What to Know Before You Begin Binary Trading

Binary trades are some of the most popular methods to accrue sustainable wealth over time. Due to their fast-paced nature and as they cover multiple different sectors, a growing number of investors are choosing to align themselves with this type of strategy. However, preparation is always the key to success.

There are several basic principles which should be understood well before you decide to take a foray into this potentially lucrative sector. What do you need to know and how can this information help you design a solid approach to investing?

The Three Constituents of a Binary Trade

In essence, any binary trade can be broken down into three discrete aspects. These are:

  • The time of expiration
  • The strike price
  • The payout

In the simplest of terms, the expiry time represents the length of time in between when you purchased a binary options contract and when the agreement expires.

This period generally ranges anywhere from 30 seconds to 30 minutes; depending upon the asset and your strategy.

The strike price is that price that you have paid for a specific option. The difference between the closing price and the strike price will determine whether or not you are “in the money” at the time of expiry.

The payout is simply how much the broker will offer you in the event that a trade is profitable. Most have a fixed rate such as 80 per cent and there can also be times when a small payout is provided in the event that a trade loses.

A Choice of Assets

Even professional traders tend to stick with a few sectors that they know well. This is the beauty of binary trading, as you are able to choose numerous underlying assets from within a variety of markets. Some common areas include:

  • Commodities
  • Indices
  • Stocks
  • Forex (currency) pairs

It is wise to become familiar with at least one of these areas. You will then be able to take full advantage of advanced platforms such as those offered through CMC Markets.

The Principle Behind Leveraged Trades

Some investors are tempted to become involved with leveraged binary trades. The theory behind this approach is that you will only be required to commit to a small proportion of the total value of a specific position.

Should you find that you are “in the money”, your profits will be substantially higher. However, the opposite is also true. Losses can dramatically exceed your initial financial outlay.

This is the primary reason why a leveraged trade should only be carried out if you are familiar with the asset and if you can afford to handle any potential losses.

Many individuals are attracted to the rather “all-or-none” aspect of binary trading. Still, this approach needs to be carefully studied in order to maximize your chances of turning a handsome profit. As with any type of investment, research can go a long way towards providing sustainable success.

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