August 18, 2015 at 10:51 am
Taking into account back in the days when Forex trading first became known among traders seeking a more convenient way to be able to access the global Foreign Exchange markets, the same debate is currently being brought to traders’ attention when we look at Binary Options trading as an option to rake in some profits based on price changes. Some call it gambling, but I call it calculated predictions based on price movement over a period of time referred to as the position expiry time. Before making a blind decision if this might be right for you we need to look at the benefits as well as the downside. Downside? Let’s face it, nothing is perfect… Doubts and questions always come to mind when something relatively new presents itself. Everyone’s opinion will differ, but the final decision and judgment is up to you.
What Is A Binary Option
Binary Options first started in late 2008 when one of the first brokers launched their innovative web based trading platform. That has not changed as it is largely web based with a few exceptions such as Forex brokers adding the function to trade via MetaTrader. Since a lot of Forex traders either moved over to binary options or simply added it to their portfolio this made it more convenient and user friendly.
Unlike Spot Forex or traditional Stock trading a trader actually never owns the asset. You are instead simply opening a position based on whether the price of the asset (Forex, Stocks, Commodity or Indices) will go up or down before your position expires. That is where the term “all-or-nothing” options come from. There is technically only 2 possible outcomes; In-The-Money (ITM, WIN) or Out-The-Money (OTM, LOSS). In rare cases the option can expire at the exact same price you entered the position which is referred to as At-The-Money (ATM, DRAW).
To enter or execute a trade one needs to make a few simple decisions
• Choose Your Asset
• Choose The Direction
• Enter The Amount To Risk
• Execute The Trade
It is important to note that choosing the Direction is arguably the most important step in the entire process. Making a calculated prediction is key! Since we do not profit more or less depending by how much an asset price fluctuates 1 pipette (0.00001, 1/10th) can be the difference between a win and a loss. So it is safe to say that we are trading against time, rather than price since the price at the time of expiry is what determines the outcome of the trade.
Just like any form of trading you can either lose big or win big. I disagree and believe you can find the sweet spot where you consistently build your account over time and be happy with the end result. How you approach this, what mindset you are in and how well you have prepared is ultimately going to “split the boys from the men”. Don’t get suckered in by the attractive industry average 85% Return on Investment (ROI) thinking you are going to become profitable, successful or financially free overnight.
Basic Terms You Should Know
• Spot Price/Live Market Price
The current price of the asset quoted by the broker.
• Strike Price
The price at which you executed your position.
• Expiry Price
The price of the asset when your position expires.
Prediction that the asset price will increase in price/value.
Prediction that the asset price will decrease in price/value.
Indices, Forex, Commodities & Stocks.
• Risk Per Trade/Position Size
The maximum amount you can lose if the position expires OTM.
As you can see and may have seen on advertisements all over the internet, trading binary options is relatively easy. No complicated formulas, Stop Losses, Take Profits or managing trades. It is more of a set and forget method of trading. Once you are in the trade there is nothing much you can do about it unless your broker supports the early closure function. A little word of advice to take away from the article: “If you need to use that feature then you should not have entered the trade in the first place”.
So answering the question on everyone’s mind right now… Is this right for me? Have I personally made money with Binary Options? Yes! Have I seen people lose money and fail? Yes! I have seen the same people fail multiple times to be dead honest. Is Binary Options to blame for this? No! 95% Of the time the traders did not do their part, nor did they do the proper due diligence on the broker they decided to deposit with. Using a proper established binary options broker can make the world of difference. It can literally come down to success or failure when it comes to withdrawal time even if you did your part to produce profits. Practice makes perfect only when you put in the time and effort necessary to succeed. Read this last paragraph one more time and think about it for a few minutes as this is an important part of the whole topic argument.
“Experience taught me a few things. One is to listen to your gut, no matter how good something sounds on paper. The second is that you’re generally better off sticking with what you know. And the third is that sometimes your best investments are the ones you don’t make.” – Donald J. Trump
This quote from the famous successful business man, Mr. Donald J. Trump, speaks a thousand words. Ironically enough it fits in perfect with the topic of this article. If you only take 1 thing away from this article it should be that no one can answer on your behalf. This comes down to personal preference. Does it fit your style of trading? Are you willing to take the risk? I am sure you get my point here. It is important to note that I wrote this article open minded, not being bias just because I have had success in the industry. Don’t give up after the first failed attempt. It took me a few tries before I became successful as well. It all comes down to your will power and dedication to make it a success!
August 22, 2015 at 8:35 pm
Hi Alex 🙂
I really enjoyed reading this article! It made me think a bit…. Value added content for sure. I think I can now make an educated decision if or if I should not start trading binary options :)))
August 24, 2015 at 4:57 pm
This is some awesome points you make here. Very good guide for beginners indeed! I would like to add that, if you are a newbie or intermediate trader and you are not making profits on a consitent basis; do not beat up yourself about it. Some people take longer than other. Trading is a journey, some get lost and others succeed. It all comes down to what type of person you are and how bad you want it. Start of with a demo account first and prove to yourself that your trading strategy works before you go live. Remember, Practice makes perfect!
August 24, 2015 at 5:11 pm
I can vouche for your advice that you give in your post. This is exactly what I did and how I think everyone should do it.
I started of with a demo account and tried out a few different strategies. I finally found one that suited my personality and I started getting consistent profits. I have now moved over to live trading but the problem I am having is with my psychology. When I get a signal to take a trade I start getting nervous and look for reasons why I should not take the trade. This has had a huge impact on my trading
August 24, 2015 at 5:21 pm
There is no need to beat yourself up over this. This is just 1 of the more difficult stages that you have to push through to become a successful trader. I promise you that every professional trader had to go through what you are experiencing. I would however strongly advise you to only use money that you can afford to lose. Use smaller trading sizes. When you become more comfortable with trading smaller sizes you can up your risk per trade to start making some real money.
August 24, 2015 at 5:29 pm
Wow, thank you for your swift reply, Nicholas. This has been a real eye opener for me and I will definitely give it a try. Hopefully this will make a difference. I wish you all the success in your trading 🙂
August 27, 2015 at 10:08 pm
Jean, I’m in the same boat as you are my friend. Since I went live I started getting all kinds of problems. I get very good signals without taking them and then see them turning out to be winners. I get so frustrated when this happens that I take revenge trades. And we all know what happens when we do this…
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