Binary options trading tends to attract traders from all walks of life. From the seasoned and professional traders to part-timers who make a few trades per week. The lure of potentially doubling your invested amount within a short span of time is reason enough for anyone to at the very least think about binary options trading. This can be well seen in many binary trading reviews, which usually tend to focus on the potential profits a trade can make.
However, its a different story when you actually start trading. In this article, we’ll take a look at some simple yet powerful techniques to improve your binary options trading success rate.
Understanding the pricing concept
There have been instances when traders think that the pricing offered by binary options brokers is different to the actual price of an instrument. The reason behind this is because in forex, there are two prices, known as the ask and bid. But when it comes to binary options, the price that you see is the average of the bid and ask price. It is calculated as (Bid + Ask)/2. Therefore, while EURUSD might be trading at 1.30 (which could be the ask price for example), then the same EURUSD pricing with a binary options broker would be 1.2995 for example.
Understanding the concept of pricing is important, because every single pip counts and determines whether you win or lose.
Importance of expiry times
For most trades, the profit potential usually determines the binary options that they want to trade. It is no wonder that 60 second binary options have grown so popular. Expiry time for a binary options contract plays an important role as it is one of the main aspect that determines your outcome in a trade.
For example, if you placed a CALL option on EURUSD 60 second binary options expire at a market price of 1.29, the chances are that you might lose the trade because on average, prices tend to move a few pips every minute or so (unless you trade during the price time when there is an economic news release). However, you can increase your chances of making a profit when you choose an end of day expiry, provided you managed to place an option at a point when the price of the instrument breached the previous day’s high.
The amount you invest per trade
Traders are usually divided on this aspect in binary options. Some believe it is more risky because you can potentially lose your entire invested amount, while some believe binary options offers fixed risks. Its like calling a glass half full or half empty with water.
The simplest way to protect your capital is to make sure that you invest in small. The general thumb rule in trading is not to risk more than 1% of your capital. However, with binary options where people tend to invest small amounts like $100, 1% doesn’t make any sense. Besides the minimum investment amount with most binary options brokers is usually $10.
Being able to start with a capital of $500 or more can help traders to trade with small investments of $25 per trade so as to minimize their risks. This is also a safe way because if your first $25 invested contract expired out of the money, then your second $25 invested contract could possibly make up for most part of the initial losing trade.
However, that being said, with binary options you typically need to have two winning trades in order to make up for every losing trade. Thus the amount you invest plays a critical role in determining your success in binary options trading.
Having a trading strategy
When it comes to binary options trading strategies, it is far less complicated than forex. In simple terms, with binary options trading, you just need to find a key price point or level where you expect price to either rise above that level or fall below that level during the specified expiry time.
Thus, it doesn’t take a genius to come up with a trading plan that takes into account the instrument and its expiry times. There are many different trading strategies with binary options, some of which we will cover in future articles.
To conclude, binary options trading is quite simple as it sounds and allows traders to make potentially quick profits. With proper money management, having a sound understanding of the basics and the right trading strategy, you can pretty much double your profits trading binary options.