Tuesday, March 3, 2015

What Are Binary Options?

Binary options are a unique form of financial investment that permits traders to generate profits from correctly forecasting the future direction of price movement for a specific asset. When using the fundamental type of trade, the trader only has to determine whether the price of a specific underlying asset will be higher or lower than the price at market entry when the trade closes. The straightforwardness of this style of trading allows anyone to become a trader, with no previous market experience required.

Each and every binary options trade is linked to a specific expiry time at which the trade is considered final. These time-periods range from mere seconds to an entire year. The vast majority of traders prefer short-term expiry times, as these yield the fastest profits. All trades, regardless of expiry time, profit only two potential outcomes: profit or loss. Both amounts are fixed and known in advance, with the offered rate of return being provided by the broker and posted upfront, and the investment amount being decided upon by the trader.

Each trading platform will include several distinct types of assets, with most platforms providing trade opportunities for stocks, indices, currency pairs, and commodities. Each of these asset classes will include several underlying assets. For example, the stock group could offer assets such as Google, Amazon, Exxon, Apple, and more. Asset selection is the task of the trader, which means that everyone can pursue only the most attractive trade setups.

The aforementioned standard trade (will the price go higher or lower?) tends to be the most popular among traders. Even so, there are other options to consider. Most platforms provide a variety of instruments such as One Touch, Ladder, Pairs, and even Forex. Each of these performs in a different manner, yet all include the necessity to be able to forecast upcoming price movement with some degree of accuracy. Each winning trade will provide a return of 65% to 85%, with select high-yield trades offering returns as high as 1,000%.

How is future price movement accurately predicted? The simple answer is analysis. The are two types of analysis, technical and fundamental. Technical relates to numerical data which can be viewed in price charts. Both current and past price movement can be evaluated within charts. Fundamental analysis relates to market news and reports which can influence asset price movement. Investor sentiment is directly linked to such reports, and it is the opinion of the investor which truly dictates where a price may go.

The transparency and straightforward nature of binary options trading renders it an appealing form of investment for anyone who would like to profit from the markets. Buying and selling shares is not a part of the process, and varying profits and losses are eliminated. The minimal learning curve, extremely low start-up cost, and high returns are also appealing, and are just a few of the reasons as to why thousands of new traders start to trade binaries each and every day.

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The following is one of many binary options strategies that originated in the Forex marketplace. The purpose of its use is to identify short-term price movements via pivot points. This strategy does offer a higher level of risk, along with a win rate that is less than similar strategies. Even so, when used under optimal conditions, it can provide some value when markets are bullish or bearish. With your chosen price chart, the opening candle of the day will be compared against the pivot point so as to determine the price movement tendency for the day. In doing this, a forecast for the general direction of price movement will be provided. Once the opening candle is identified, the next step will be to look for bullish movement by watching how the candles change in relation to the pivot point. Observations should take place within a 15-minute chart. For those not familiar with pivot points, their primary purpose is that of identifying short-term trends. The point itself will show the average asset price based upon the price of the asset at the closing of the previous session. The high and low price for the day will also be included. The average price level for the previous day can provide important information in relation to what expect during the new trading session. When the asset price exceeds the pivot, the market is thought to be bullish. Lower, and the market is viewed as being bearish. Basic use of this binary options strategy is simple. If the new trading session opens with the opening candle being positioned above the pivot point, consider the market bullish and prepared to enter into "Call" trades. The opposite can be applied for bearish, with the opening being under the pivot. Markets are most active just after opening, so wait for this rush to calm before trading. To signal to enter the market will come when the asset price is 30 or more pips higher than the pivot point. Under bearish conditions, the price should be 30 or more pips less than the point. Some patience is required, as there will be a need to wait and see if the price moves back towards the pivot before entering into a trade. It will be necessary to wait and see if the pullback candle rebounds and conditions are bullish (or bearish) when the next candle opens. Accuracy suffers when this strategy is used when the gap is less than 30 pips. Unless other indicators are being used to validate the entry point, avoid trading when the price does not meet this requirement. This strategy is best suited for the Call/Put binary options trade, but other instruments can be used as well. If the opening price exceeds the S1 or R1 levels, the market can be viewed as flat and a Boundary trade can be selected. When this type of price action is noted, the asset price is likely to remain range-bound for a period of time. A No Touch or Range instrument could be selected here as well. There are a few drawbacks to consider, with one being the time at which the opening candle is produced. Should you wish to trade with say the Dow Jones index, but do not live in the U.S., the opening candle may be produced during a time when you are asleep or otherwise engaged. Another drawback is the fact that this strategy does not account for support and resistance levels, and these could certainly make a difference. You can, of course, choose to apply these. Since the strategy is short-term in nature, expiry times of between 15-minutes and one hour should be selected. False signals are not out of the question. To avoid problems, only enter the market once the pullback candle closes. A simple as the steps of this binary options strategy are, each will need to be followed in order to reduce problems and ensure the highest win rate.

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