Binary Options Guide
Binary options, just like any other form of financial trading, has an element of risk involved. You could lose all or most of your money in an instant if you are careless or greedy. As such, the concept of risk management is one that every binary options trader should take very seriously.
The generally accepted risk management rule adopted universally by professional traders is that no more than 5% of the account size should be exposed to the market at any given point in time. What this simply means, is that if you have a $1000 binary options account, you should not have more than $50 in the market at any given time. Trading anything more than this is extremely risky, especially as binary options is an “all or none” type of market.
Control your emotions
When trades go against you, keeping a lid on your emotions, and maintaining a cool head, can give you an unbeatable edge.
Let’s take a look at the psychology of winning and losing. Say you lose out on a trade (that has not gone according to your predictions), the natural reaction is to double down on the next trade – to try to make up for your losses immediately. A big mistake. You have to stay calm and stick to your plan. The same thing applies when you win.
Don’t get over-confident and try to ‘ride your luck’. Luck doesn’t exist. Your strategy does.
Develop a trading strategy
When investing, it is important to take the time to understand the various tactics one can implement to maximize their returns. Before an individual starts trading, it is worthwhile to understand the various binary options trading strategies that are available.
Trading strategies involve developing a set of rules that assist an investor in making their trading decisions. Although binary options provide a simple platform for trading, developing binary options trading strategies is still an important exercise. Taking the time to understand the different methods available for achieving your financial objectives, helps identify unique ways of optimizing your strategy.
What sort of options to buy
When you’re first starting out, don’t go crazy and start buying binary options that you don’t know anything of. It’s better to start with commodities or currencies that you actually know something about, as this gives you a bit of an edge. Many people start off with the most popular types of options, such as the EUR/USD for currencies or GOLD for commodities.
Binary options’ trading involves trading several assets and making money based on the outcome of the price direction.
Some of these assets are traded on a 24-hour basis: here we have currencies, commodities and stock indices. Stocks are not usually traded on a 24-hour basis. The trading hours of a stock market determine the times at which a stock listed in that market is traded.
Trading works best when the market is bubbling with activity from traders all over the world. When there is good trader activity in the market, it generates the liquidity and volatility needed for the underlying asset to get to its target before the option expires.
Even though assets like currencies and commodities are supposed to be 24-hour markets, there are only certain times of the day when the market activity is at its maximum. This is usually when we have an overlap of the trading zones of the world.