Since I enjoy investing, I’m always searching for the most recent investment vehicles. The latest strategy I have looked into is binary option trading. Banc De Binary offers their options platform to investors along with a blog containing lots of information about this relatively new investing strategy.
How binary options works
With a name like this, you could think you need a CFA to trade options. This assumption is far from the truth. Binary option platforms allow investors to make a simple decision in regards to an asset. The investor simply has to decide if the asset will go up or down in a determined time frame. Depending on the asset and the option, the platform will give the investor the exact return he will get if he is right. If you trade successfully, investment returns will be around 70% to 90% of your investment. However, if you choose poorly, you end-up losing all the money invested. This is why choosing the right type of asset is crucial.
Choosing the right type of assets
When you decide to invest in binary options, you can select any kind of asset type. The idea is to identify the right asset and determine if it will go up or down in value. Depending on the type of asset you choose, your strategy may vary.
Trading Currency Pairs
Currency pairs seem to be a very interesting asset class to trade when using binary options. The reason is because they are highly liquid and volatile. Therefore, if you study economic news efficiently, you will identify which currency will go up against another. You can trade many currency pairs such as USD/EUR, USD/JPY, USD/CAD.
Another highly volatile asset class is commodities. For example, you can invest in oil or gold. It’s relatively easy to find information that will affect commodities. Therefore, if you read that there is a shortage of oil production, you can trade a binary option on the barrel choosing that it will go up in value during the same day.
If you know companies that are being traded on the stock market, you can also use binary options on common stocks. The earnings season (where each company declares their quarterly revenues and profits) is a good timing to use binary options. Strong earnings or better than expected results will push the stock higher while missing the analysts’ estimates will definitely lower the stock value.
If you don’t follow the stock market closely and don’t know the insights of many companies, the best solution to trade binary options is probably to choose indexes. Indexes represent a group of underlying assets including similar characteristics. It could be broad indexes such as the S&P 500 including the largest 500 companies being traded on the US market or as narrow as the financial index which includes only financial companies. The best way to trade index binary options is to only trade the index when there is a major announcement about a stock or stocks within the index.
Binary option trading is about finding the direction of the underlying asset. In order to be successful in this investing strategy, you must learn how everyday news can affect the asset class you are trading. The key is to find an asset class you fully understand as you will be in a better position to determine how events will affect it. By investing in what you know, you increase your chance of making money with binary options.