Binary Options offer one of the simplest ways in which to transact on financial markets. This makes them a particularly popular way for new traders to take their first steps in financial trading.
However you have never got involved with financial trading previously then speculating on the world’s financial markets will still be a big step.
This short guide is designed to provide a clear walk through process of the various steps involved in placing your first binary options trade.
1. Choose A Market
The very first thing you will need to decide upon is which asset you want to trade. Binary options brokers offer four key asset classes – Indices, Forex, Commodities and Stocks. Under each of these classes you will find a wide range of individual assets on which you can purchase contracts.
If you are just starting out the best approach is to choose an asset that you can quickly become familiar with and readily find out information about.
A good choice maybe a major international stocks such as Google, Amazon or Apple or perhaps one of the major currency pairs like EUR/USD. As you become more experienced you will develop an instinct when looking at your binary options trading chart as to which markets are offering good setups.
Try to avoid ‘exotic’ selections. Not only can the price movements on these be more volatile, they will also be difficult to track in terms of finding current news reports and analysis.
2. Decide On The Direction
Once you have selected a market to follow you will then need to determine whether the price will move ‘up or down’. This is is the basic higher or lower binary options contract.
You could of course just make this call and hope that you are correct. It is however much better to have a strategy to work to.
There are a number of different trading strategies for trading binary options. If you want a ‘ready made approach then trade alerts or automated binary options trading may offer a solution. Either way you are looking to forecast the direction in which you believe the price of the asset will head.
The other consideration that you need to make is how long you should set the contract to run for. Do you expect the move to happen over the short term or perhaps a longer time period? Common expiry times are hourly, end of the day and end of the week. However you can place contracts over much shorter time periods. Sixty second binary options last only one minute and can be used to capture extremely short term market moves.
3. Placing Your Contract
Once you have a good idea of where the market is headed and have decided on how quickly you expect this move to happen, the next step is to actually purchase and place your contract.
Let’s assume that after looking at our trading chart we identify the potential for upwards move on Apple.
Good news has been released which should see more demand for the stock over the rest of the trading day. Therefore we are going to select a ‘Call’ option that the price will be ‘higher’ than our entry level by the end of the day.
To place the contract we firstly select the asset, then the time that we want the contract to expire.
To select the asset, firstly select the class which it comes under (Indices, Forex, Commodities, Stock) and then select the individual asset itself. In this example we are using Apple.
Once selected then the next step is to choose the expiry time. This is when you want the contract to end. This is the point at which you expect the price to be either ‘higher’ or ‘lower’ than your entry price.
When you have confirmed that you have the correct asset selected, along with the expiry time, the next step is to set up either a ‘Call’ or ‘Put’ on the outcome.
We then select one of the following two contract types –
CALL (UP) – If the price is expected to finish higher than the current level
PUT (DOWN) – If the price is expected to finish lower than the current level
The next step is to select how much we want to risk on the outcome of the contract. As there is $5000 in the account we will stick with good risk management and place only 5% of our balance on this outcome.
So we enter $250 as the amount we want to use to purchase the contract.
The final step before ‘pulling the trigger’ is to confirm that everything is OK. We can see the following information relating to the contract:
- Expiry date – The Contract Expiry Time
- Rate – The asset price when the contract was purchased
- Amount– The investment staked on the contract
- Potential Payout (Above Rate) – The return received on an ‘in the money’ contract
- Below Rate – The return received on an ‘out of the money’ contract
*Note that the Payout figure includes the reimbursement of the original contract amount.
If everything looks OK then simply click on ‘Apply‘ to purchase the contract.
In this example the Banc de Binary binary options platform was used. However the basic principles will be the same no matter which broker you choose to use.
Once you have placed your trade you will be able to monitor its progress or you can simply check back at the expiry time to see how you have got on.
All of your contracts and the results will be logged in the management section of your account, allowing you to refer back to your previous transactions.