Table of Contents
What are Binary Options?
Binary Options are financial assets traded for a profit. The binary option contracts clearly define the risk and possible outcome at the date of expiration. One will either make a predetermined profit or lose the amount used to open the trade. In definition, the trader is making predictions on the movement of the market and not buying a share of the underlying market.
In a standard binary options contract, the buyer will risk the sum he puts up for the price of a contract hoping that the contract closes in the money for him to benefit. The seller receives the upfront sum as price of the contract, risking to pay $100 if the contract closes in the money.
Using A Trading Strategy
Making use of trading strategies ensures that the traders avoid emotional and uninformed trades. While binary options trading might seem simple and straightforward, one can lose a lot of money making poor decisions and placing money on the wrong options.
The different markets in which one can speculate on with binary options include Forex, Stock Indices, Commodities, and events. Risk management applied to every single trade is one of the most important factors to consider in these markets. An advantage of trading binary options is that the investor will never lose more than his investment. The only key performance indicator is whether the price manages to meet or exceed the strike price.
How Do You Trade Them?
A binary options transaction includes the following elements:
- Strike Price – this is the price or value that the underlying asset must equal or exceed for the holder of the binary option to benefit at the moment of expiration.
- Current Price – this is the price that the asset is currently available in the market.
- Underlying Asset – this is the security whose price the binary option is based on
- Expiration date – this is the predetermined date and time that the contract will expire
- Bid/ask Spread – this is defined as the highest price a buyer is willing to purchase an asset for and the lowest price the seller is willing to take in exchange for the asset. A high bid/ask price signifies that the contract will close in the money while a low bid/ask price signifies that the trade will most likely close out of the money.
- Position – the trader will take either a buy or sell position. He will benefit from a buy position if the asset’s price at the date of expiration is equal or greater than its strike price. The trader will benefit from a sell position if at the date of expiration, the asset’s execution price is less than its strike price.
Follow-The-Trend Trading Strategy
Approaching a trade without a plan will likely result in the trader losing his investment in a short time. To make informed decisions, the traders must have the right entry & exit plan, trading strategy, and trading tools. Following trends is an easy strategy to follow since asset prices will fluctuate with trends and prices will appreciate and depreciate with their associated assets.
Follow-The-Trend trading strategy is one of the most commonly used trading strategies for financial assets. Traders apply this method by tracking the current price trends of any of the underlying assets being traded. The simplest way to identify a trend is to check if the chart starts and ends on diagonally opposite sides of the monitor.
If the market value moves upwards, making higher highs, this forms an uptrend. A call option in this case will pay off as the asset price will end up higher than the strike price at the predetermined expiration date. In the case of a decline in market value, and progressively lower lows, this forms a downtrend. A put option will pay off since the value of the underlying asset is expected to finish lower than the strike price by the predetermined expiration date.
While the Follow-The-Trend strategy may be less complicated, it is always advisable seek the advice of a registered broker. Reach out to https://www.binaryoptions.com/broker/binomo/binomo-india/.
What Are the Risks Associated with Binary Trading?
Due to its speculative nature, binary options trading is risky and can result in a loss of all of the investor’s capital. Clients are advised to research comprehensively on the legal and economic risks involved in these transactions. Binary options pay a fixed amount and are pre-determined and are contingent on whether or not set events occur as per the expiration time of the binary options.