In this the exchange rates chart of various assets is being studied so that the prediction related to the future orientation can be made. This type of analysis is purely based on Dow Theory. This theory essentially states that whatever is observed or estimated in the past, will be repeated today and will reiterate itself in the future also. The analysis of previous decades helps technical analysis in predicting the future orientation of exchange rates, very efficiently and effectively. Technical indicators are used in technical analysis to study charts and are also used either to observe candlestick charts patterns or just patterns graphics. Traders mostly use this type of analysis.
Trading with Fundamental Analysis:
In this method, the emphasis is laid on the economic statistics in order to predict future orientation.
Trading with Martingale type betting:
This method deals with the increasing amount of the investments made on the initial basis for each loss unless profit is achieved.
Trading with trader’s tendency indicator:
Monitoring of tools takes place in this method. This tool is used to describe the balance between position of sale and purchase at a given moment. This tool will show you the percentage of clients with purchase and the percentage of clients with the respective positions at sale for a defined financial asset at the given time. The clients can trade by their instinct as they are not allowed to trade on Wall Street. But in this method the reliability of tool is not certain.
How the risks can be minimized in binary trade:
In order to avoid bankruptcy, the best method is to reduce risks from the very initial point. To get beneficial results, the rules of capital management should be properly and appropriately followed. Professional traders also called it as money management or risk management. There are few things which should be however kept positively in mind during binary trading and these things are:
➢ Do not place big bets.
➢ You should not put all your eggs in just one single basket.
➢ Always invest capital when there is a need of it.
➢ You should not bet more than 5%of your capital in just one position.
Must read: How to Make Money with Binary Options
Methods to achieve profits in Binary option trading:
Study is the best way to achieve gains in binary option. It would be beneficial if you would study fundamental analysis or binary analysis if you want to build up a strict trading plan along with a capital management plan.
It is not necessary that that you always win in binary option trading. It is not at all simple to win this and stay on the winning position for a long time. If this would be that easy, then everybody on this planet would be easily rich. But you can’t neglect this fact that some people are really doing good and earning well in binary trading.
Advantages of binary option trading:
There are many advantages related to binary option trading. This is the main reason why it is becoming more and more popular these days. Binary option trading is very much cost effective and the risk associated with this is actually very low. If the trade is successful, then there are possibilities of high return and flexibility. You can also get a large amount of profit in a short span of time. Basically, you can earn a lot even within one hour.