It has been possible to trade in binary options for many years although it is only relatively recently that it has become seen as a mainstream activity. The basic premise of this type of trade is to identify which direction the price of an asset is moving in and purchase an option for the asset. An option is simply a type of contract; the outcome is guaranteed before the contract starts and will end in one of two ways. You will either have predicted the price movement correctly and be entitled to the agreed profit; also known as the rate or return. Or, you will have been wrong in your prediction and will forfeit the funds you invested in the trade. In fact, investing can be misleading. The funds you spend are actually purchasing the contract. The reward for a successful contract is profit, an unsuccessful contract results in a loss of your purchase price.
There are many sports analogies which can be used to help understand the principles behind binary trading. Perhaps the most important is that, just like any sport, the more risk you take the better the rewards can be; but equally, the risks are greater that you will receive nothing. The game of soccer; or football as it is known in some countries, provides a good example of this. In order to achieve as many goals as possible and win the game; you need to pass the ball between your players and move all of them up the field. Maximum pressure on the other team and their goalkeeper is achieved by having your whole team pushing hard for a goal. Unfortunately, one loose ball and your own goalkeeper is left alone, facing the other team shooting at them. It is likely they will score! In order to prevent this exposure to risk each player has a position to occupy and the ball is gradually moved around the pitch with enough players near the goalie to support them and defend an attack.
The actual premise behind this is the same as for binary trading; trying to generate high rates of return in one trade will require large investments and high risk. Instead, you should choose to make many smaller gains; this will create a consistent profit; even if it is smaller than the amount you could potentially make from one large trade. Binary options trading, like any market investment strategy, should be about keeping your risks to a minimum and settling for smaller, achievable profits.
Why this is Possible
Binary trading is unique in that you only need to be moving in the right direction in order to have successfully traded and generated a profit. In fact, many of the brokers offer rates of return as s ninety percent; Finpari is one such broker. With such high rates of return, assuming you keep the value of your trades the same, you will only need to make successful trades approximately fifty five percent of the time; this will be enough to generate a steady return on your investments.
The trick to ensuring this is possible is to maintain the same level of investment. It is easy, when doing well, to feel that you can increase the amount of your investment. However, one bad trade can destroy your profit for the day if you have been increasing the amount you are placing on each trade and, therefore, your risk. This is one of the biggest mistakes that many traders make and prevents them from generating a good level of profit.
For example; if you place three trades at $100 each with a ninety percent return and two of them are successful; you will generate a profit of $180. However, if you place two trades of $100 each and then, having won both trades, you are feeling confident so invest $300 in the next trade. This trade has a higher level of risk and, if it is not successful you will lose your $300 and wipe out the profit on the first two trades. Of course, if you had stuck to the $100 trade, your loss would have been just $100 and your overall profit would be $80. Alongside this you will have retained your invested funds. A consistent level of risk, no matter how well you are trading, will ensure you generate a steady profit.
Demo Accounts
Many brokers offer these as an opportunity to become accustomed to the site and practice trading before you use your own funds. On the face of it they seem like a good idea. However, a demo account does not use your money as such you will not fear or appreciate the risk and will happily place trades that you will not do with your own funds. Using the demo account can create a feeling of invincibility, causing you to take very different trading decisions to those you would make if using your own funds; it is better to start trading straight away with your own funds.
