If you’ve heard of binary options trading, you’ve probably also heard that it’s an inherently risky form of investment. Investment is never risk-free; however, there are ways of reducing the risks.
Let’s start with a quick description of binary options trading. Most forms of investment require investors to actually purchase the asset they wish to invest in. How much profit or loss ensues depends on the changing market value of the asset (you make a profit if you can sell back to the market when the asset’s value rises, and a loss if you misjudge and sell when the value falls).
There’s a lot of worry involved in this kind of investment. When do you sell and exit the market to protect your entire account from market volatility? There’s no let up. Binary options trading is simpler: you trade futures on the market, not in the market.
In binary options trading, you’re called upon to make a judgment call – an estimate – on how an asset will perform during a given time frame. As the term “binary” indicates, there are two calls you can make. Either you predict that the asset value will rise (a “call” option), or you predict that it will fall (a “put” option).
One way of reducing risk is to research your market thoroughly. There are highly informative online resources available, packed full of risk management strategies and broker comparisons – try binaryoptionstrategy.eu. If you have an interest in gold prices, for example, that may be the asset for you to try binary options trading on. However, the more you’re familiar with your chosen assets market, the better your chances will be of forecasting price fluctuations.
There are a variety of binary contracts for traders to choose from. You can go for commodities (such as corn, coffee, gold, silver, and oil), indices (such as Dow Jones, FTSE, Nasdaq, and Nikkei), or for stocks or forex.
A key piece of advice is to trade binary options only when you have the most up-to-date information on the most influential market-moving events. Numerous economic reports are published every day – the wisest traders pore through these before making their decisions, getting handles on how the economy is performing, what the next monetary policy interest rate decision is, or how their favorite company’s earnings have been growing.
If you’ve chosen to trade with currencies, cover the spread by ensuring you’re earning some money despite shifts in exchange rates. You’re essentially ensuring a minimum profit by pre-setting it before you’ve executed the trade: irrespective of whether prices rise or fall, your overall gain should be the same using this method.
Try hedging: you can make call and put options on the same underlying asset, but in such a way that the investment sum is concentrated on the winning trade. That ensures losses are kept to a minimum: the profit earned by the contract will be higher than when the two trades are put together.
No investment is without risk, and it’s true that binary options trading does indeed carry risks. However, they can be managed and reduced to a minimum – and it’s a lot less chronically anxiety-provoking than purchasing an asset and fretting over when to sell.