There are a number of options, which traders can use as they venture into the Forex trade. One such method is the binary options trading. Learning how to trade using this method, especially for beginners in Forex trade, is a great step in ensuring that the business is profitable to them. The purpose of this article is to educate beginners in Forex on how to trade using the binary options, sometimes referred to as digital trading options.
What is binary options trading?
Before learning on how to trade using this method, it is important for one to understand what this method of Forex trading means. Binary options trading, unlike the traditional Forex trading options, involves the trader taking either a yes or a no position with regard to the price of a financial asset. The method is straightforward with a fixed reward and fixed risk, that is, the resulting payoff (on taking a yes or no position), is all or nothing. The various types of binary options are range options, touch or no touch options, calls versus puts options, and double touch versus no double touch options.
The key elements Understanding the major ingredients in this trading method is the first step to conceptualizing on how to trade using this method. Regardless of the type of binary options, there are three key elements that any Forex trader needs to consider. The elements are the strike price, the payout offer, and the expiry time. The strike price refers to the current price of the asset, at the time the trader enters the trade. The strike price is the one that is used to determine whether a trader wins or loses.
On the other hand, a payout offer is the amount, which the binary options broker is offering the trader, and it is known from the onset before the trader risks any money. The expiry time refers to the length of time between the moment of buying the option up to the moment when the contract closes (ranges between 60 seconds and a month). How to trade From the trader’s point of view, the digital trading option works by the trader predicting whether the price of a given asset, be it a commodity, stock, currency or any other asset, is going to increase or decrease within a given amount of time. In other words, the trader bets money on this given prediction.
The minimum trading money that the trader risks can be as little as 10 dollars. From the onset, the trader is shown the amount of money that he will earn in case the prediction is correct. The trader will pay for losing trade using the money risked. That is, if the trader’s prediction is wrong, he will lose the bet and the money that he risked. On the other hand, if the trader’s prediction is correct, he will get the money that he risked back as well as a return whose range is usually between 70% and 85%. An example of how to trade Assume that the current price of gold is $1890.50 and a trader predicts that two hours from now the price of gold will go down. The payout offer is 70% and the trader places $100 bet on the prediction. Two hours later, the contract expires and the price of gold goes down to 1890.25. This means that the trader predicted correctly. As such, the trader will get the $100 and a 70% return, which is $70 dollars, amounting to $170 regardless of the magnitude of price change. How to trade binary options for greater profitability For one to trade successfully and earn great profits, a combination of a polished technique and an unbeatable strategy are essential.
Some of the strategies for trading binary options are using price action in decision-making, risk management such as bankroll management, and technical analysis such as reading candlestick charts. How to trade binary options safely There is a significant amount of risk involved in this method. This is because one pays, through the trade money, for losing trades. As a rule of the thumb, one should never invest more money with a broker that he or she can afford to lose.