Binary options trading is a relatively novel way of engaging the financial markets based on price outcomes, asset price performance and asset behavior. This is in contrast to other financial markets where a trader makes money strictly on the basis of price performance/movement. In a digital option trade, money can be made from an underlying asset in several ways.
Why is Binary Options Technically Easier than Other Forms of Trading?
A trader who is in the spot forex market or any other market for that matter will discover that making money in those markets goes beyond simply opening a trade bet and waiting for the price of the to perform according to expectations. There are leverage and margin requirements to consider. An underfunded account in a forex platform relative to the permitted lot size can easily get blown off by volatile prices. Regulators are imposing strict margin requirements which are gradually locking out investors from good platforms. With no other option, such traders inevitably fall into the arms of bad dealers with glamorous platforms but nothing but horror in wait. Then there is the lopsidedness of price conditions between those of institutional investors and their retail counterparts.
Many of these factors are not operational in the binary options arena, and this is why it is an easier option for the average Joe, who can hit the ground running in fixed odds than in other markets. This does not mean that careful attention must not be paid to the entire process so that the best is obtained from the experience.
A Correct Approach to Binary Options
The “all or none” nature of a fixed odds option forces many market players to take chances and gamble on the option contract types, instead of actually trading the contracts. Some jump in with the notion of wanting to earn dollars from a fixed return option without an idea of how it’s done on the platform. In the following paragraphs, we bring out some key points that will help traders to maintain the correct approach to binary options.
Binary options are an investment channel, not an exercise in gambling. Gambling belongs in Vegas and Macau and not on your platform. The trader must decide that under no conditions would any option bet be made based on pure speculation or a hunch. In gambling, the house (and not the gambler) always wins. In trading, the scales can be tipped. So decide to approach binary options with a trader’s mentality and not a gambler’s mindset.
The Profit Plan
What is the profit goal of the binary options experience? Are you looking to make money for outings every weekend? Do you want to get a paycheck every month just like any salaried job? Do you want to be able to pay for an annual holiday for your family? Do you want to quit your job in the next ten years and start a business you are currently understudying?
Notice that the profit goals for the different scenarios painted above are different. First, there is a weekly profit goal, then a monthly one, followed by an annual time goal and then a time goal that will take years in the making. The time frame attached to a profit goal in binary options will determine the level of risk and aggression used in the trading process. Those who are bet on an option for the short term are generally more aggressive in their dealing styles and will tend to take more risks than those who have a longer term view in mind. This will also define the bet strategies used. Trying to use conservative trading techniques for short term goals will simply lead to frustration because the money goals will not be met in the time frame. In the same vein, an overly aggressive trade style could jeopardize account capital which will negate long term goals. Aggressive trading requires more capital to start off so as to mitigate the risk and drawdowns that will occur with this market bet style. Long term goals do not require that much capital, which can be compounded over time.
This is why traders must clearly define their money goals before they start trading.
Once the profit goals are defined, then it is easier to adopt strategies to match them. A trader who is in it for the long term can use price data on daily or monthly charts for analysis and allow one move to play out over many weeks or months. Those who are in it for only a short time frame will be more aggressive. Should a short term player set a trade with a three month expiry and tie down his money? In the same vein, what business does a long term investor have with the 60 seconds bet?
Tools for the Mission
No good soldier heads into an artillery battle intending to triumph over a Howitzer with a Beretta pistol. Traders should endeavor to start off on a good footing by investing in modern gadgets and knowledge. You can easily pick a strategy from YouTube and other sites like this one that can transform your trade outcomes. There are now trade platforms for smartphones for those don’t want to miss a beat while on the move. With all these tools, every trade should be made to count.