The foreign exchange market, also known as Forex, is regarded as the biggest financial market around the globe. Every day, more than $6.6 trillion is traded in the Forex marketplace. Lately, more people have started trading binary options due to its simplicity and high return on investment.
A binary option can simply be described as a unique financial option that provides traders with two possibilities: a fixed payout or nothing at all. It involves predicting the price movement of a particular currency pair or financial instrument within a given timeframe. If you predict correctly, you instantly obtain the agreed payout. If your prediction is wrong, only your initial stake is lost.
It’s very easy to trade binary options if you’re a beginner. However, there are certain tips and tricks that you can implement to boost your chances of success.
Here are 6 crucial rules to trading binary options as a beginner:
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Select the best binary options broker
Before you can start trading binary options, it’s imperative that you open an account with a revered binary options broker. There’s a plethora of brokers available online – conducting a quick internet search will provide a dizzying array of options.
However, only a handful of them are reliable and accredited by proper regulatory bodies. Ensure you conduct ample research and consult experienced traders before choosing any binary options broker. Studying reviews from renowned online sites can also help you make an informed decision.
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Choose your binary assets wisely
You can choose from various asset classes when trading binary options. Forex pairs such as EUR/USD, USD/CHF and GBP/USD are one of the most popular tradable assets. They are relatively easy to study and observe trends. Trading in major indices is quite popular in the United States. These include the Nasdaq 100, S&P 500 and Russell 2000. You could also trade in commodities such as gold, copper, crude oil, corn and soybeans. Binary options operate a fixed risk and reward model type.
You’re given full control of how much money you risk every time you trade. The profit you earn from each successful trade usually depends on your initial stake and the agreed payout rate.
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Start with a practice account
Earning success in binary options takes a lot of practice. As a beginner, it’s essential to trade binary options using a practice account for at least 3 months. Most binary options brokers provide trading platforms with two interchangeable account options: practice and real account. This unique feature allows newbies to learn the ropes and gain experience using a virtual/practice account.
This particular account provides you with virtual money that you can use to trade binary options. When you’re finally confident enough to start trading using actual cash, simply switch to the real account.
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Pick the best trading time frame
Trading in binary options has one remarkable perk: it provides traders with a variety of timeframes to choose from. For instance, you could make a trade that expires after one minute, two minutes, five minutes or even an hour depending on your preference. Most day traders tend to trade using longer timeframes. However, some traders have mastered the art of trading on minute and hourly options.
Despite being a high-risk option, it also provides high returns (80%+ of your initial stake). Ensure you try out different trading timeframes and choose one that exclusively suits you.
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Avoid emotional trading
All traders experience a mixture of emotions when they trade. Profits often provide unfathomable bliss and euphoria. Losses bring profound anger and frustrations. If your aim is to make consistent profits trading binary options, learn how to control your emotions. It’s perfectly natural to make losses when trading forex or binary options.
When your emotions start flaring up, simply take a break from trading. Drink some water or take a short stroll outside. You should only commence trading binary options when you’re in a stable mental and emotional state of mind.
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Learn market analysis
There are two major types of binary options market analysis: technical and fundamental analysis. The former involves studying asset price movements using charts in an effort to get the best entry point. Fundamental analysis, on the other hand, entails studying social, political and economic forces affecting the supply-demand curve and risk proclivity of a particular financial instrument.
Learning these two market analysis methods can help you make more successful trades as a beginner and intermediate trader. In addition, ensure you learn how to use different technical indicators such as Relative Strength Index, Bollinger Bands and Fractal Chaos Oscillators.
If followed to the letter, these rules can help you trade binary options successfully.
Interesting related article: “What is a Trader?“