Binary Options Blog

Help yourself not to get caught with a position.

 

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In the world of trading there are many factors that can influence the directional movement of an asset price over and above the normal supply and demand of that particular asset. In most cases a specific item of news is pencilled into a calendar and so it is a known factor that it will be released but that actual content will not be known, such as individual company results and economic indicators. Individual company results can not only have a bearing on that company but can also have a bearing on other stocks within the same market segment and in extreme circumstances if the company is prominent in that country it can also have a bearing on that overall market. With economic indicators the same can be said but they can have a much bigger influence as they are more likely to cause movements in both equity markets and foreign exchange markets should the data either disappoint or beat analyst forecasts.

So as a trader it is critical to understand the market that you are trading in, so the more information that you have to hand the better, it will help you to either maximise profits or minimise your losses. Before placing a trade you will need to be aware of what may influence the price of the asset you are trading in, it may be that company has its annual results out or there is a key piece of economic data being released whilst your trade is open. You may be aware of this and are intentionally looking to trade over the release of the information which is fine as you have done your pre trade checking, but it may be the case that you didn’t know and then for the sake of a quick 5 minute check to see what is due out you may have caused yourself to lose money. Now there is always the chance that there will be news out that is not expected, but then everyone is in the same boat, you are just interest in reducing the risks you can never have a risk free trade.

With the power of the internet it is very quick and easy to find out the information required prior to trading most if not all companies post the dates of the financial reports on their websites and there are websites that list upcoming company results. With economic data again you can find out what is due out normally for a whole week along with analyst forecast which will allow you to make a quick judgement when they are released.

As a trader the more information you have to hand the better judgement you can make and if you can reduce your risk of losing your hard earned money that has to be good thing.

Money Management

 

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All traders should impose a strict money management process in their binary options trading strategy. The reason for a self imposed money management strategy is to not only increase profits, but is also there to reduce losses to a level where they are easier to absorb. With binary option trading being of a fast nature it can allow traders to accumulate profits quickly, but will also allow losses to build up quickly, so a strong discipline is the basis of a strong money management strategy.

A basic money management strategy will involve choosing a percentage of the total funds on account which are available for any one single trade and having the discipline to never exceed that percentage. A 10% limit is quite simple and one of the most common choices among traders. An example would be a binary option trading account contains $500. The trader would only invest $50 of this amount in any one single trade. In adopting this strategy the trader could lose no more than $50 if the trade ends out of the money, this ensures there are funds for future trades to hopefully recoup this loss.

The percentage of funds to use for a trade should never exceed the self imposed limit, of course a trade of a lower value can be placed without a problem, discipline is required to stay within the percentage limit, but countless traders will tell you a self imposed limit is a must if you want to stand any chance of succeeding. Profit may grow at a lower rate when using lower investment percentages but also your losses will not finish you in a couple of trades. All brokers will have some minimum investment requirement in place, but reducing the percentages should not be problematic. The lower the percentage the lower the risk.

Even if the trade being placed seems certain to end in the money, don’t be tempted to divert away from the self imposed percentage limit, there is no such thing as a dead certain trade in the world of binary options. A good money management strategy should not only concentrate on the percentage being invested, it should also include thought in to which assets are being traded. Basically don’t have all your eggs in one basket a diverse trading strategy can help to spread the risk and reduce losses. Another good trading discipline to follow is to log all trades placed with a small description as to why it was placed, was it a trading signal received, a chart break spotted, economic news released the list is long but this could help you pick a trend of either winning or losing trades. It is impossible to remember why every trade was placed but a short note will help jog the memory.

Binary Over Forex Trading

 

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Up until recently financial trading was only available to professional traders and financial institutions who had direct access to the market place, but now days the internet has made this form of trading available to anybody with an internet connection and it is now possible to trade stocks, commodities and Forex from the comfort of your own home. One of the newest ways to trade financial markets and in particular the Forex market is in the form of binary options. This form of trading has had explosive growth, the main reason being that it has opened up trading in areas of the financial market that were previously only available to professional traders working for financial institutions.

Forex trading or foreign exchange trading is the worldwide market where currencies are traded on almost a 24/7 basis and the volume of trade in the forex market is massive. So why are people now choosing to deal in binary options and why are some foreign exchange traders also now turning to binary options. The main reason is its simplicity, trading in binary options is much easier to monitor, stripped back to its basic form a trader only requires to know if the price of an asset will go up or down and that the direction selected was correct. With standard forex trading the amount of movement in the currency is directly linked to the profit or loss on a single trade, the greater the movement the greater the profit or loss and so the greater the risk. This is not the case in binary options trading , as trader you just have to predict if the price will go up or down , the amount in which it moves is irrelevant, at the beginning of the trade the risk is known and also the potential reward is know. This simplification of forex trading is why this form of binary option trading has grown at such fast rate.

When is a bonus not a bonus?

 

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All the time now you see binary option brokers offering new clients a wide range of incentives to get them to sign up to their platform, these can be anything up to a 100% cash match on the initial deposit made. Whilst this seems a great offer to get you on your way, by giving you a bigger pot to play with the devil is in the detail of the bonus being offered, each offer will have a different set of terms attached to the bonus offering. In all cases this is not a cash bonus and has no value unless the terms of the bonus are reached, the chances of receiving this bonus in cash is pretty much zero for the average trader. As the saying goes if it looks too good to be true it most probably is, binary option brokers are in this game to make money so why would they offer money back to clients with no restrictions, basically they don’t. The broker at the end of the day is attempting to get the new client to deposit more funds into their new account than originally intended.

A typical example would be a new client deposits $500 onto their newly opened account and the brokers welcome bonus is a 100% deposit match.

Example 1

Terms of the bonus offering are that the initial deposit and the bonus are combined giving a trading pot of $1,000, the terms of the bonus are the initial deposit and bonus must be traded 20 times (common level but there are higher) before it is possible to withdraw the bonus offering in cash there would needed to have been $20,000 total trading volume ($1,000 x 20 = $20,000) on the account. Should a withdrawal be made of the initial deposit the bonus offering is normally cancelled.

Example 2

Terms of bonus are almost identical except that the two amounts are not combined so the initial deposit is kept separate to the bonus, so then the bonus amount will not be included in the trading pot but will be released in cash to trade or withdraw. So $500 initial deposit matched with $500 bonus in this example to be able to withdraw the bonus in cash or trade it $10,000 in trading volume would need to occur on the account. ($500 x 20 = $10,000)

So with both the above examples the amount of trading required to be able to obtain your welcome bonus makes the bonus not a bonus. If the average trader traded say 5% of their account per trade and deposited $500 as above that would equate to $25 per trade, even on example two that is potentially 400 trades needed to qualify to receive the bonus in cash.

The above is a guide as to why when opening a new account you should refuse the welcome bonus in 99% of all cases, the broker is not interested in paying, they are just interested in taking your money. A lot of complaints about binary option brokers are around not being able to withdraw all or some of the funds in an account and nearly every time it is to do with a way a bonus offer is applied and the terms and conditions attached to the bonus.

In conclusion ALLWAYS read the terms and conditions attached with any bonus offering and if you are not happy with them but still want to open an account, check to see if you can elect not to receive the bonus, some providers include this option in the signing up procedure.