A binary option is a type of financial option, or stock-like investment derived from underlying assets, where the payoff is a simple all or nothing transaction. They’re usually much easier to understand than traditional financial options, which tends to appeal to first-time or novice investors. They’re more common in Europe where they’re settled only on the expiration date of the option, but can be found in North America under the name digital options where settlement periods vary according to the asset. While they’re seen as appropriate for investment rookies, it’s usually wise to have some sort of strategy in place in order to succeed in the binary options market. Where should beginners start? Let’s find out.
Put Your Eggs in One Basket
While it’s almost always wise to diversify an investment portfolio, the same isn’t necessarily said for binary options. One of the most basic trading strategies that can be used to reap considerable rewards for this type of investment is simply focusing on just one asset. There’s quite a bit to choose from in the binary options market, such as stocks, currencies, and commodities, so potential investors can quite happily focus their energy on researching one particular market in order to make the best choices for that particular asset. This suits first-time investors quite well as they’ll become knowledgeable in one area of investment and will be able to understand the underlying reasons for market trends and asset performance. Occasionally, investors might find themselves in a bit of a hit and miss situation when choosing the assets they’d like to focus on, but it’s likely investors will be able to find what works best for them after a bit of legwork.
Calling is perhaps best suited for those who are entering the market for the very first time. In an open market that’s involved with the short term tracking of financial instruments, which is essentially what binary option trading entails, investors will always see fluctuating prices in both directions. However, there is usually an opportune moment to buy into an asset when the market price is rising and is expected to continue rising before closing in a profitable position. It’s at this precise moment that calling is the best option for the investor. Yes, it will be a bit more costly to buy into an asset when it’s visibly succeeding, but offers a near guaranteed return on the initial capital.
Putting allows investors to set their minimum sale price, which can effectively minimize losses when an asset is falling and could continue to do so, but is expected to rise again at a later stage. This type of investment strategy is again well-geared towards short term investments, but investors need to be aware of the risks associated with a falling investment. As with anything in the finance world, there’s no guarantee of an upswing, so investors must have the in-depth knowledge associated with focusing on one particular asset to be able to determine whether or not a particular binary option is worth investing in.
The combination option, which is also known as pairing, is perhaps the most commonly used investment strategy when it comes to binary options. It puts the investor in firm control of his financial activity by setting the minimum price to sell an asset (putting) and setting the maximum price he’ll agree to buy an asset for (calling). Many times, investors find that the closing spot price lies between these two values, so often provides a suitable return on their initial investment.