Steps in Trading Binary Options

binary-options-stepsIn this article, you will learn the basic steps in placing Binary Options trades in the market. You should finish this lesson with a good understanding of how to enter Binary Options trades in your trading station.

How to make a Binary Options trade

Making a traditional binary option trade involves taking a series of steps as follows:
Choose from among the available underlying assets, such as currency pairs, stocks, indices, and commodities.
Select an expiry time frame for the binary.
Pick a Call binary if you think the market will rise by expiration or a Put if you think the market will fall.
Enter your desired premium investment amount that represents your risk on the binary option purchase
It is important to note that you can compute the binary option’s potential payout after entering your selection for each step.

Choosing underlying assets

The first component of a binary option trading decision involves selecting the underlying asset. Some binary option trades prefer to specialize in one asset or market, while others take positions in a variety of markets simultaneously.
It is of essence to note that you should identify the underlying asset that best suits your trading style and trader requirements. The choice you make is the key to your trades making profits or losses.
Some of the types of underlying assets include:

Company stocks

Stocks represent an ownership interest in a company. They are sometimes also referred to as shares or equities. Thousands of stocks are traded daily in the various stock exchange markets worldwide. Stock markets are reviewed daily in the main news media.

Currencies

Examples of currencies include EUR/USD, USD/JPY and GBP/USD. They often fluctuate based on the state of the economies of their countries. Traders usually earn profits from correctly predicting their rising and falling.

Commodities

Whether shopping at the supermarket or buying gas at the local gas station, the price paid for a commodity is set by market-driven forces at the major commodity futures exchanges. Traders can earn huge returns by buying Binary Options on commodities if they have an accurate market view, even if they do not have the financial means to
trade in the futures markets.

Indices

A market index is computed from the prices of all the component assets traded on the market at any given time. The main stock market indices or indexes are the NASDAQ, the Dow Jones Industrial Average, the S&P 500, the UK’s FTSE 100 and the German DAX. In binary option trading, trades can be based on the value of the index itself.
Binaries are one of the best instruments for traders to use to speculate on market index movements.
(General Risk Warning: The financial services provided by this website carry a high level of risk and can result in the loss of all your funds. You should never invest money that you cannot afford to lose.)

Future contracts

Futures trading involve speculating on whether the price of an underlying asset will go up or down in the future. All futures contracts are standardized to cover a particular amount of the underlying asset, as well as the quality and delivery location for commodities. Futures also typically trade for quarterly standardized delivery dates,
such as March, June, September and December. The most popular futures contracts are based on financial instruments, such as interest rates, currency exchange rates, and stock market indexes like the S&P 500 or the Russell 2000.
As such, you may choose one asset or a combination of assets that you deem fit. In making the choice, your decision will be based on one or all of the following factors:

Decision based on knowledge

If you have experience trading in the Forex market, it will only make sense if you choose to trade in Binary Options with currency pairs as the underlying asset. The same applies to a trader who has experience dealing in the stock exchange, and the most sensible underlying asset to trade in on the Binary Options market would be
company stocks.
If you lack knowledge on any of the assets, it would be wise to choose one that interests you and educate yourself as much as you can and intimately learn how that asset reacts to market influences. For beginning traders, it is best to pick only one asset and learn about it before branching out to another type.

Decision based on the market

No two markets are similar, and that applies to the various Binary Options markets available. Some markets prove to be more dynamic, liquid, and volatile than others. For instance, indices typically are less volatile compared to currency markets. Markets such as indices have less significant price actions on normal trade periods and only
show huge changes when there is a large market disturbance.
Novice traders would work best with the more stable markets, which are easier to read and learn about. However, more adventurers or experienced traders prefer the more dynamic markets, which offer higher profitability, bigger challenges, and more excitement.

Decision based on news events

Every day, events happen all around the world that have various effects on the performance of different markets and underlying assets. For example, one memorable event that sent shockwaves across almost every financial market in the world was the terrorist attacks of 9/11.
A trader can select a strategy that takes advantage of such events to make predictions on price actions of their chosen binary option. A good reason to adopt such a strategy is that it ensures you are always trading active markets with high chances of making profits.
The downside is that since you jump from one market or one asset to another based on news events, you never truly get to understand any particular market or asset and could end up missing out on some highly profitable trades or even making losses.

Selecting an expiry time

The next binary trading decision involves choosing an expiration time after which the option will expire. Binary option brokers typically offer contracts that expire after a set of a number of months, weeks, days or hours.
It is essential that you choose an appropriate expiration time to take advantage of your market view. The selected time frame should make the binary option profitable at or before its expiration if your directional prediction turns out to be accurate.
However, at times you will find that you have made the correct prediction on the direction of price movement but have made the wrong calculation on the turning of this price movement.
At such times, you may choose to postpone the expiration of a binary option contract to enable a trade that was bound into losses to recover and turn to profit. This feature is commonly known as the Binary Options roll forward feature. And, it has its advantages and disadvantages:

Advantages of the roll forward feature

By seeking an extension on the expiration time on binary option contracts, you can increase your chances of ending in the money and making a profit on a trade that seemed to be initially going at a loss. You should extend the contract only after conducting proper analysis.

Disadvantages of the roll forward feature

While extending the contract is a good option for avoiding loss, it should be used with caution. First and foremost, you should ensure you conduct proper and thorough analysis to avoid adding further loss to that already incurred. The feature should only be used when you are confident of your predictions but only requires the time
extension to achieve the anticipated target.
One thing you should keep in mind is that the broker will most likely levy an additional fee for the service of providing the time extension. Due to the high gains achieved by ending in the money, the risk is usually worth the extra fee. However, ending out of the money ends up with you making a higher loss than initially bargained for and in addition paying a higher fee. You should also avoid either overusing or misusing the feature due to the temptation to hope for a reversal of losses made.

Picking either a put or a call option

The next binary trading decision involves picking either a put or a call option. A binary option trader’s job involves forecasting the direction an asset’s price will move before or by the time of expiration.
Traders who believe the underlying asset’s price will rise could pick a Call or Above binary option. On the other hand, traders who predict the underlying asset’s price will fall could purchase a Put or Below binary option.
An accurate forecast of the asset price’s direction can yield a high return of between 75 to 81%. This almost doubles the initial premium invested in the binary option.

Calculating income and investment

The last step in trading Binary Options involves entering your desired premium investment amounts that represents your risk on the binary option purchase.
Binary option trading offers an interesting way to earn quick returns. Plenty of advantages exist to trade financial markets using Binary Options. A major advantage of buying Binary Options is that the risk involved in known at the outset.
Therefore, learning how to trade Binary Options properly helps you maximize the income from your investment.

Examples of steps to trade different type of
options

60 Seconds Binaries
Trading 60 Seconds binaries can help you capture quick profits from small market movements with a few simple steps:
Choose the underlying asset.
Select Call if you think the asset’s price will rise in the next 60 seconds or Put if you think its price will fall.
Select an investment amount from the menu.
The system allows you three seconds to either cancel the trade or click “Approve” to continue. You can monitor your trading results in real time as the underlying market moves prior to expiration. The impact of the trade on your account balance will be reflected once you close the trade out or it expires.
One Touch Binaries
One touch binaries typically provide a payout if a trigger price trades at any point during the option’s lifetime.
Here are the steps to trade them:
Choose the underlying asset. For example, stock shares – Apple.
Select your investment amount by choosing a number of units from the drop-down menu. Each unit is $50.
Click “Apply”
You can view the one touch binary expiry time and payout.


(General Risk Warning: The financial services provided by this website carry a high level of risk and can result in the loss of all your funds. You should never invest money that you cannot afford to lose.)

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Thomas Jan

Thomas has worked in securities company for 7 years and he was a finance columnist for 3 years,
Now, he is the founder and lead author of Binary Top Gun since 1'st January 2016.
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Thomas Jan

Thomas has worked in securities company for 7 years and he was a finance columnist for 3 years, Now, he is the founder and lead author of Binary Top Gun since 1'st January 2016.