Introduction to Binary Options

Introduction to Binary Options

Introduction to Binary Options Trading

Recent years have seen an explosion in binary options trading. Its surface simplicity attracts many newcomers to the trading arena. Yet, even though it seems easy to understand, there are still certain requirements to enable successful trades and it all begins with choosing the right broker.

Placing a Trade

Firstly, a financial product must be selected for trading in the binary options market. The most popular are those associated with the FX market – namely currency pairs – followed by commodities (gold, silver, copper, oil, etc.) and indices (Dow Jones, SP500, Xetra, Cac40, etc.).

The concept behind binary options trading is easy. After choosing your financial product, you decide which direction it may be moving, within a pre-defined time for it to do so. From this you trade a portion of your account. If the move is expected to reach the upside, a call option is traded, whilst if the move is to the downside, a put option is taken. If the price moves beyond the direction forecasted within the allotted time frame, then the option was profitable, or ‘expired in the money’. The premium, (usually between 70% and 85% of the invested amount) is credited to the trading account.

Trading Instruments

There are multiple types of options on offer. High/ low is the most popular, but a trader might like to try boundary, one touch or even building an option (setting all the parameters – the amount to be invested, the product, the expiration date), as some brokers now allow you to do. Though I must point out that these alternatives are riskier than simple high / low trading, as they come with limited possibilities for choosing an expiration date.

The selection process for finding a good binary options broker is not an easy one. From my perspective, the definition of a desirable broker can be understood by their range of products and trading tools – specifically the variety of expiration dates available, offering a selection of expiration dates from very short term to end of the week, month or even year. In the current climate, a trustworthy reputation must also be a high priority. TradersAsset is dedicated to recommending only the best brokers – either those that are officially regulated, or if unlicensed, demonstrate their intention to meet the same high standards required by those financial authoritative bodies.

Another key element to consider is the type of spreads involved when compared with those of traditional FX brokers. If there are differences to be found, then trading short-term expiration dates is not recommended – small details influence results.