Binary Options Trading Strategy: Picking to Win

By Kevin P. on 02/15/2013 in Strategies
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In financial derivatives market, binary option trading is emerging significantly, attracting traders from all over the world. Most traders highlight binary trading as just 3 easy steps; registering – finding a brokerage service, selecting an asset to invest in and placing your bid. However these are the most crucial steps and involve a lot more than just merely selecting from set of options. Every step has to be carefully and tactfully taken.

Step One

Binary option trading strategy starts from the very basic point of signing up to a broker. How? Recently binary options market has seen large increase in number of brokerage services. When deciding the platform on which to trade, it is important for the investor to get himself familiarize with features broker is offering. Ranking brokerage services includes:

  • assets they are offering;
  • minimum trade amount;
  • fee/commissions;
  • minimum deposit;
  • expiration time;
  • lock out period;
  • return percentage;
  • withdrawal methods;
  • special offers and others.

These features vary from broker to broker and following information will help you to understand the overall market situation.

Minimum Deposit: Most brokers require $200 to $250 deposit before one can start trading.

Minimum trade amount: This amount varies from $10 – $30 amongst the top brokerage services providers.

Expiration time: Few services provide only hourly expirations, however, few offers hourly, daily and weekly expirations as well. Thus trader has to look at his need of trading before starting off.

Lock out Period: Lock out period concept is important; closing the trade prior to expiration time. This also varies across the platform from lockout period of 5 minutes to 15 minutes for the few top brokerage services provider.

Winning/Losing Returns: Returns on winning ranges from 60-80 % and on losing side it ranges from 0-15% of the initial investment.

Special offers: These promotions include different percentage from 5-30 % on the initial deposit as bonuses. Each broker may have changing offers over the time, so current offers are to be looked into at the time of selecting.

This gives a brief insight into the brokerage services and what has to be looked into at the time of signing up. One has to have sense of his trading needs, i.e. what is minimum amount he is willing to trade, how quickly payoff are needed, what return seems striking etc. If not, blindly going into trading can be risky.

Step Two

This involves selecting an asset; stock, indices, commodity or currencies. Selecting an asset involves two questions that are to be answered by the trader. First, how much are you familiar with the chosen asset market? Second, is it right time to trade that asset?

Coming to the first question, it is important to get track of what influences the asset market. Commodities are largely affected by supply and demand factors. For a trader to invest in gold, he has to look at the closely related markets for instance what is happening in gold market for futures contract.

Similarly, stock and indices might move together, for example, if a trader predicts that Microsoft Corp. stocks will move in upward directions he can implicitly also predict that S&P 500 indices might also show rising trend as IT constitutes about 20% of this index. This binary option trading strategy is called, knock-on effect.

Currencies are fundamentally affected by economic performances and political events. Investor has to comprehend monetary policies of the country and be aware of political activities.

When you know what is happening in the markets related to an asset it is easy to know if it is right time to invest there or not. For example, if you know that today’s president speech will be about tightening of monetary policy, this will lead to anticipated appreciation in the currency, thus right time to invest in call option would be an hour or half before president speech beginning.

Thus, hold over closely related financial market is important. It is interest of trader that will lead to the selection of right asset and convert it to winning binary option strategy.

Step Three

Placing your bid. The crucial part, where payoff to all effort lies. Once a through market research is done, it might take a second to decide if it is a call option or put option. Yet it is not possible to be 100% sure about the outcome. Profit and loss goes hand in hand. If there is a 60% chance of winning the situation, nevertheless, there is still 40% chance of losing. Thus a good investor looks into the situation and carefully weighs the profits and loss that could occur to him.

There is no game in which there is no losing. Fun lies in the fact that you have to strive to find way to win. Not as scary as it sounds; there are even more ways to hedge yourself from losing out money in binary option trading strategy.

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