Binary Options: What are They and How Do They Work?

What do you know about binary options? Do you think that they may make a good investment opportunity?

Binary options have gained in popularity over the last 10 years for big-time investors and day-traders alike. They only used to be available for the big investment banks until the SEC made changes to the rules. That allowed even beginner investors to trade binary options.

Binary options have become the wild west of investments. They’re simple trades, yet full of platforms and people offering an opportunity to get rich quick.

With so much to learn about binary options, where do you begin? Read on to learn what binary options are, how to trade them, and how to avoid the scams in the market.

What are Binary Options?

Have you ever bet on a sporting event? Chances are, you’ve bet the over/under or on a specific event. You may have bet on whether or not Lebron James would score 35 points in a basketball game.

Believe it or not, binary options work in a similar fashion. The root of the word binary is one of two things. In computing, binary code is made up of ones and zeros.

In binary options, you’re dealing with one of two options. You’re just answering one question – whether or not a certain stock is trading lower or higher at a specific date and time. It’s a yes/no question.

Binary options aren’t limited to stocks. You can trade Forex pairs, commodities like gold and soybeans.

The simplicity in trading binary options makes it appealing for beginner investors. The important thing to remember is that you still have to be strategic about your investments. You need to treat your investments like investments.

Investing isn’t something that you just do because you’re bored. It’s also not a form of gambling. If you treat binary options this way, you will be certain to lose money.

How to Trade Binary Options

How do you start trading binary options? Start by reading economic reports and learn about different types of trades. You’ll want to educate yourself as much as possible. Once you have a solid background in binary options, you can put these tips to use.

What Will You Trade?

There are many different assets that you can trade with binary options. You can pick a variety of Forex pairs or even coffee.

You want to know the risks of each type of asset and the advantages each before you start to trade.

Commodities like wheat, gold, silver, and coffee are seen as low-risk trades. The reason why is because commodities aren’t volatile. They don’t have the big up and down swings that you might see with some stocks.

Since they don’t have those swings, they’re easier to predict. That’s why they’re seen as low-risk investments. Since they’re low risk, the rewards aren’t as large when you predict the right option.

Stocks, on the other hand, are very volatile, even more so in recent months. That level of volatility isn’t going away anytime soon.

Stocks are much more difficult to predict, which means you can make a lot of money if you predict correctly.

In the middle lies Forex pairs. In some cases, Forex pairs may see a lot of volatility. That depends on political and economic news coming out of Asia, the UK, and the Eurozone.

There’s a lot happening with Chinese trade tariffs, Brexit and political uncertainty in Spain and Italy. On top of that, Germany is preparing for a recession. All of these things can have an impact on how Forex pairs trade.

Being In or Out of the Money

When you chose an asset to trade, placing your order is pretty simple. You can take a Forex pair like the Euro and U.S. Dollar. You think that the pair will trade at $1.09 in two weeks at 12:30 pm EST.

When you place your option, the number is going to be between $0 and $100. This is how much you’re putting into the option. If you place your option at $25 and you’re incorrect, you’re out $25.

At 12:30 pm EST, the option expires. If you were right, you’re in the money and you’ll get paid for being right. If you were wrong, you’re out of the money.

Timing Your Binary Options Trade

In case you can’t tell, timing is everything in binary options trading. The best time to trade binary options depends on the asset you’re trading and surrounding events.

If there’s a country that is showing political instability, you can place your option accordingly. You can set an option for an hour, the end of the workweek, or the end of the day.

Picking the Right Binary Options Platform

Where do you trade binary options? You go online to make your trades. There are various trading platforms that you can use to trade. One of the most traded platform in the industry is IQ Option – you can check out the detailed review on business24-7. Unfortunately, there is a lot of fraud in the industry. Here’s what you should look for in trading platforms.

How Long Have They Been in Business?

You don’t want to give your money to a website that was just set up last week. Longevity is a sign that a trading platform is legitimate. You want to do your research and read reviews of a number of platforms before you decide.

What Markets Do They Trade In?

Not all trading platforms are the same. Some only trade in Forex pairs or in markets outside the U.S. If you studied one type of asset that you want to trade, the platform should have the ability to support it.

What Will a Trade Cost?

Trading platforms will require a minimum deposit to start trading. They’ll also require fees per transaction. You need to know what these fees are before you start trading.

Trading Binary Options

Binary options are very simple trades that is a great place for beginner investors. You need to do your research on the different types of assets that you can trade along with the trading platforms.

That will help you keep your trades secure and profitable. Remember that while binary options seem simple and a bit like gambling, you still need to have a strategy in place.

Do you want more investing tips? Check out the building wealth section of the blog often for the latest.

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