Your first step to binary options trading is to select a good and reliable broker. While it is easy to commence trading in binary options, making money out of such trades is not as simple. In this article, we list down tips that will help you trade in binary options like successful professionals do.
Research Assets: Binary options are traded with a large number of underlying assets, including equity, index, currencies and commodities. The key to successfully making money in binary options trading depends on the accuracy with which you can predict asset price movements. To acquire this skill, it is necessary to carry out research on the asset that you want to trade on. For example, if you wish to trade a binary option with the underlying asset of ABC Ltd’s equity, be well aware of the fundamentals, recent events, results and issues surrounding ABC Ltd. Similarly, it is important to be informed of the demand, supply dynamics of the commodity you wish to trade on. If you understand the basics of technical analysis, you could complement it with fundamental analysis and narrow down on a potential winning trade.
Be well read: The movement of asset prices is influenced by the general global economic scenario to a certain extent. Hence, apart from asset specific factors, it is important to read up on the news and current happenings globally. Further, reading up on mistakes committed by binary options traders will ensure that you do not repeat the same ones.
Know the options available to you: There are different types of binary options trades that you can carry out. Once you are aware of the alternatives available to you, you can utilize them to increase your earnings potential. For example, a Call/ Put option is the most traded one. In this type, you have to predict whether the asset price will trend above or below a pre-determined strike price at the expiry of the option. The 60 seconds option uses the same rule except that the trade expires every 1 minute. In One Touch binary option, you have to predict whether the asset price will at least touch the predetermined strike price once in the lifetime of the contract. In Boundary options, you have to determine whether the asset price will remain in between a predetermined range at the expiry of the contract. Check the binary option types that your broker offers on their trading platform. With the knowledge of these, you can decide on the one that best suits your risk taking appetite and your comfort with predicting the asset price movement.
Mitigate risk: Trading in any asset class is fraught with risk. Thankfully, you can combine two or more contracts to restrict your losses. One such strategy is the ‘pairing strategy’ in which you pair a call option with a put option to mitigate risk and make consistent profits. For example, you enter into a call option contract with underlying asset as stock of ‘XYZ Ltd.’ at a strike price of $20. At the expiry of the contract, you are in a favorable position as XYZ is trading at $25. However, you anticipate that the stock price could plunge owing to a recent negative event. In which case, all your gains through this trade will be wiped out. Hence, you buy a put option on ‘XYZ’ at a strike price of $25. Effectively, you have created a ‘secure’ range between $20-25 by pairing the call with the put binary option contract. If the asset price trends in between, this range of expiry, you stand to gain from both the contracts. If it falls outside the range, then losses from one contract will offset the profits from the other. You can further explore this strategy by choosing your asset, which could be a stock and an index, or two rival stocks.
Trader’s psychology: It is extremely essential that you do not think emotionally while trading. Successful and professional traders know when to cut losses and move on. More often than not, traders tend to enter new contracts in order to offset the loss from the previous trades. This is acceptable as long as you trade within the capital that you have allocated for such trades. Once you trade beyond your allocated capital in order to offset losses, you are taking a huge risk.
To become a professional trader, you have to invest enough time practicing these guidelines. These will then help you succeed in making money through binary options trading consistently and safely.