Binary options present a more understandable and often less risky path for investing in the financial markets, but it is very important to take into consideration the fundamental strategies that act as a positive aspect on the path of success. One of the keys to stable profits is accumulating sound knowledge of the market and becoming acquainted with patterns and changes that occur in the chosen asset. As predictions are made in the constantly changing environment, it is imperative to constantly "feel the pulse" of the market.
Below are several tips and suggestions for binary options traders who are looking to approach this financial world from a logical perspective.
1. Explore and Examine: Although binary trading is in some ways less complicated than traditional stock or even forex markets, traders must always do their research before starting. There are various trading software and tutorials available, which help traders in understanding the core principles of binary options trading. Relevant publications and newsletters are a good source to remain in touch and be informed about the general market conditions and aspects which have an impact on the market.
2. Trade in More Liquid Securities: With binary options, it is feasible to trade in the most liquid assets such as large corporations, commodities, or global currencies. In financial terms, liquidity implies a large number of market players that are willing to continuously trade in the given asset - in other words, more liquid assets offer larger markets with more efficient pricing. The latter, in turn, ensures that the price movements are mostly driven by rational factors, and are therefore possible to forecast and profit upon.
3. Money Management: Generally, a factor which is often overlooked in trading binary options, is the so-called money management - the process of managing the trading account in order to minimize the risk of excessive losses, margin calls, or even account depletion. The primary focus of money management in binary trading is to determine the size of each deal, i.e. the amount of money to invest into each single position. Set it too low, and you'll need thousands of trades to make a decent profit; set it too high, and you risk losing most of your funds very quickly. As a rule of thumb, the size of an average position in binary options trading is between 1 and 10 percent of the account, depending on the size of the account and the riskiness of the particular trade.
4. Follow a Clear Trading Strategy: Binary options trading requires confidence and skill, yet the most important factor is still the actual plan according to which the trades are executed. Every successful trader must always have a clearly defined, structured algorithm that determines when to open a position (i.e. buy an option), in which direction to bet, and how much to invest per trade. There are dozens and dozens of trading strategies available on the Web, and each trader is advised to choose the one that corresponds to their trading style, profit requirements, and, most importantly, risk appetite.
5. Time Factor: There are various segments and factors which decide the success of a trade, but time is the most significant factor in binary options. Since binary options have fixed expiration times, it is important to be able to think in terms of specific time intervals; traders must analyse and monitor the fluctuations in the price and track the volume on a daily, weekly, and monthly basis.
6. Practice Before Real Trading: New traders can take advantage of the numerous opportunities to learn before actually committing real money; luckily, many large options brokers offer free demo accounts or risk-free trades that enable the newcomers to quickly acquire practical experience. It should be noted, though, that due to the way human psychology functions, trading with real money, even with smaller amounts, will always be a more efficient way to prepare oneself for serious trading.