BINARY OPTIONS

·         Digital options

·         Fixed return options

·         All or nothing options

For few years binary options are traded at OTC (over the counter). In 2008 securities exchange commission (SEC) in US approved listing of binary options with continuous quotation and now binary options also available to individual investors

ü  Predictions of directions of price of underlying asset (stock, commodity, index, currency) with in expiry time

ü  No purchase or sale of underlying asset.

ü  Two possible outcomes

1.       Fixed gain – if expires – In the money

2.       Fixed loss – if expires – out of the money

Binary options trade

1.       Choose expiry time. (Minutes, day, week).

2.       Choose call or put

Ø  If u think price goes up Buy/Call.

Ø  If u think price goes down Sell/Put.

3.       Wait for expiry.

Ø  If the expiry is in the money – profit

Ø  If the expiry is out of the money – loss

Decisions

ü  Decision on underlying asset

·         Selection of assets for trading from different financial markets

·         What asset to trade has to do with the opening hours of various world stock exchanges

Basic four classes of assets

·         Commodity:  gold, silver, wheat, coffee, oil, platinum, etc...

·         Stocks:  city (US), apple (US), Google (US), etc...

·         Forex (currencies): 24hrs a day. GBP/USD,  USD/JPY

·         Indices (indexes): dow, s&p500, NasdaQ (us),  dax (germany).

Decision on amount to invest

Ø  The amounts you devote to trade should be dictated by risk management plan

Ø  Binary option brokers allow for low minimum investment

Deciding on the desired time frame

Ø  Binary options are short term investment instrument by definition

Ø  Time frame available is one minute to one week

Ø  Depending on trading plat form

Ø  Very small time frame one min and 5 mins

Ø  Possibly experiment a lot NOISE result of hedge funds activity

Ø  15 minute time frame is the best suggestion

Ø  This is the small enough to capture nice moves but big enough to eliminate the noise in the market and correctly the true trends

Ø  While preparing trading strategy it is best to experiment with various time frames

Ø  A trading strategy might work on larger time frame but not on small time frame “vice versa”

Deciding on types of trades

Major trading types

      Above/ below

      Buy / sell

      Call / put

Touch up and touch down

Ø  Touch the high strike price or low price

Ø  If it touches that within the expiration time the option expires in the money

 RANGE

 Range options will have a predetermined upper and lower boundary when buying a range option the buyer has to predict ‘in ‘or ‘out’

If more volatile -out

No or less volatile -in

ADDITIONAL FEATURES

Close now - allows you to close an option before time of expiry if the option not performing as planned

Extend – roll over allow you to exercise to extend the time of expiry in order to increase the odds of being IN THE MONEY

ADVANTAGES AND DISADVANTAGES OF BINARY OPTIONS

Advantages  

Risk control –

Ø  initial investment is fixed from the beginning thus amount of possible profit and loss is well known

Ø  You will never lose more than what you expected can determine your risk as completely as is possible there is a limit on how much earned or lost

Ø  Short time trading – daily hourly

Ø  We can decide the expiry time of the option will be it can be END OF THE WEEK or END OF THE MONTH

Ø  However most trades would prefer shorter time frames

Ø  Low minimum amounts binary brokers have low investment minimum thus allowing you to start with small amounts

Ø  Can start trading with 10 dollars

Online trading – all you need is a computer with internet access

Simplicity – very simple and straight forward all you need is to decide o which directions the asset moving

The main disadvantage is fee its morethan a spread the brokers fee is embedded in the bussines model if a binary options brokerage

BINARY OPTION TRADING RISK MANAGMENT

·         Not to risk too much money on any given trade

·         Many traders trade without thinking about risk they take only about the potential rewards

·         To succeed take in to consideration the maximum % of total trading money that you should risk in any one trade

·         Actually your ability to limit your losses is equally critical as your success in managing winning trades

3 tips to minimise risk and increase payouts

1.       Don’t trade with money that you cannot afford to loose

2.       Never borrow money while trading trade only with your own money

3.       Set and stick to a budget write it ... if you hit that no. quit trading for the day

4.       When you enter a trade , no matter how great it may be, always ensure to only invest conservatively

5.       It mean that you should not use more than 5% of your capital on any single trade

6.       There is always a risk factor involved conservative investment strategy helps you to conserve your money when things go wrong

7.       Never put all the eggs in the same basket

8.       A good money management strategy requires diversification ( currency and commodity)

9.       Losses needs to be stepping stone instead of having it affect you

10.   Certainly do not fall for the emotions and commit your entire amounts right away on one trade

11.   Investing small amounts continually helps you to take a self disciplined approach

12.   Use the advantage of minimum capital for trade

13.   Trade in small amounts until you have the sense of the assets that you are trading

14.   This can gradually increase your self confidence levels helps to automatically be aware of indicators and be able to prepare your investing strategy and ultimately help reduce the losses

15.   There will be a thin line between gambling and trading.

WHAT YOU NEED TO SUCCED IN BINARY OPTIONS

1.       Need to learn charts and how to read charts. charts are the main weapon in winning the binary options

2.       Any valid strategy involves reading and analysing charts they are  not hard to read and understand

3.       The most basic form of technical analysis would be look for SUPPORT and RESISTANCE levels charts in this way works best in moderately volatile market

4.       Another simple way of using charts is to look at moving averages such as the average price over 10 days

5.       It is better presentations of what the price is doing over a longer period of time

6.       Another simple pattern is RSI relative strength index

This highlights the situations where the market is

1.       Over bought

2.       Over sold

3.       Works potential reversal of trend

1.       RSI is the total points gained on up days divided by total points lost and gained multiplied by 100

2.       Pick a user friendly platform you will need a system that lets you back test strategies and program customised indicators and trading system without a lot of difficulty

3.       Pick a reputable company

4.       Select a provider which has superb customer service

SUPPORT

Support represents the level where buying pressure is powerful enough to absorb and overcome selling pressure

At support levels buyers move in to the market mopping up the imbalance between supplies (sellers)

And demand (buyers)

So that when it happens the price will stop fall and may probably rise.

Resistance opposite to support levels

Where volume of selling (supply)exceeds

Wher volume of buying (demand)

Simple moving average

It calculates the average price over a specific moving time period

Ex: 50 days SMA (simple moving average ) = avg mean price of last 50 days.