The most basic type of binary options instrument is the Put or Call. This type of trade is based upon up or down asset price movement, either of which can produce a profit when correctly forecast. This instrument is ideal for beginners, but its use will not go away once a trader reaches a more advanced skill level. Although there are many types of trades to choose from, it will be this type that traders routinely utilize throughout their trading careers.
When a Put selection is made, this indicates that the trader is either seeing or expecting Bearish market conditions to dominate. In simpler terms, this is a prediction of a price decrease. The opposite applies for a Call selection, which is generally linked Bullish market conditions and a price increase. When trading binary options, it is not necessary for a price to increase in order for the trader to earn money. Instead, profits are derived from accurate forecasts of the direction of price movement. Select the correct type of movement, and profits of anywhere from 65% to 90% are yours.
When either a Put or Call option is purchased, the option will be linked to a specific strike price and expiry time. The strike price will be the price of the chosen asset at the time of market entry. The expiry time will be the exact time that the contract will close. The price of the chosen asset will have to be higher or lower than the strike price (as selected by the trader) at the time the contract closes in order for profits to be earned. If the wrong choice is made, the investment amount (again, as decided upon by the trader) is lost.
There are a wide variety of binary options strategies which can be used along with this instrument. These range from beginner level to advanced. There is also the standard analysis process to consider. Most brokers do provide a basic price chart which shows current and past price movement. Additionally, more detailed charts such as MetaTrader are available online at no cost. The only other analysis tools needed would be a reliable source of market news and an economic calendar which will provide the dates and times of specific economic releases and earnings reports.
The search for great trade setups is not overly difficult when market news points them out for you. The top stories of the day can easily pinpoint the best opportunities, with little effort required on your part. It can be helpful to become at least somewhat familiar with the asset index provided by your broker. Knowing which underlying assets are available within your chosen platform will make it much easier to spot key opportunities and take action quickly before the price action changes. A familiarity with these will come naturally over time, but feel free to refer to the asset index provided by your broker in the meantime.
Once a Put or Call contract has been purchased, the only thing left to do is to monitor the trade. The duration of the trade is completely dependent upon the expiry time selected. Most binary options brokers do offer many different expiry time to choose from, ranging from less than one minute up to several months or even the end of the year. Shorter expiration times are often selected for two reasons: they allow for fast profits and allow for capitalization on short-term price movements. However, lengthier expiry times can be chosen when longer, sustained price trends are in place.
When selecting this instrument, the only questions that need to be answered are, what direction will the price move in, and for what duration of time? It is perfectly fine for the price to shift up and down while the trade is open, as that is to be expected. The sole determining factor will be the price level when the trade closes. Not every trade will be a winner, but those who are able to predict price direction accurately more often than not stand to earn nice profits when trading binary options.