Options trading is arguably the most complex form of financial trading and also among the riskiest, yet it produces many successful and wealthy traders.
To make money in this area of the broader financial market requires a thorough understanding of the fundamentals of stock options trading, highly developed skills and the trading mindset to cope with the high risks involved.
But now a new form of options trading is available which removes some of the previous barriers to entry and enables even novice traders an opportunity to enjoy profitable trading with options.
Then read on and learn how it is possible to make money using the trading signals associated with binary options.
Options Trading in a Nutshell
Just to recap, options (sometimes known as derivatives) are contracts that can be traded (bought or sold, called call or put) at a specific price on or before a predetermined date. The profit to be made (or lost) depends on the difference in price between the original strike price of the option when the transaction was agreed, and the price at the time of option expiry.
As mentioned before, options trading is speculative and because of the inherent risk involved, returns can be very high. The high risk is further offset by the flexibility and high leverage it offers investors.
What are Binary Options?
A binary option follows the same principles as those outlined above for conventional options except that the final payout is known at the start of the option contact. (The investor has only to decide on put or call, hence the binary term.)
If the price at option expiry is favorable for the investor compared to the strike price (known as being in-the-money), then the investor receives the preset amount of cash regardless of the size of the price movement of the asset underpinning the option.
An investor can be in-the-money (that is, make a profit) under either of two scenarios:
- a call option which expires with a closing price greater than the strike price, or
- a put option which expires with a closing price less than the strike price.
Either way, the investor has made a profit and whilst the payout varies between brokers and is related to the assets being traded, payouts in the range of 70% to 80% can be realized.
The further advantage of trading binary options is that even when the trade is out-of-the-money (that is, a loss has occurred), many brokers will provide a refund, sometimes up to 15%. Obviously this means your account is not fully impacted by the loss.
How to Start Trading Binary Options
Firstly, you need to set up an account with a binary options broker if you do not already have one. You can see a list of recommended brokers on this page.
Next, to make your trade you need to remember that your ability to make a profit lies with predicting the upwards or downwards movement of an asset’s price during a predetermined time period. This time period can vary from one hour to one month, so quick profits can occur.
Placing your options trading order within your broker account is a very simple process, as the following schematic shows:
Using Signals for Profitable Binary Options Trading
As easy as the process of trading binary options is, the challenge of selecting the best underlying assets and the expected price movements should never be a matter of luck.
This is where a binary options signals service can enhance your profit potential immensely.
The way a signals service works is that financial experts send directly to you, details of pending trades (in real time) that you can act on immediately. These signals are generated by experienced traders who are able to maintain high levels of predictability across multiple markets, so increasing your frequency and likelihood of profitable trades.
To your successful binary options trading!