The easiest way to learn trading is to use binary options while you’re learning.
By Gail Mercer
Wednesday, July 13, 2016
Most new traders struggle for years to learn trading and, quite often, by the time they are just getting the hang of it, their accounts are devastated. However, there is a much easier way to learn how to trade without the suffering of extreme losses or the psychological damage caused by trading markets. The easiest way to learn trading is to use binary options while you’re learning.
Binary options offer new traders the ability to conquer the markets with a time-based, pre-defined risk and profit trading model and here’s how it works.
The trader chooses a strike statement and an expiration. The strike statement provides all the necessary information including, price, market, expiration. Here is a typical strike statement:
In plain English the strike statement reads:
Do you think the EUR/JPY will be trading higher than 117.40 at 9am New York time?
If the trader believes the statement will be true at 9am New York time, then he buys the binary option. The risk on the trade is limited to the price he pays on entry. While the binary price may fluctuate in reaction to the EUR/JPY price movement from your trade entry to expiration (9am New York time), for you the concern as a binary buyer is that the EUR/JPY is trading higher than that 117.40 level when the contract expires. The official expiration value used is a calculation using a sample set of EUR/JPY prices just before expiration. This value compared to the binary strike determines who makes money and doesn’t.
For the binary buyer, this expiration value has to be greater than 117.40 meaning a value of 117.401 or greater, the trader makes money.
If the trader believes the above strike statement will be false at 9am New York time, then he sells the binary option. Again the maximum trade risk is still limited to the price he pays on entry of the trade. However the difference when selling the binary option is that at expiration if the expiration value is equal to the 117.40 strike price or lower, then the binary seller makes the profits not the buyer.
Unlike other trading instruments, where traders need to identify whether the market moves in points, ticks or pips, because each market can have a different monetary value. However, binary options it is much simpler.
All binary options trade between zero (0) to $100, where at expiration there is a $100 settlement payout to either the buyer or seller of the binary position that finishes in the money. Your risk is always limited to the price you pay on entry (which is always between zero and $100). Thus your profit potential is $100 minus the price paid on entry.
Trading binary options really is that straight forward!
But it isn’t just the simplicity that makes trading binary options better for new traders. The psychological benefits also make it a better option. When using binary options, both the risk and profit is known before entry, so naturally both the fear and greed emotions are automatically removed from the equation. Think about it – before you even enter the trade you know exactly how much you can lose and how much you can make. Fear is removed because you cannot lose more than you paid on entry. Greed is non-existent because the profit is defined on entry.
Additionally, trading binary options removes the unknown factors, which play havoc with the trader’s mind. There are virtually no additional “What If” scenarios to play out. On any binary option trade there are two best and worst case scenarios that can play out at the binary expiration:
- Trader loses what he paid on entry.
- Trader makes maximum profit (maximum payout minus risk paid on entry).
Think about it, the worst case trading scenario is chosen on entry – by the trader. The binary trader is aware of the risk, comfortable with the risk and can sit back and let the trade develop. Of course, there is the option for the binary trader to exit the trade early if deciding to take early profits or cut losses on the trade.
Binary options are available in many expiration times so the binary trader can intuitively see if the trade makes sense given how much the underlying price is over or under the strike, how much time is left before the binary expires and what the profit/ loss scenario looks like given your market bias. All these benefits of trading binary options, allows the trader to grow and gain confidence in trading.
This information has been prepared by Nadex, a trading name of North American Derivatives Exchange, Inc., prepared by independent third parties contracted by Nadex or reproduced form third party news agencies. In addition to the disclaimer below, the material on this page does not contain an offer of, or solicitation for, a transaction in any financial instrument. Nadex accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication.