Binary Options Trading Tutorial
This binary options tutorial will walk you through the process and the steps to trade binary options. We will also provide an example trade so you can see each step of the process.
Step 1 – Selecting an Asset To Trade
The first step when it comes to trading is to find the right underlying asset. This is not a hard task, you simple want to look for an asset or two that you feel comfortable with. This does not mean that you need to be intimately knowledgeable of the asset, although this does help. You need to just have an understanding on where the general trend of the asset is moving.
For an example of a binary options trade, let’s assume that you want to trade the Euro in relation to the U.S. dollar (EUR/USD).
Trading forex pairs using binary options is one of the most common ways to trade binary options as forex pairs are volatile and can offer many opportunities for trading big swings.
Step 2 – Decide Where the Assets Price is Headed
This is important and it is based largely upon your technical analysis methods. This is the choice you really have to make when trading binary options.
If you think that the general trend of the EUR/USD pair will continue to rise, you want a call option.
If you think that the trend will reverse and go down in price, you want a put option. Brokers make this part of the trade really easy and mindless. Do not be fooled by how easy it is to trade digital options. Trading is tough, regardless of how easy the trading platform is to use.
The best way to determine price movement is technical analysis. You should have a few key indicators that work well for you. For the sake of this example, we will look at the RSI and Fibonacci retracements for binary options trading. Both of these tools are good for confirming trends and predicting their continuation.
For one, you will want to look at the RSI—relative strength index—first. This will give you a very general idea of the trend and its nature. this is a single line chart that ranges in value from 0 to 100. If the line dips below 30, the asset is said to be oversold. If it goes above 70, it is overbought. If the line has dipped down close to zero and is starting to head back upward, this can be an indication that it is time to buy again.
The next step is a bit more difficult. Technically speaking, Fibonacci retracements are just random lines drawn on a price chart. But for some reason, they seem to be accurate most of the time. Prices stall out at certain points, and it’s usually on the Fibonacci range that they do so. If the price has reached a Fibonacci number, you can expect the price to retrace itself briefly before continuing with the trend.
Step 3 – Select Your Expiration Time
Step 4 – Choose A Type of Binary Option To Trade
Binary options trading comes in many flavors. The simplest and most popular are called digital options. Also known as up or down options. There are also popular types of binary options like touch or no touch, in a certain range or outside a certain range. Those are the most common types of binary options trading offered. There are more exotic styles of binary options as well like the double touch or double no touch options.
Step 5 – Compare Brokers & Choose One to Trade With
Narrowing down your list of brokers and funding accounts is something you should do earlier in the process. Once you’ve funded your account with the broker of your choice, it’s time to compare the brokers returns for the specific trade you are interested in making. If you can get a higher return at one broker over the other for the same trade with the same details then it only makes sense to trade where you are getting the most return on your risk.
Make the trade at two of your favorite brokers up to the point of actually pushing the ‘buy’ or ‘trade’ button that executes the trade. You will see the exact risk and return. Go with the one that matches your needs the best (remember, it’s not always just the highest return, AnyOption offers a rebate on losing trades).
Step 6 – Decide How Much to Money Risk?
Never risk more than 5 percent of your trading money on a single trade.
This choice can be determined in a mathematical fashion, but generally, 1 to 3 percent of your trading money will be enough. The more certain you are in the trade and your prediction’s accuracy, the higher on the spectrum you want to be.
Execute the Trade – Buy The Binary Option
I suppose this could be step 7 but this is really just the act of pushing the button to execute the trade.
Once you have executed the trade, you can sit back and watch where the price moves and cheer your trade on.
In some circumstances, you may want to exercise a sellback choice or an end early choice if you think your option is not going to be profitable, but this is largely a choice that you should use sparingly.
Watch the trade and see if you finish in the money. If you win you get the return and if you lose you lose your stake. Here’s to winning more trades!