Binary Options are one of the most interesting asset classes that exist. Ever since its inception in 2008, it has had its fair share of controversy and drama.
Whether you like it or not, it remains as one of the most popular forms of trading. Here, you know your payouts beforehand. You also know when your trade will end. All you need to do is predict when the price of an underlying asset will be above or below the strike price at the time of expiry.
Thus you have control over the way you trade. As a trader, this form of flexibility and convenience will make trading an enjoyable experience. Your risks are also controlled in the sense that you can’t lose more than the amount you invest.
For example, if you invest $100, your maximum loss is $100 and not a cent more. But if you win, you get an extra payout. The payout rate varies from asset to asset. It usually lies between 60%-95% in most cases.
The payout rate also depends on the binary options broker you are dealing with. The best binary options brokers offer the highest payouts.
Enough about the advantages of trading binary options. We are more interested in learning about trading binary options safely. Apart from the risk of losing trades, let’s explore other risks that impose a threat on trading binary options profitably.
We will also propose some tips on how you can mitigate those risks to turn the trade in your favor.
Binary Option Brokers
Choosing a broker is perhaps the most challenging aspect of binary options trading. It is also the first step to binary options trading. The amount of scam brokers that exist in the industry is overwhelming.
They cause you to lose money and also pose a threat to the industry’s reputation. You need to verify certain criteria before you decide to invest with a broker.
First and foremost, make sure the broker that you choose is regulated and licensed. A CySEC or any other regulation of that sort ensures your investment is in safe hands and is protected.
You need to read the terms and conditions of the broker before you deposit money with them. Other than that, go through their withdrawal options, demo account availability, customer support, trading platform, and so on.
Once you have completely analyzed these features, only then should you trade with them. This way you ensure you won’t lose your hard-earned investment due to a broker.
Here, you will find the most trusted binary options brokers that offer all the features that a broker should provide. These brokers have been tested thoroughly and provide excellent trading experience to their clients.
This totally depends on the asset that you have chosen for trading. Each asset has its own volatility and there is no one factor that decides the price direction of the asset.
So our first tip would be to carefully choose your asset. You have to choose an asset that you are completely familiar with. You must know the factors that drive its market movement and watch out for any news that influence its price levels.
Higher the volatility, higher is the chance of you getting your prediction wrong.
Incorrect expiry times
Choosing the appropriate expiry time is a big deal with binary options. Unlike CFD trading, which has no definite expiry time, it is known beforehand in binary options. This is a huge advantage if you know how to utilize it correctly.
Depending on the asset you trade, you have to speculate what would be the expiry period for that asset. You need to make the decision whether to trade long term or short term for that asset.
Generally, binary options are traded over a short period of time. 15 seconds to 60 seconds trades are quite popular but they are also quite hard to make an accurate prediction. Performing technical analysis on the chart takes time and its challenging for new traders to accomplish it in short-term trading.
In the end, it all boils down to how good your trading skills are. There is no alternative to understanding what binary options are and how they work. Once you have done that, half your battle is done. The other half involves applying what you have learned.
Binary Options are risky in nature, but following these steps, you can greatly reduce the risk level and ensure safe trading.