Binary options are a financial instrument which we can trade online via web or mobile platform. The trader earn money if he makes a correct prediction whether the value of the underlying asset will go up or down in a given time.
Under the term underlying assets, we can imagine commodities (gold, oil, silver), currency pairs, indices or stocks of major companies. Binary options are mainly known for their simplicity (Because you need only to make a prediction whether the price will go up or down, but not by how much) and by their limited risk. In order to trade binary options, you do not need to install any software, because trading takes place on online platforms, which only require internet access. The trader of binary options knows exactly how much he can earn even before making his investment (fixed amount) and how much he can possibly lose (sum invested in the trade). Usually, we can invest in one trade $ 1 – $ 1,000, depending on the broker ( a place where you make trades).
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The most famous kind of binary options is called: High(Up)/Low(Down) options. If you want to know all types of binary options continue to the article types of binary options. Now we will show you a simple example of a binary trade. We won’t forget to describe every step of the way, which you will have to undertake before closing every single trade.
1. Choose an underlying asset which you want to trade. We can choose from a dozens of currency pairs (EUR/USD, AUD/USD, GBP/CAD …), stocks (McDonald’s, FB, Lukoil …), commodities (gold, silver, coffee …), indices (NASDAQ, ASX, … MIB) – Altogether we can possible trade over 180 underlying assets.
2. Select amount which you want to invest in this particular trade. When it comes to classic binary options, the smallest possible investment is usually $1 and the greatest possible investment tends to be $ 1000.
3. Select when the trade should expire. Once the option expires, we get to know whether our trade was successful or not. We can choose options where we know results of our trades already after 60 seconds, but there are also expire times of 2 weeks, or even more. However, I do not recommend trading 60-second options, because it is very difficult to estimate the evolution of prices in such a short period of time. The most traded expiry times are 10 and 15 minutes.
4. Determine in which direction the price will move. If we estimate, that the option (for example gold) will go up, then we choose Up option. In the opposite situation, we select down option. Predicting the correct direction is not easy, especially for beginners. Simple guessing does not have any meaning, we have to resort to binary strategies. They will help us to significantly increase our chances of creating profitable trades.