How To Trade Binary Options

How to trade binary options...without losing your shirt.

Do you trade stocks and options? Or thought about it but it seems out of your reach?

You may or may not have stumbled across binary options trading over the last 4 years. If binary options are entirely new to you, don't sweat it. For one thing binary options trading has only recently come on the scene and were not listed on an exchange until 2008. However, institutional investors and the big banks have been trading binary options "over-the-counter" for decades. In addition binary options are quite easy to get the hang of. One of the big advantages they have over traditional options. If you haven't yet learned how to trade binary options you just may want to give them a look-over.

To understand what binary options are and how they are traded, it will help us to understand what the meaning behind "binary" is in this case. And just in case you're unfamiliar with the word "binary" itself here's the definition:

"Characterized by or consisting of two parts or components."

One or the other. When applied to learning how to trade binary options this simply means that there are only two possible outcomes; win, or lose. If you are correct in your trade you get paid out the agreed upon (known ahead of the trade) amount and if you are wrong you are also paid out a pre-agreed upon amount. Though often this may be $0.
For the reasons above binary options are often called "all-or-nothing" options. However, many brokers will pay out some small amount on losing trades so not quite "nothing" in some cases.

As mentioned above one of the best things about trading binary options is that risk/reward is perfectly transparent before you ever place a trade. No matter what happens in the market if you meet your contract specifications the broker will pay out the pre-agreed upon return rate. This trading structure makes binary options trading very simple to learn (though it may be somewhat more difficult to master). You won't have to worry about making emotional decisions regarding when to sell or when to buy either. Another great thing that some brokers offer is "early exercise" of your options if they are "in-the-money" (ITM). Allowing active traders to pocket profit at any time their option reaches the ITM level.

In summary, you would buy a binary call option if you think the underlying asset will go up in price by the time the expiration rolls around. And, of course, a binary put option if you think it will be going lower in that time. See, when you trade binary options you don't have to worry about the size of the move at all and if it is so much as 1 tick ITM at expiration your broker pays the same return as if it was 1,000 ticks ITM at expiration. As such this form of trading can be simpler for those who don't have access to large amounts of capital or the knowledge to analyze the complexity of the traditional stock market. All you have to do is to decide whether a trade will do better or worse for the time that you hold it. That's not necessarily easy to do, but it is certainly much simpler than the alternative method of trading stocks or options. This is one of the reasons why learning how to trade binary options can be better for the beginner and part of why it has been rapidly gaining in popularity since its introduction.

I got into binary options trading less than six months ago and it has been a lot of fun and even moderately profitable. I only make small trades or I'd be a lot more profitable but I follow my own advice...don't speculate with what you can't afford to lose. Even if you think you won't lose.

If you enjoy trading then you may just want to check out binary options trading. Learning how to trade binary options is relatively painless, and potentially quite profitable.