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How to Trade Binary Options

> Blog > Insights > How to Trade Binary Options

Binary options trading remains a popular option among traders due to its many advantages, including the possibility of high returns and a simple “this or that proposition” process. However, it’s worth pointing out that binary options are still as complex as other types of trading.

This article will discuss binary options trading and provide a series of simple steps to get started.

Understanding Binary Options

Binary options are financial options with short-term, limited-risk contracts that come with one of two payoffs: a fixed amount or nothing at all. It’s an all-or-nothing type of trading process where there’s no other settlement possible.

Binary options trading is as simple as asking a yes or no question. In this case, the question is:

Will this market (or underlying asset) be above this price at this time?” 

If your answer is yes, then you must buy. If your answer is no, then you must sell. There are no grey areas and no in-betweens. This kind of simplicity drew many new and experienced traders into trying it out.

Where Should You Trade Binary Options?

The first legal binary options exchange is the North American Derivatives Exchange or Nadex. The Nadex exchange provides its own browser-based binary options trading platform that traders can access anywhere at any time.

The Nadex trading platform also comes with real-time charts. They also provide direct market access to current binary options. The Chicago Board Options Exchange (CBOE) also offers binary options.

Some traders with an options-approved brokerage can trade CBOE binary options through traditional trading accounts. However, not all brokers offer binary options.

Binary Options Trading in Four Simple Steps

Step 1: Know and Understand the Market Trends

Simplifying binary options trading as answering a yes or no question may sound easy, but a lot goes into making the final decision. When you’re trading with binary options, always be well informed.

The market is often volatile and easily affected by various factors like current affairs, politics, and technology releases. To be successful, you need to be on top of these developments as often as possible.

Consider doing the following:

  • Follow Nadex on its social media platforms for trading updates.
  • Utilize available Nadex charts
  • Stay on top of current events (financial news, politics, business developments)
  • Learn how to conduct technical analysis

Step 2: Choose Your Preferred Market

Once you’re familiar with the news, treads, and business developments, it’s time to finally pick the market you want to trade. Choosing the right market is affected by a whole range of factors that include:

  • Personal Interest: Each trader will have their markets that will capture their attention more than others. It could be cryptocurrency, foreign exchange, or oil prices. These are all valid markets, and every trader should pick the one that matches their preferred interests.
  • Contract Duration: There’s a wide selection of binary options contracts to choose from. Some contracts are intraday, daily, and weekly. Select the one that fits your schedule.

On Nadex, they offer four primary markets that you can choose from:

  • Stock Indices: a group of shares used to indicate an exchange or economy
  • Forex: trading one currency for another
  • Commodities: buying and selling raw materials
  • Events: relevant economic events to a particular company that affect its financial condition  

Step 3: Pick a Strike Price and Expiration

Selecting a strike price is usually the most important but challenging aspect of binary options trading. Especially when you’re just starting, that’s because the structure of binary options may look simple, but the process is still complex.

It will still require you to create a plan, a strategy, and an informed prediction. The secret to selecting the right strike always comes down to two factors. That’s probability and risk. Trading with binary options is a balancing act that requires making an informed guess.

When it comes to establishing a strike decision, you should answer two questions:

  • Do you think this strike is achievable?
  • If the answer is yes, will you be getting it at the right price?

Understanding how the current market works and what’s going on with your chosen industry should help you answer these questions quickly. Most importantly, it enables you to justify the strike.  

Step 4: Keep Monitoring

Once you decide on a strike and place the trade, you need to wait for the expiration. However, you must also close out your trade early. This is extremely helpful when you find the market suddenly took a wrong turn.

If you wait for the expiration and the market is moving against it, you may find yourself risking your contract settling at zero.

Trade Binary Options the Right Way

Binary options can be a fantastic trading vehicle that offers plenty of opportunities to succeed while providing an exciting experience. Trading binary options can also feel straightforward, so it’s known to have a shallow barrier to entry.

Take note that just because it sounds simple doesn’t mean it’s easy to make money out of it. It’s still a risky endeavor, and there will always be people who would be willing to take advantage of you.

Trusted Options is one of the industry’s best binary options brokers. They offer fund safety, a user-friendly platform, and the trust of over 1.7 million traders.

Contact the team today to learn how they can help you trade.

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