A Step-by-Step Beginners Guide to Trading Binary Options

By Grit Daily Staff Grit Daily Staff has been verified by Muck Rack's editorial team
Published on September 4, 2022

Trading binary options is a lucrative way to invest your money. It is fairly easy to understand and with the right strategy it can be very profitable. In order to make the most profit out of trading binary options, it is important to understand what they are, how you can trade them and what the risks are. You’ll find an overview of those topics in this step-by-step guide for beginners of trading binary options. Read this guide before to help you increase profit and decrease financial risk, before you start trading binary options.

What is trading binary options?

Binary options are a financial product of which the trading lies in between investing money and gambling. Trading in binary options is very easy to learn. The only thing you have to do is guess whether the price of the asset will be higher or lower at the expiration time. There are two options:

  • The market price will be higher than the beginning (call)
  • The market price will be lower than the beginning (put)

Basically, you guess if the market will rise or fall within a specific amount of time. If you guess correctly, you gain a certain amount of money. This amount can be the asset’s market value or a predetermined amount. The expiration date of a binary option is predetermined as well and can be between minutes and months long.

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How do binary options work?

When you trade in binary options, you don’t buy items such as stock or commodities. Instead, you guess whether the value of an asset will be higher or lower after a certain period. In this way, you do not own, for example, a company stock, but you make money by guessing the course that this stock will take.

This is a unique trading option, as you can make a profit with falling stock prices instead of only with rising prices. When you start trading, you can choose to trade for the asset’s market value or a predetermined price. This means that your profit has nothing to do with the value of the asset which you are trading.

Trading binary options should be done through a reliable broker. Through your broker, you can choose specific markets and assets to trade options in. Some brokers offer demo accounts to help you get familiar with trading binary options, before you trade with real money. Here you can find free Binary Options demo accounts to help you get started.

Four tips to start trading binary options

Before you start trading binary options, there are a number of steps you need to take. Trading binary options without any practice or research is not recommended. This way of investing money is easy, but should certainly not be done without proper information. Below you will find four things that are essential to do and know before you start trading.

Find the right broker

Choosing the right broker is an important step that needs to be taken, before you start to invest your money. Unfortunately, the market is full of scammers and fake brokers that will take your money and give you nothing in return. To avoid sending your money to a scammer, go to a website that compares brokers. They have checked brokers and scored them on reliability, user experience, payment options and many more characteristics.

Learn more about trading methods

Picking a good strategy is the second important step. When you choose your broker, you can pick a market to trade in as well. Knowing this market and the economic situation can be very helpful for picking your options. A good strategy to begin with, is the watching strategy. This is when you watch the news for a while, before you make your pick. Read the economic, political and international relations news and follow the trends and developments. This information can be of great influence on the course of certain assets, such as currencies. 

There are many more strategies to be found online regarding trading in binary options. Be sure to do plenty of research and get comfortable with the strategies, before you start with investing.

Use a demo account

A demo account is a great way to get a good feeling for trading binary options, without taking the risk of losing money. The account will supply you with virtual credits, which you can use for trying out binary trading. If you win, your credits will be added to our account and you can keep trading for as long as you have credits. Try out different strategies, observe the movement of the assets and trade without risk.

Know your limits

Trading in binary options is easy to understand and the internet is full of proven strategies. However, it is not without risk. Use only money that you don’t need and don’t trade if you can’t afford it. Try to start with a demo account and try trading with small amounts of money when you first start to trade for real.

Never take out loans for trading and set limits for yourself. Do this by determining a daily, weekly or monthly limit and stop when you’ve reached that limit. Binary trading can be very profitable, but when you lose you are left with nothing. Be smart and don’t invest irrationally.

What are the risks involved in binary options trading?

Binary options are not without risk. Some scammers pretend to be brokers and can cost you money in different ways. Some scammers run fake platforms that steal your money and in bad cases even your identity. Manipulation of software by these scammers is also a well-known problem, as software can be easily adapted to show negative outcomes of trades.

In addition, the course of the options are hard to predict. Trading in them will always be a 50/50 chance between winning and losing and if you lose you’re left with nothing. Keeping up with the latest news is helpful, but it will never guarantee the desired outcome.

By Grit Daily Staff Grit Daily Staff has been verified by Muck Rack's editorial team

Journalist verified by Muck Rack verified

Grit Daily News is the premier startup news hub. It is the top news source on Millennial and Gen Z startups — from fashion, tech, influencers, entrepreneurship, and funding. Based in New York, our team is global and brings with it over 400 years of combined reporting experience.

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