Understanding how Binary Options Work
The first and most important thing to understand before you begin trading is how binary options actually work. In binary trading, you will have to predict the outcome of a situation. This type of online trading is called “binary” options, because a trade can have two outcomes. (Source: Investopedia)
For example, a typical trading contract of this kind might look like this:
– Apple’s stock price will be higher than $500 at 16:00 today. The broker promises a payout rate of 90%.
Now, a trader might either invest for or against this statement. Investing in favor of the statement is called “buy” while investing against it is called “sell”. If the trader’s prediction turns out to be true, then the trader will win the sum that was put at stake plus a sum that is the amount at stake multiplied by the payout rate.
For example: If the trader purchased the above trading contract for $100 and he or she predicted the right outcome, then he or she will win a sum of $190, of which $90 are profits. If, however, the prediction turns out to be false, then the trader will lose all the money.
Underlying assets in binary options trading are the assets on which traders will have to purchase an option. The most common underlying assets in financial trading are Forex currency pairs, commodities, futures and stocks of various companies. (Source: Investing Answers)
In binary options trading, payout rates are the rates that will determine the money traders will win if they accurately predict the outcome of a trading contract. In the above-mentioned example, the payout rate was 90%.
Winnings in this form of online trading are calculated the following way:
W = B + B * (P/100)
W = winnings
B = investment amount
P = payout rate
So, if the investment amount is $100 and the payout rate 90, then it’s W = 100 + 100 * (90/100) = 190 – as in, $190.
Expiry times are the times at which options expire. These are the moments in time at which traders’ predictions will have to turn out to be accurate. If at the expiry time of an option traders’ prediction is accurate, they will win; if not, they will lose.
Understanding the Different Types of Options
There are multiple types of trading contracts being offered by binary trading brokers. The example that I gave you above is just one way to trade binary contracts of this kind. It’s important to understand the differences between these types because they all offer different winning odds and payout rates.
High/low options – High/low contracts are the basic form of financial trading in the business. The above mentioned example in which traders will have to predict that Apple’s stock price will reach a certain limit is a high/low option.
High/low options are the contracts that can be predicted the easiest.
One touch contracts – These option types allow traders to trade on the likelihood of an underlying asset to reach or “touch” a predefined price range at the time of the expiry. These options are a bit harder to predict than high/low options.
Range contracts – Range or boundary options have two lines. Traders can trade on the likelihood that the price of the underlying asset will stay between the two lines or will breach one of the lines by the time of expiry. Ex: Will Apple’s stock price stay between $590 and $610 at 16:00 today? Traders can predict that the stock price will stay between these limits or that it will either go below $590 or above $610.
These types of contracts are much riskier than the other ones but offer the highest payouts.
(Source: FX Empire)
Binary Options Winning Tips and Strategies
Now that you understand how this form of financial trading works, you’re ready to learn some basic binary options winning tips as well. After understating the things below, you’ll be able to move on and read my more advanced binary options strategy guides.
One of the most important things to learn in financial trading is to manage your bankroll. In this type of online trading you aren’t gambling and, as such, you should always have a clearly defined strategy on how you’ll handle your money when you trade.
The first thing to remember is to decide in advance on a sum of money that you would like to invest. Under no circumstance should you go above this sum, even if you’ve lost everything (unlikely if you trade smart) or even if you have won all the contracts purchased.
Financial trading has to be emotionless. You’re there to make money. You’re doing business. Don’t get overexcited if you win because it can blind you and determine you to place trades that have not been well thought out. Also, don’t get disappointed when you lose and don’t run after your money. You may lose even more if you’re sad about losing.
Related article: Full guide on money management in binary options.
Analyzing markets and news
Again, I have to point out that binary options trading is not roulette. In roulette there are no ways whatsoever to increase your winning odds. However, in this type of financial trading you make your own success. If you watch news, if you like business and if you’re smart, then you can increase your winning chances to be beyond just random luck.
The best binary options winning strategies are built on knowledge. Watch the news, know what’s going on and you will increase your odds of winning. Almost every single major event that’s happening globally has an influence on markets.
You don’t even have to be an economist with a degree to see a connection between things. Everyone with some basic common sense and knowledge may predict the movement of an asset. The secret is to pay attention to the signs.
The best strategy that involves market analysis is this beginner binary options strategy that I wrote in 2013 and then expanded in 2015. Check it out.
Paying attention to major events
Apple is releasing a new product today at 10:00 AM? Then make sure to place a large investment on the fact that Apple’s stock prices will increase after 10:00. You can be fairly sure that your prediction will turn out to be accurate and you’ll cash in profits.
Sure, Apple may only release new products once or twice per year but most binary brokers offer the possibility to trade on the stocks of several dozen (or hundred) of companies. You just have to check when these companies release some new product and apply this strategy.
These things are also valid on other assets as well. Say, the US Federal Reserve announces that it has printed a large sum of money. Next thing to do is to place an investment that the USD will depreciate compared to other currencies such as EUR or GBP. And this is again a situation in which you’ll win most of the time, in my experience.
You can read in detail about the strategy just described on this page dealing with long-term binary options and news trading.
Winning at binary options trading is not necessarily that difficult. Most traders are just too lazy and believe that they don’t need to use binary options winning strategies to make money. These are the losing traders who make sure that the broker makes profits as well.
Do you want to be like them, or do you want to become a winner?
Choosing the Best Binary Options Brokers
One of the last binary options winning tips I’m going to give you in this article is to choose only the best brokers on the market. The best binary options broker is regulated in a reputable country, has a valid license and offers a very large number of assets as well as provides advantageous payout rates.
For example, the binary options brokers listed here all fulfil these conditions. I think that these are the brokers that currently offer the best online trading services in the business. Use the binary options trading strategies learned here at those brokers and make some money today.