Why Binary Options Are Simpler Than Standard Options

When most people start trying to learn more about investing and trading, they eventually come across a mention of options. However, most people will quickly become discouraged as they try to learn, because unlike just regular buying and selling, options are significantly more complicated.

Buying and selling a stock or currency is easy. You buy some, and as the price goes up or down, you make or lose money. When you want to close your position, you just sell it. It’s easy and straightforward! If you buy a stock at $40, and then sell it at $44. You’ve just made $4 per share, so if you bought 50 shares, you made $200. The math is simple.

Options, on the other hand, are much more complicated.

Depending on the type of option, an option is either a right or an obligation to buy or sell a specific number of shares at a specific price on or by a specific date. The value of the option changes constantly depending on the price of the underlying symbol as well as the volatility of the market and also the amount of time left before the contract expires. You can make money buying options, which give you the right to buy or sell the underlying, or selling options, which gives you the obligation to buy or sell the underlying.

Some people are drawn to options because it is possible to make a lot of money very quickly under the right circumstances, but it is also possible to lose a lot of money in a short period of time, too.

Fortunately, there is another type of option that is significantly less confusing for the beginning trader: binary options.

Binary options remove all of the confusion from options trading. Indeed, before you even purchase the binary option, you will know exactly how much you stand to win or lose!

A binary option works like this:

Say you are trading currency and you think that as of a specific date or time, the price will be above a certain price. You can buy a binary option for that price that expires at that certain time, and when it expires, if price is actually above that level, you get paid. If not, you don’t. There’s no guesswork, no confusing formulas, and no unexpected price jumps. In fact, all the calculations are taken care of by your broker beforehand. All you do is pick a price, decide if you think price is going to be above or below that price as of a specific time, and select the appropriate option.

The Trading Psychology – 3 Thoughts

No matter what instruments you are trading, it could be stocks, bonds, commodities, currencies/Forex or derivatives/futures; everyone wants to better themselves when it comes to trading. Trading is a game of psychology, it is important to know how others are thinking about the market. How can we use psychology to gain an advantage during trading? Below, I share some thoughts of trading psychology.

Thought 1: All Traders Losses
Like any business, trading involves both profit and losses. One must understand that all traders will have times when they win, and times when they loss; even for big institutional traders. To understand the psychology in trading, one must first tweak his/her mind to understand that losses are part and parcel of trading. Although the objective of putting on a trade is to win that trade, a trader should be aware of the possibility of losing, and keep the negative psychological impact to the minimum. It is always advisable to keep your losses manageable, not only does it minimize the negative psychological impact, is also the key to long term survival.

Thought 2: Trading is all about Probability
Someone asked me, “What is the difference between trading and gambling?” My answer will always be “Probability”. If all traders win and loss at times, it make sense that the successful traders are those who keep their winning percentage higher than that of their losses. To have a higher winning rate, traders must always trade on setups which yield greater than 50% probability of winning. Never put on a trade when the chances are 50/50, this is as good as gambling.

Thought 3: There is no Perfect Setup
Some traders spend their lifetime trying to find a perfect setup, a Holy Grail that hopefully yields a 100% winning rate! They end up in a psychological trap which can be difficult to escape. Is there really such a setup? Unfortunately, there really aren’t any Holy Grail setups. Instead of spending time to find a perfect setup, why not spend the time to perfect the execution of a particular setup? What traders should do is to find a setup that suits their trading style and be consistent with that setup. One consistently executed setup is more than enough to make you a successful trader.

Trading the financial markets is among the most challenging of human endeavors. It is a process which requires self mastery to a level of near perfection. Although there are countless psychological aspects to trading, I hope the above psychological thoughts make some sense in you and hopefully it helps in your journey as a successful trader.

Why More People Are Trading Binary Options

Options trading can be confusing. There are entire books written about how to value options. There are university courses that explain options pricing to students. There are formulas that must be used to calculate the price of an option based on whether it’s a call or put option, what the price of the underlying is doing, volatility, and time remaining until expiration, which is called “time premium.”

An option is conceptually simple, however. It is a contract that guys the buyer the right (but not the obligation) to buy or sell a certain number of shares of a stock at a certain price as of a certain time. Similarly, it gives the seller the obligation to buy or sell a certain number of shares of a stock at a certain price at a certain time. The calculations mentioned above come into play in determining the value of the options when they are bought and sold. Fortunately, they are all handled behind the scenes by the broker, but a rough understanding of them is still needed by the trader to avoid surprises and unexpected losses.

So with all this potential confusion, why do people trade options?

Easy! Options give you access to more leverage than you would have otherwise, and let you employ strategies that you could not do by simply buying and selling just the underlying (for example, one strategy is called a “straddle,” which lets you profit if price goes up or down within a certain time, but not if it stays relatively unchanged).

There is a more simple type of option, however, called a binary option. Binary options are named as such because there are only two possible outcomes: a win or a loss. With binary options, all possible outcomes are known beforehand. Unlike with standard options where the value is constantly changing based on price of the underlying, volatility, and time left to expiration, with binary options you know exactly how much you stand to make before you enter the trade.

You pick a price as of a specific time (for example, tomorrow at noon), and whether you think at that time price will be above or below a specific point, and buy the appropriate option. You will know ahead of time how much you stand to gain if you are right. For example, your time and price might have a 75% payout, which means if you go in with $100, you stand to win $175.

When the option expires, it doesn’t matter how far past your chosen price you are; you still get paid the same fixed amount (quite the opposite of standard options!).

And since the possible outcomes (win or loss) are known beforehand, there are never any surprises, nor is it possible to end up in a situation where you owe more money than you initially invested. For this reason, binary options are also safer than regular options.

5 Major Factors to Consider in Comparing Financial Spread Betting Accounts

As financial spread betting gets more and more popular these days, the number of accounts and service providers has increased significantly too. It is in this light that traders should be keener and wiser when picking up the right account that they are going to open. The best way to do this is none other than to compare financial spread betting accounts. However, with so many accounts, there could also be lots of points and factors to consider. This is the reason why this article will provide some of the most important points that any trader, whether beginner or veteran, when it comes to choosing the right account.

In the most basic point of view, there are at least five (5) factors that every trader should consider. These are specifically about their reputation, availability of platforms, basic features, as well as value-added features and even the cost-efficiency of opening an account to a particular service provider.

1. Choose a reputable service provider

First and foremost, the reputation of the service provider in financial spread betting is extremely essential to consider. A provider can provide all the things that a trader need, but if it is infamous or has a bad track record in handling clients, then there is no way that a trader should prefer such provider.

2. Check about the availability of their service to various platforms

Secondly, on the other hand, traders must also check the availability of the provider’s services to major or various platforms. For example, most service providers nowadays are available through online. Hence, traders can now access their accounts anytime of the day. Aside from that, there are also some providers that offer accessibility through mobile applications from the traders’ Smartphone, tablets and other gadgets.

3. What are the basic features?

Thirdly, traders must also make sure that the basic features that they are looking for in a financial spread betting account are present. Otherwise, they will surely not have a worthwhile experience in using the account in an incomplete service of a provider.

4. What are the value-added features?

Fourthly, this could be an optional factor for most people. However, experts in this field say that it is a must. This is because the presence of value-added or special feature is what usually provides worth to a trader’s money in opening an account from a specific provider.

5. Is the account cost-efficient?

Fifthly, but not the least, the cost-efficiency of opening an account from a specific provider should be considered accordingly. This is usually determined by weighing the benefits against the costs. If the former outweighs the latter, then it could be cost-efficient. Aside from that, if the account is something that traders can really maximize, then it is efficient enough.

Important Points To Consider Before Engaging In Online Trading Activities

Engaging in online trading is not really a very difficult activity. It’s not as complicated as a lot of people make it out to be. It’s just that a good number of them are often either misinformed or uninformed. This is why they end up with bad decisions, especially when it comes to buying their stocks. That’s why if you’re a beginner, it pays to get a little guidance first before you plunge into this activity. It would be to your benefit if you are properly informed of how things work in the virtual stock market before you attempt to invest your money.

First and foremost, it’s imperative that you should get acquainted with the different kinds of stocks you can buy. You should also be adequately informed as to under what circumstances would it be best to sell. There are a lot of online articles and even electronic books which can help you out on this. You just have to be diligent enough to look for the most effective ones. A good tip is to search for resources which are targeted towards guiding beginners. Some materials may already be a bit advanced, so don’t forget to add this particular keyword when you do your search.

The second important tip is to be equipped with the basics when it comes to trading stocks. Keep in mind that your success in the market depends on being able to find out what a company’s future returns are. We call this as a guess wager. Note that stock prices are primarily affected by peoples’ opinions of how companies are performing. In other words, do not just depend on the intrinsic value of the stocks. One elementary rule is that the price generally goes up when more people want to buy rather than sell. The reverse principle is also quite true.

The third tip is to put your finances in order before attempting to engage in online trading. It’s highly recommended to start with a clean slate as much as possible. This means having few debts, especially high-interest loans. That way, you will be able to cope with contingencies in the stock market which happens often. Lastly, decide on whether you will be buying individual stocks or mutual funds. Each has its own pros and cons, depending on your financial situation and plans. You can seek advice from experienced and successful investors, particularly if you have friends or relatives who also take part in the virtual stock market.

3 Structural Problems That Doom Many New E-Mini Traders

But many experienced e-mini traders will tell you that it is not necessarily the easiest contract to trade. On the contrary, it can be one of the most difficult contracts to trade, especially for a beginning trader.

From the onset, let me share that I am a consummate trend trader and seldom, if ever, trade against the trend, except on the ES. With the large participation of High Frequency Trading (HFT) I generally find the best setups in the countertrend category. I will also add that I seldom trade the ES, as it is a one of my least favorite and contracts to trade. Sure, you have liquidity beyond description; but you also have 50% to 70% level of computer participation on this contract along with some of the best traders in the business. It not place for me. But here are some of the things that the beginning e-mini traders should take into consideration when considering whether to trade the ES or eight different contract:

1. Computer-based trading: I combined several disciplines of trading, mostly technical and chaos theory, and my trading. HFT trading is a real thorn in my side as a trend trader. I can remember the “good old days” when the ES was a trending machine; all you needed to do, as an e-mini trader, was to get into a trade on the right side and manage your trade. These days, the ES staggers around like a drunken sailor. This is not to say that you can’t make money on the ES, because you can make money on the ES if you are a real student of this contract. In my programs, I tried to steer new students away from the ES contract and the high level of skills many of the traders possess and the HFT level of activity on this contract. There are just too many good opportunities elsewhere to find opportunities to trade, and learning to trade on the ES is a steep and inexpensive endeavor has the learning curve can dig deep into your pockets.

2. Under-capitalization: if there is a single indicator of potential failure in this business, it is the level of capitalization that with which a beginning e-mini trader starts. Several times in a week, I get calls from potential clients who want to start trading the e-mini contracts with $1000-$2000. I have seen traders start with these very small accounts and succeed wonderfully; but succeeding with an undercapitalized account generally results in a trader blowing out his or her account.

3. Trading on a small account requires a high level of concentration and impeccable trade selection. Further, the new e-mini trader who starts with a small account must be well versed in the money management. As you might suspect, impeccable trade selection and flawless money management are to skills that skills that beginning traders generally lack. More often, I find new traders over trading accounts and trading too many contracts. When you are undercapitalized, you certainly have put yourself behind the eight ball. That being said, a $10,000+ contract gives the new trader opportunity to fail a few times as he or she learns the trading business. Conversely, the highly undercapitalized account can afford very few mistakes before your broker is calling you to put more money in your e-mini trading account. While trading undercapitalized may be the only way a new e-mini trader can enter the market, it is certainly lessons the probability of success. Capitalization is a mighty force wind trading any equity, and the undercapitalized trader starts out with a distinct disadvantage.

4. Low Margin Requirements: in recent years margin requirements have plummeted. Individuals who are undercapitalized can now trade relatively large contract levels. In my mind, low margin requirements only encourage new traders to trade more than they should. In my trading model, I call for trades to fall in the 2 to 3% level per trade. There is absolutely no reason for a new trader to be trading five contracts. In order to entice more potential and futures clients, futures brokerage firms have lowered the margin requirements to excessively low levels; levels at which new traders often find themselves overmatched. My personal perspective confirms this, as I generally trade 5 to eight new contracts. Sometimes I may trade 10 contracts if the trade is particularly attractive. That being said, I am far more nervous trading 10 contracts than 5. I am well aware of the perils of having a high contract trade move against you. It’s all wonderful Lynn trading 10 contracts and you find yourself in the winning column, but it is something quite different if you are trading 10 contracts and are buried deep in the negative column on a given trade. In this situation, it is always best to be trading with the trend which often times can save your position; on the other hand holding 10 contracts against the trend is a very risky proposition, at best. In short, lower contract margins allow larger participations in the market, which is something a new e-mini trader needs.

In summary, I have pointed out for structural problems that exist in the e-mini contract trading paradigm. These structural problems are; computer-based trading and High Frequency Trading, under capitalization, and low margin requirements. I have seen all or just one of these conditions wipeout a new traders portfolio. In my opinion, be informed about these potential problems and work hard to keep them from affecting your trading.

Real Live Trading Doesn’t Lie. Spend 3 days with me, in my trading room, and see if you are one of the many that can profit from a fresh and unique view on trading e-mini contracts. Sign up for your free trading experience by clicking here.

Trading Psychology: Are You Making Any of These 3 Trading Psychology Mistakes?

I see many traders who have strong aspirations of becoming a great trader and making lots of money fail because they blow their trading psychology. Let’s take a look at 3 of the worst mistakes traders make with trading psychology, and then what to do instead.

Mistake #1 – Ignoring Trading Psychology Until it is too Late

This one is really easy to do, especially since most people think trading is all about the setup. Certainly, possessing very strong technical skills is a critical component of trading success. But so, too are understanding sound money management and developing solid mental skills for trading. I’ve actually coached many traders who don’t start to learn about trading psychology until their account is nearly wiped out or they have become so fearful of taking another loss that they just can’t pull the trigger!

Waiting so long is not a professional approach to trading. Doing so prolongs the learning process and can leave the trader frozen like a deer in the headlights if they have been trading unaware of how their psychology can hurt them.

What to do instead

Every good trader knows that psychology is an important part of the trading game; it’s in every serious book on trading. Focus on your own trading psychology. Start to learn the mental skills needed to trade well right away. Make time available each week to work on your personal psychology. There are many helpful trading psychology resources available to a trader, including links to my website and blog, which you will find below.

Mistake #2 – Thinking you have to Control and Suppress Strong Emotions to Trade well

This just isn’t true. It’s also not possible. Yes, you can influence your emotional state and sometimes override you emotions, but to consistently control fear, for example, just isn’t possible. Even traders with 20 years of experience still feel uncomfortable when putting on a trade. Why? Because trading is an environment of uncertainty. We never have complete information. Every trade is about taking a risk.

We are human. We have innate emotional mechanisms that will absolutely trigger when we take on risk. We don’t have much control over them.

What to do instead

Be open to and accept the fact that, yes, you will feel anxiety, fear and other strong emotions at times. Note that these emotions never last. They feel bad and definitely are uncomfortable, but the fear you felt this morning has left you by the afternoon, if not sooner. Emotions come and go. They are not permanent. The real secret to trading psychology is to be open to them and do what matters for the trade. This is not always easy, but there are skills and techniques that you can learn that will, indeed, make it easier.

Mistake #3 – Struggling with Your Emotions

This is the worst thing to do. When you struggle with your emotions, you take your focus off the market and put it onto your internal state. Attention goes to the scary feelings, muscle tension, pounding heart, and a mind that is telling you to get out of the trade or do some other action to reduce the discomfort. Attention is not where it should be. No one can manage a trade without focusing on it.

What to do instead

This builds on being more open to uncomfortable feelings and thoughts. Know exactly what is needed to manage the trade. Know where the profit target is, and what the trade will look like if it is working. It is helpful to imagine this in your mind’s eye ahead of time. Also know what it will look like if it is not working or something arises that would cause an early exit. Then, keep your focus on these factors rather than your internal state. This is maintaining composure under pressure.

Keeping composure while trading is just one mental skill, there are other important trading psychology skills a trader needs to know. If you are intrigued by what you have read here, you will love the free Mental Skills e-Course – you’ll get 7 key tips you can immediately use to improve your trading performance and your trading psychology.

Trading for a Living – The Key Differences Between You and Wall Street

The life of a trader can be very rewarding, but it is not something that comes easily. Hollywood likes to glamorize Wall Street with images of busy trading floors, exotic cars, and deceptive games of cat and mouse. Frankly, this may not be far from the truth, but for those of us who are trading from our laptops, life is much different.

If you are trading from home, the execution of your trades depends greatly on your online broker. Speed and accuracy are critical and this is especially important if you decide to trade the news. The second biggest difference is the amount of capital you are using. Most folks start out with a few thousands dollars and grow their account from there. Even if you do have a pile of money to play with, you will likely want to start off with a small and safe amount. These two factors may be obvious, but they play a major role in why most new traders fail.

As an aspiring trader with a limited balance, you really can’t throw money in 20 different directions. You need to identify a handful of good stocks, and then decide which ones you are going to trade. Those stocks need to be within a certain price range to allow for a good return on your money. You aren’t going to be making a very good living trading $40 stocks and earning 5-15% on a good trade. At the same time, you aren’t going to be in business for long if you only trade the volatile 5 cent stocks. A good balance must be struck between risk and reward.

But trading for a living involves much more than just buying and selling the right stocks. Trading with an investor’s money is one thing. Trading with your own money is another. And trading with your daughter’s college fund is something entirely different. Mental strength, a desire to learn, and money management are all very important traits that every home based trader should posses. When you take these traits seriously and implement them in earnest, you are no longer gambling, you are running a successful business.

Businesses, just like good traders, develop systems, policies, and contingency plans to deal with the changes in the marketplace. And just like a marketplace, you will experience ups and you will experience downs. The secret is developing a very stable system to deal with those gains and losses as effectively as possible. The biggest mistake I see new traders make, is running into the trading world with no plan and no ‘business’ mindset.

If you are considering a career as a trader, you must clear your mind of what you think you know, and focus on learning material specific to home based trading. If you do this, you will be far ahead of most new traders and can make great money trading for a living!

How to Elevate the Margin of Profit in Binary Options Trading

In today’s world, I have noticed that every person wants to increase his profit and savings. Every other person aims at doubling the money he owns. The cause for this rise in amount can be different like purchasing a new house, repayment of loan, enhancing the bank balance or any other. Whatever be the reason of raising the amount of money possessed, I can rightly say that it is the investment that gives the satisfactory results required by everyone. However, if a person lacks the needed knowledge, then there are great chances of losing the investment opportunities coming in his way. Out of so many opportunities, one of the greatest opportunities is of investing in stock market via binary options trade. Binary options trading is an easy way to multiply the amount of investment; however, it is not free from the risks and requires in-depth knowledge to gain success every time.

How to Make Money in Binary Options Business?

For all those people who are in need of the answer of how to make money, binary trading is the right choice. The binary options trading is basically short-term investment in the financial market that does not demand bounding of the invested amount for a longer duration. The terms and conditions are quite simple and there are no hard and fast rules to follow while conducting the trade. To initiate the binary trading, a trader or investor requires selecting the asset from the list of commodities, stocks, indices, forex and others. The selection is made according to the fluctuation in the price of the selected asset known as underlying asset.

Setting up the Goal

For a novice trader who is new in the investment world of binary trading, it is mandatory to set an objective regarding the achievements and success. By determining the goal, it gets easier to know how much risk can be tolerated and how much money can be allowed for trade to get the profit. At this point, the trader has to know that how many money he can invest and in return the same level of risk will be there to face and vice versa.

To Get the High Return from Each Trade

In order to get the high profit margin from every possible trade in binary options trading, a trader must have the complete knowledge of the market condition and changing circumstances. Moreover, a trader should also be aware about the profitable assets and what are the ways to counter and avoid fraudulent activities and scam involved in trade.

Types of Binary Options Brokers

There are several different types of binary options brokers. Here we will explore the various leading platforms and describe how their offerings differ and why those differences may matter to traders around the world. We categorize the main types of platforms into three classifications: plain european style, range bounded, and touch / no touch.

Plain European Style Contracts
What many people don’t know about binary options brokers is that they are effectively selling contracts that are effectively identical from the retail trader’s perspective to European style option contracts. For those that are only used to American style option offers, European contracts differ in one major way: the only time the contract can be exercised is at expiration. Fans of American style trading would be more used to being able to exercise their right to buy or sell the underlying security at any time prior to expiration. That said, binaries trade differently from normal European contracts in three principal ways: binaries are much shorter duration, pay a pre-determined high yield, and the owner of the position never actually takes an ownership position in the underlying stock or asset.

Range Bounded or Barrier
Another sub-set of the broader types of binary options brokers offers range bounded or barrier-based assets. While the previously mentioned European style assets are effectively one-sided (stock price ends either above or below a pre-determined target – or strike – price), a bounded asset will have two-sides. A trader then has the opportunity to select whether their preference as to whether they would prefer to own the interior range (between prices A and B), or the exterior (outside the zone between A and B). Otherwise the contracts trade effectively the same: high yield, short duration (measured in minutes, hours, or days), and no actual ownership position at expiration.

Touch / No-Touch
A third type of offering from some binary options brokers is the touch / no-touch contract. This is a hybrid approach to trading binary options that may (depending on the brokers used) be a derivative of a range bounded contract or a European one. The twist on this type of offer is that the investor does not have to wait for expiration to come to find out if the asset will land in the money or not. If a price target (strike price) is hit during the length of the contract (rather than at expiration), the asset is considered in the money regardless of any price activity that happens after the strike price has been hit. These assets have been found to be attractive to a number of investors more accustomed to the way American or US options trading works. The caveat is that the target prices tend to be a little higher than investors might get when looking at one of the previously mentioned types of offers.