Step by step binary options trading tutorial. This guide is organized in such a way that people who are new to binary options trading can become knowledgeable and expert traders after reading this tutorial. After reading this guide, you will gain a thorough knowledge and understanding to trade binary options like a pro.
Why trade binary options in the first place?
Investing and profiting from stock market trading is something that many of us would like to do, but there are barriers that prevent the average layperson from doing this. The first barrier is capital. Buying stocks is not cheap. More pointedly, buying sufficient amounts of stocks to make a decent return is not cheap.
The second barrier is accessibility. That is to say that even if you have the money to buy stocks, the process of acquiring them is not so simple. Many people would have loved to buy some shares in Twitter when they went public, but the chances of them (i.e., laypeople) being able to do so are essentially zero.
And selling time is not as easy as it seems and you have to rely on brokers and middlemen to manage your portfolio. Not only is doing such trades out of your hands in most cases, but it also costs you in terms of fees and commissions.
Binary options trading removes many of the barriers associated with traditional trading, entry fees are low, you can trade options on hundreds of underlying assets, and you have complete control over when you trade and what you trade. It is available at any hour of the day and night, and you have full control, from the moment you enter a trade to the moment you exit a trade.
Simply put, the world of traditional trading is hard, slow, and complicated, while the world of binary options trading is flexible, fast, and easy.
What is binary option trading?
Binary option trading is a type of financial instrument whereby you make predictions about the future price of market-traded underlying assets, such as commodities, stocks, indices, and currencies. With binary options, you are simply predicting if the price of an asset will rise above or fall below a certain point, within a set timeframe.
Eight of the most important features of binary options trading
- When trading binary options, you are not buying physical shares or ownership of a company.
- The return is fixed and predetermined, so you know exactly how much profit you will make before you start trading.
- Trades are short, usually lasting between 1 minute and an hour, although there are also different binary options products, such as One-Touch, that allow you to take long positions in an underlying asset.
- With binary options, you can profit regardless of whether the price of the underlying asset rises or falls.
- With binary options there are only two possible outcomes: your prediction is either correct, thereby making you a profit, or your prediction is incorrect, thereby losing all or most of your initial capital.
- Binary option trading is available every hour of the day and night, and you can trade at any hour of the day and night.
- Trading in the binary option market is easy, and any trader can easily enter this market and buy and sell.
- You can easily trade in binary options with a small capital, and you don’t need much to trade in this market, and you can enter binary option trades even with $100.
How do you trade binary options?
The main attraction of binary options, apart from the high returns in a short period of time, which can be more than 70% profit, is that it is available to anyone who wants to trade. You don’t have to be a Wall Street tycoon to profit from options trading, and you don’t need huge capital to get started.
The transaction process itself is very simple and only requires that you first specify the expiration time of the transaction, which can be between 1 minute and 1 hour, and then choose one of two options: either “Call” or “Send”. When you expect the price of an underlying asset to end above a certain price, you choose a “Call” option, and when you expect an asset to end below a certain price, you choose a “Put” option.
The price we refer to is known as the “strike price”. This is the price an underlying asset holds when trading begins. If the price of the underlying asset is above or below the “strike price” when the trade is closed (“expiration”), you will profit and be “in the money” or lose your capital and be “out”. Became. money” depending on your prediction.
Here is an example using the Facebook option. You may have noticed that Facebook’s stock price has skyrocketed in the past ten minutes. However, through technical analysis (which we will cover later in the tutorial), you have predicted that the stock price will begin to decline. When you think the price will go down, you can choose a Put option with a strike price of $25.66 and an expiration time of ten minutes.
After ten minutes, when the option “expires”, if the Facebook stock price is below $25.66, you will be in the money, and you have made a profit on the trade.
Explanation of underlying assets
When we refer to underlying assets, we are either referring to a group of assets—commodities, indices, stocks, and currencies—or we are referring to individual assets that fall into one of these specific groups. For example, oil falls under commodities, the US dollar under currencies, the Dow Jones under indices, and companies like Twitter or Facebook fall under stocks.
When you want to trade binary options, you have easy access to literally hundreds of underlying assets. In essence, you have the entire global market in your hands. You can easily trade in any of them, and this can be overwhelming for beginner traders. In fact, a novice trader might compare the experience to that of a kid in a candy store. There are so many choices that you don’t know where to start, so try a little bit of everything. However, trying everything without knowing the underlying assets you are trading can be costly.
What is a stock index?
Indices consist of a group of companies in a particular market segment or stocks that have something in common. Indices provide a way to measure the value of a portion of the stock market. The value of an index is usually based on the price-weight of the individual components that make up the index. However, the way the indicators are valued and the type of weight measurement used can be different from one index to another.
The main thing to know about indices is that they don’t change direction easily and the price of an index (depending on the size) is generally only affected by major market news and events such as rate changes, jobs reports, and housing market reports.
This makes it easier to predict index movements and to determine events that will trigger trend shifts.
Trading currency pairs
Although currencies are usually traded in the forex market, they can also be traded through binary options, the differences being…
1) When trading currencies as binary options, the payout is fixed.
2) You don’t actually buy currencies as they are, you just predict their price fluctuations.
Trading currencies can be very fun and exciting if you are interested in edge trading, as the nature of the currency market is highly variable and many factors can affect the price of a currency, from political to social to economic. For beginner traders, it may be better to skip this market until you gain more experience. Although many traders start their business by trading in the currency pairs market.
Trading in different markets, including currency pairs, is a very personal decision and the trader should gauge which market he is comfortable with.
Stock options trading is one of the favorite activities of experienced traders. While this market is prone to volatility, it is also prone to trends, and it is relatively easy to determine when a company’s stock is likely to trend in a particular direction.
It’s easy to track companies in the news, and any announcement made by a company can trigger a trend, whether it’s up or down. A new product launch generally triggers an uptrend, while a bad earnings report triggers a downtrend. If you want to trade stock options, you should take a position as soon as the news about that company is released.
Navigating the commodities market can be difficult because countless factors can affect commodity prices: political events (both global and local), supply and demand, weather, and economic events, to name a few. If you want to trade commodities, you need to watch the markets as a whole.
For example, if you are interested in trading oil or gold, you need to think both globally and locally. While there may be one major event that you think will move the price in one direction, you will find that there are many other minor events that will cause the price to move in another direction. To trade commodities you really need to have your finger on the economic pulse of the world!
Here I want to discuss the importance of financial management. The reality is that no matter how much knowledge you have, it won’t do you much good if you burn through your capital and lose your trading capital.
First, before you start trading binary options, you should know that sometimes you will lose money. And it is very important to understand that loss is a part of trading, when it comes to any type of investment, this is the same for all traders, both beginners and professionals.
Not every trade will be a winner, and when you trade, your goal should be to minimize your loss while maximizing your profit potential. One of the ways we do this is through capital management. You see, capital management is the foundation of successful business. It is the backbone of any trading strategy.
Types of investment
There are two types of investments “Passive” and “Aggressive”. With passive investments, the risk of loss to your trading account is minimized, but so too is your profit-making potential. This is a conservative approach to trading and it employs what is known as the 5/15 rule. Traders who use this approach are of the mindset that trading is a marathon and not a race.
Aggressive investment is where your trading account is exposed to greater loss than that of passive investment. However, with aggressive investments your profit-making potential is increased as well. Traders who use this approach want to make big profits in the shortest amount of time, but don’t think that aggressive traders throw caution to the wind. For this type of trading to be successful you still have to manage your trading account. The best, smartest traders will use the 10/30 rule.
Passive investment and the 5/15 rule
Statistics have shown that the maximum amount a trader can expose their trading account to in a single trade without harming their future profit making potential is 5%. This is where the 5/15 rule comes into play.
With the 5/15 rule, you only ever invest 5% of your entire trading account capital in a single trade and the most you ever invest across all open positions at any one time is 15%.
Example: If you have $1,000 in your trading account you can open three positions of 5% each, which equates to $50 per trade. If you have three open positions, the most you stand to lose is $150.
Aggressive Investment and 10/30 rule
Aggressive investing is all about gaining high returns quickly. However, this type of investing is not for everyone!
For aggressive traders, the 10/30 rule should be strictly adhered to. This is considered the maximum level of risk that a trader should expose their trading account to.
The 10/30 rule follows the same lines as the 5/10 rule, only the stakes are higher – both in regards to potential losses as well as to potential profits.
With the 10/30 rule, you only ever invest 10% of your entire trading account capital in a single trade and the most you ever invest across all open positions at any one time is 30%.
As you can imagine, if you have a limited amount of capital in your trading account, then employing this strategy is very risky indeed. It is also worth noting that most traders use this strategy intermittently. It is considered best practice to trade for the most part using the 5/10 rule.
Market analysis helps to reduce the risk associated with trading by helping you determine the direction that a market is moving, or will move, in. It also gives you the data needed to help determine which trading strategies to employ.
Without conducting some form of market analysis on an underlying asset before placing a trade you are really just gambling, with the chances of a successful trade being 50/50.
When trading binary options, there is no need to delve too deep into fundamental analysis, at least not in the traditional trading sense, a little information can go a long way when trading options. This is certainly true if you like to trade stock options!
Example – If you want to trade Facebook stock options, you don’t necessarily have to do a lot of fundamental analysis to predict the movement of Facebook stock. You can profit from trading on trends that develop after big company (Facebook) announcements such as product launches, earnings reports, CEO changes, job cuts, etc. If you want to trade a commodity like oil or gold, you need to go deeper with your analysis and consider global, local and political factors when trying to determine its future movement.
Trading binary options using fundamental analysis requires that you learn from news that affects the assets you trade, news that can have a direct impact on price and investor sentiment, news that can cause trends. Stay updated and follow them every moment, and that’s exactly why most binary options traders use technical analysis for their trading.
If making trades based on fundemntal analysis the economic calendar will be your best friend. It contains scheduled financial news releases from across the globe. Economic calendars are freely available online from news portals such as Reuters, Yahoo Finance, and Google Finance – here you will be able to access all the scheduled financial announcments for any giving day and the impact these events are expected to have on the market.
When trading binary options using fundamental analysis, you don’t need to use technical analysis. Nonetheless, for the best results it is highly recommended that you at least check a chart to make sure that what is appearing in the news is playing out in the markets. This is a more hybrid approach to fundamental analysis. You don’t need to be a technician; a basic understanding of how to read a stock chart is all that is needed.
But my suggestion to you is that if you are a beginner trader in binary options and you have just decided to trade binary options. Focus more on learning technical analysis, but try to learn the basics of fundamental analysis along with technical analysis.
As the name suggests, it is a technical method to determine market movement. This form of analysis relies heavily on hard tools and data and price movements and fluctuations.
This includes using past price changes and trading volume as well as using various charts and indicators, such as moving averages and many other available indicators.
Trading charts are graphical representations created of asset price movements over time that are used by traders as part of their technical analysis. These charts can create recognizable patterns that enable traders to gather information about what the price of currency pairs, stocks, indices and other markets might do. Although it is impossible to completely predict how a market will behave in the future, it is a common belief that chart patterns tend to repeat themselves.
If I want to explain in a simpler way, it means that all traders believe that it is possible to predict the future of the market based on price movements in the past.
There are many different types of trading charts, but they all show the same trading information, such as past and current prices. The most popular types of trading charts are line, bar and candlestick charts.
Below is an example of a candlestick chart, which is one of the most popular and widely used types of charts.
Candle Stick charts allow traders to analyze a market in a number of ways:
• We can see how an asset performs over a certain period (including historic data)
• We can view the opening and closing prices
• We can view highs & lows
• We can see if a market is/was bullish (rising) or bearish (falling), which indicates market sentiment
• We can identify trends
• We can see lines of support and resistance
• We can view trading volume
Anatomy of a candlestick chart
Candle stick charts are usually black/white or red/green. In theory, they can be any color.
A white or green body depicts when an underlying asset closes at a higher price than the opening price – suggesting a bullish period. A black or red body depicts where the closing price is less than the opening – suggesting a bearish period.
A wick at the top of the body depicts the highest market price during that period, and a wick at the bottom depicts the lowest market price during that period.
If you’ve followed me to the end of this tutorial, you should have gotten an overview of what it takes to get into binary options trading.
And now you are ready to learn technical analysis and how to analyze price and forecast the market.
Based on this, I suggest to complete the training and start trading in binary option, read technical analysis training and how to enter binary option trading.