Binary options, or digital options, are one of the easiest ways to trade the markets without actually buying assets. It is also a difficult art to master, and needs more forecasting insights than other investment options. It is important to understand how binary options work before one starts trading.
Digital options have a fixed payoff, which is why they are also known as fixed return options. These types of options have only two possible outcomes: either you get the payoff amount, or you get nothing. If the stock price at the time of expiry is greater than the strike price, you get the payoff irrespective of its amount. On the other hand if at the expiry date the price per share is less than the strike price, you lose all your investment.
As you can see, your forecasting skills are incredibly important if you want to be successful with this type of trading. This article describes some techniques you can apply in order to increase your level of effectiveness in your daily trading.
Start with a thorough fundamental analysis. Is the asset you are trading likely to rise or fall? What are the market conditions? Are you trading in a bull market or in a bear market? What has been happening with this asset during the past week, the past month, and the past year? Drawing a clear picture of the fundamental aspects of the traded assets will provide you with a framework from where you can start a more refined technical analysis work.
Once you have a basic idea of the market fundamentals, you fine tune your analysis looking at the charts. To accomplish this, you need to decide which indicator you are going to use. There are many technical analysis techniques you will have to get yourself acquainted with. With enough experience and practical knowledge, technical analysis will help you predict the direction and possible levels of resistance and support, of traded assets. If done properly, technical analysis is a bit like seeing into the future, although of course it is impossible to be right all the time.
If you are getting started, it’s good to use a binary option demo account before investing your real money. There are many digital option brokers out there who offer free demo accounts where you can do all the trading with virtual money. You can practice with a demo account until you feel you are ready.
It is probably a good idea to keep an eye on the news that is relevant to your traded asset. For example, if you decided that you will be trading the EUR-USD pair, then you can create a Google alert with the keyword ‘EUR-USD’ so you receive all the important and latest news about this currency pair, right in your inbox.