Binary Options (BO) is the world’s popular tool of making money that similar to the exchange trading became popular recently. Correct prediction of price movement (up or down) of one of the market’s assets – the international trading subject which price affects the world’s economy is a key factor to achieve success. Among them are:
- Natural resources;
- Food – grains, alcohol, coffee;
- Shares and other securities;
- Stock indexes;
- Crypto-currency (a tool recently been integrated into the financial system, which implies the possibility for each Internet user to create their own currency, determine its value and circulation space);
- Currency pairs exchange difference.
The last point is the most common Forex asset, being the most used as a BO potential income. It’s main idea is that it’s quite simple to predict a currency exchange rate, i.e. you can manage operations successfully.
Interconnection with Stock Exchange
In order to learn how to make money on BO, a beginner should learn some theoretical aspects that not only directly related to the theme, but also to the global market and Forex principles. Successful traders who earned a large capital and continue to increase it, surely used a special approach and strategy. A beginner, making first steps, should minimize the risks with a help of informational content.
The classical exchange algorithm is somehow different from the direction under consideration, but at the same time has a point of contact. One of them is a trader and broker presence. Traders drives the trade of main assets – purchase them concluding the transaction, analyze the market and then sell them making profit in the case of success. Brokers make a request to conduct operations, receiving a percentage of the transaction.
Previously we studied the theoretical basis, and now it is time to choose a strategy and make money on BO. The process involves the fulfillment of certain conditions specified earlier. One of their features: the asset price rise or its fall can bring benefits.
When buying a trader should know potential profits and risks in advance. Classic trade looks like this: there is a certain price level – the Standard. A trader should guess the price (higher or lower) of the underlying asset relating to it. Successful (executed) option brings the pre-agreed profit, the unexecuted leads to money loss.
Some brokerage platforms refund a certain investment percentage in order to expand the customer base. If the option is finally closed on the standard price, they also partially or completely reimburse its cost. You do not have to buy an asset – it is enough to predict the direction of its price:
- increase – Call;
- decrease – Put.
Those who learn BO from nothing should know the key definitions:
- Rate – options value;
- Bonus – the amount paid by trader at successful transaction;
- Underlying Asset – the price on this bargain subject is key: whether a trader get a bonus depends on its direction or outcome;
- Strike – the asset price, fixed at the time of purchase; for trader it is money invested in operation;
- Expiration and Rollover – respectively, the time of option expiration and feature that allows to extend it.
Types of Income
Another important condition required to comply with planning trading on BO – you need to decide on their most common types:
- Call/Put – based on price anticipation (up or down);
- One Touch – the price should achieve a certain level before expiry;
- No Touch – the price should not achieve a certain level before expiry;
- Range Income (Corridor; In/Out) – designed to forecast that at the time of option completion the asset prices will be within a certain range (In) or go beyond its limits (Out);
- Instant Income – when events from purchase to the point of expiration occur during short period (1 or a few minutes). Using this option it is important not to mistake when the short-term forecasting.
Its another peculiarity is that trader himself creates and uses his own game technique. If the strategy allows you to earn – it becomes available to the masses. Therefore, there are many sites where brokers or traders explain it, but this information should be treated with caution, because often they just want to attract visitors.
Some analysts are trying to separate the BO market and the stock exchange, giving it the status of a casino. This view is mistaken, and its proof is the set of trading strategies (the instrument is not even 10 years old). In addition, American (US) and European markets have their differences on forming results. In US the test execution occurs randomly throughout the period of option validity before it closed, and in Europe – at expiration time.
An example of the classic algorithm is as follows: there is a certain share of a large company. Their cost is, for example, $20 apiece. A trader buys an option, for example, at a price of $10 and predicts the price growth to $25. If the forecast comes true, he gets $100 – the amount paid for any successful deal. If a trader is wrong – he receives nothing. This simple example shows that one of the game components of is the ability to analyze, and it is quite possible to develop.
Another point that should be noted is an opportunity to increase profitability by buying not one but several options. For example, by purchasing two options and spending $20, the amount of a successful transaction will be $180. In addition, this approach allows to operate the closing time, forecasting different deal outcomes.
The amount of $100 is mentioned not by chance – in order to ease operations, it is used in the majority of brokerage platforms forming a bonus formula – 0 or 100 (depends on result).
Some strategies have migrated from classic options, the other are unique derivatives. Their goal is to issue a correct asset price trends forecast that is determined by the market stability or randomness.
The popular strategies are:
- Catch the trend;
- Against the trend;
- Signals trading method;
- Trading on news;
- Early closure;
- Martingale method;
- Bollinger Bands use;
- 60 seconds strategy and other techniques.
The strategies arsenal is constantly updated on the understandable reason: in contrast to the stock exchange or Forex a trader on BO pays his broker a zero percentage of the successful deal, with a key factor of transaction close. Therefore, professional traders who know how to make money on BO want to make as much money as possible, coming up with new strategies based on their experience.
Trend and Against the trend Income
Catch the trend: in order to understand this method it is enough to comprehend a simple chart, which shows the direction of the price uptrend or downtrend. Support lines demarcate the indicator forming a corridor at any direction (up or down). The forecast is based on the price movement direction. The strategy is good for short-term forecasts. Following this strategy, the visual trend stability is enough to start trading BO for beginners.
But if it comes sideways trend when fluctuations occur in the middle range – the price is stable – then it is better to do nothing and save money.
Against the trend strategy refers to the typical range methods and is applied during price instability. The technique is characterized by high income and should not be applied by beginners. The difficulty is that when betting on trend growth with stable vibrations, one should buy an option at the upper limit to fall. One should buy a Down option at a lower price limit, followed by the increase. Only experience helps to achieve the ability to calculate these moments. Beginners when using this technique may lose money.
Signals Trading Method
Trading signals used in accordance with the strategy are good assistants for beginners. The technique is effective when the subject of trades are the currency pairs. A table created on the trading platforms (ex. Premium Signals) is the main working tool. It clearly shows the currency bundles: the euro, the pound, the dollar – the latter usually sets the course. Nearby columns show the period – from 5 minutes to days. Information displays contain forecasts regarding each period: if there is a call to sell – the exchange rate is expected to fall; if there is a call to buy – the rate is expected to rise. This means that increase or decrease options for particular time is purchased. Some tables are supplemented with charts. 60 Seconds Strategy (short period bidding with possibility to earn money) is convenient to use on the basis of this methodology.
Some specialists studying global gambling market assume it as a super-risky businesses. At the same time, those who know BO kitchen are their opponents. Of course, putting at staked your latest money is risky, as well as crossing the street at red light – no one in senses would do it.
There are a few benefits to pay attention on:
- managing risks – a player himself calculates the amount he will lose in case of loss;
- clarity and simplicity – each strategy provides an array of technical tools;
- round-the-clock access to platforms;
- minimum investment;
- high income.
Recent items are interrelated. Purchases at amount of $1 which eliminates risks are allowed. On the other hand – the result of ended options brings $100, and this ratio suggests the ultra-high profits.
When you up your experience skill, you should enlarge the rates with pre-defined threshold amount to operate but not exceed it. For example, it can be equated to the cost of entertainment events, you can avoid (billiards club, party). This amount gives a psychological brake – you do not mind losing, but you mind seeking for new rates.
Information about the other strategies mentioned in the article and another related data you can find on the Prime Signals website.