Binary Options Trading for Beginners
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Binary options are the financial world’s newest innovation. They are ideal for people just entering the trading marketplace because of their high payouts and ease of access. You don’t need a lot of money to start trading binary options, and this makes them much more accessible to the average person. Still, binary options are very fast paced and if you approach them without caution, there is a lot of risk involved. With knowledge and some practice you can learn how to trade binary options in an expert manner and start turning out consistent profits.
The first step toward becoming an effective trader is to figure out where your skills are. If you are already an experienced stock day trader, you will probably gravitate toward the 60 second and 5 minute binary options with a strong focus on corporate stocks. If you’ve dabbled in the Forex marketplace, trading currency pairs will be a good starting point for you. But what if you have never traded before? The great thing about binary options is that they are a good way for beginners to enter the market. If you’ve never traded before, you do need some practice prior to beginning. Open up a demo account with a broker and get your feet wet. Unfortunately, many brokers limit the amount of time you can spend demo trading, but this shouldn’t limit you. There are other sites that allow you to demo trade other than binary options brokers. Most major Forex brokers, for example, have demo accounts available. You can tailor your approach with these other sites toward binary options with little difficulty.
Once you know what type of binary option you are going to be trading, it’s important to devise a set strategy. Binary options have a big potential for gains, but they also have a big potential for losses. Figure out a conservative approach to trading and put it into action. This might mean that you only have a few trades per day. While this is certainly not a lot of trades—it’s easy to have several dozen 60 second trades in just a few hours—the quality of your trading will be much better. It’s better to have 5 successful trades per day than 20 trades executed without much thought.
Next, you need to find the best broker(s). I pluralize this because the best broker for your given asset today might not be the best broker for your given asset tomorrow. For this reason, it is wise to have more than one account. Having money within several binary options brokers gives you the freedom to shop around and find the very best option at the very best rate. As you will undoubtedly discover, even a difference of a few percentage points can make a big difference within your long term success. If you want to be successful, this is an essential part of the process.
Don’t be afraid to look around for bonuses, either. Many brokers offer bonus cash when you fund an account through them. While this should not be your sole reasoning for choosing a broker, bonus money does not hurt. Generally, you need to trade 20 to 30 times the bonus amount before you can withdraw it. So if a broker is offering a 10 percent bonus and you deposit $1,000 with them, you will receive $100 in bonus money. After you trade $2,000 worth of options, that money is yours to do what you wish with it. Obviously, the more bonus cash you can get, the better. Still, there is such a high price associated with these in terms of how much you need to trade before they become available to you that you should only shop around for bonuses after considering other aspects of a broker’s benefits.
Also, you need to diversify. This is a common mantra in the financial world, but it is so for a reason. Putting all of your money in one type of option is not wise. You need to approach binary options trading holistically. Sure, you might be an expert in 60 second options, but a string of bad luck here can quickly wipe you out. Make 60 second options, but also focus on other areas with high rates of return. For example, the industry standard rate of return for 60 second options is right around 70 percent. This is obviously a pretty good rate of return, but slower options can give you a bigger rate of return. 30 minute binary options might return as much as 85 percent on your initial investment. While it is true that you can make a lot more 60 second trades in the same time period as a 30 minute option, the risk is greater and you might actually end up making more with the slower paced choice. Diversifying your portfolio will help protect you from the inevitable bad slumps that you might experience with one type of option and will help even out your consistency.
Finally, you need to trade the assets with the highest returns. Is it a coincidence that the EUR/USD currency pair is the most widely traded binary option underlying asset and it has a low rate of return with most brokers? Absolutely not. Binary options brokers know that this is an asset that a lot of people trade and as a result have lowered their return rates in order to earn more money. Find an asset that is not widely traded and you will see a bigger rate of return. Obviously to be successful here you will need to do some research on the lesser known asset, but once you are comfortable, you will see bigger profits—even if your correct trade rate is a little bit lower. The rate of return will eventually have more potential for gains than your correct trade rate will because one of these things you can modify and the other is beyond your control. Venturing out to new territory in the binary options world is therefore a lot more profitable than it is in other types of trading.
There is a lot more to becoming successful in this marketplace than these above pointers, but let these stand as a starting point for you and you will find success much more quickly.
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Mrs. Irit Rutenberg is FXEmpire.com Content and Analysis Team Manager, with a few years of experience in the field. The FXEmpire.com news desk members are all of an academic background in the finance field with practical and theoretical experience in trading.View all of FX Empire Analyst - Irit R's Articles