Binary options trading as a type of investment has not yet entered the mainstream because so many people have been burned by them. The entire industryís reputation suffers from the sites that look and sound like online gambling platforms. Here is sound advice on what to do and what not to do when entering binary options trading.
What to Do When Getting Into Binary Options Trading
Do understand the trends in the product you are investing in whether gold, Bitcoins, cattle or stocks. Research the standard price range of the item and then set options based on expected deviations.
Do use reputable trading platforms. Using trading platforms not licensed with the SEC or other agencies in the United States means you have no recourse if they rip you off. Donít trade with no name platforms that may be scams in disguise. And do your due diligence researching the broker for scandals and allegations of fraud before you sign a contract.
Do use binary options trading as a lower cost way of investing in commodities you may otherwise not want to own. Binary options trading on the value of Bitcoins lets you trade on their trends without worrying about how the IRS would treat the sale of Bitcoin if you profited from an expected price increase. And when you buy binary options on gold, thereís no concern that your home could be broken into by someone who wanted to steal it.
Do buy foreign currency exchange options instead of trading on the forex market directly if you are certain political events will alter the currencyís value but donít want to take on the risk of leveraged margins. For example, even modest price fluctuations can result in margin calls on the forex trading platform that require you to pay an additional margin.
The side benefit of binary options trading is that you set it and can forget about it, instead of worrying about 24×7 trading that can affect the forex market. And binary options trading is free of the risk that a counterparty in spot currency trading cannot pay the contract.
Do create strategies to minimize losses and maximize gains, just as companies engage in risk management through the purchases of insurance and business planning. Donít just buy and sell at random and hope youíll make money.
Do start small. This is a form of risk management for new binary options traders as you try out different formulas. When starting out, only invest what you could afford to lose if wrong because there are times you will be wrong. Keep it small even when starting with someone elseís proven system.
Do accept that youíll lose once in a while. Even the investor who wins 80% of the time loses 20%.
What Not to Do When Binary Options Trading
Do not make the assumption that trends that have been going up will continue to go up. Real estate bubbles of the 2000s, land speculation bubbles in the 1800s and even the Tulip bubble that happened before the United States was founded occurred because people assumed the upward trend would only continue.
Donít invest money in binary options you cannot afford to lose. There is a fair chance you will select the wrong price point or misjudge a trend and lose money. While binary options trading is not gambling, you should not invest in something with this much risk unless you can afford to lose the money you spend on the options.
Do not allow your account manager to make trades for you. Their intent in doing this is to maximize their income from fees regardless of your rate of return. Some dishonest brokers will manage the account just well enough to earn you a profit and request more funds be deposited before maximizing their fees on risky trades that guarantee them a profit. If the broker tries to pressure you into handing over control of the account, withdraw your money and flee.
Donít accept a bonus unless you already know what you are doing. When you accept a bonus, youíre giving up your rights to withdraw your money until youíve done enough trading. In short, you lock yourself in until youíve paid them enough in commissions on the deal. And this is costly if you are making mistakes.
Do not let your emotions get the best of you when engaging in binary options trading. The majority of day traders lose money because they constantly monitor the stocks, feeling emotional highs when prices rise and lows when they fall, and they act just as often in response to fear as a desire to do something in the face of these trends. Instead, select the right type of binary options and a well-researched price point and then leave it along.
Those who get involved in daily or even minute by minute binary options trading end up becoming gamblers, riding a wave of successes until they lose and taking greater and greater risks in response to losses until they cannot afford to continue. If youíre desperate to make your money back or eager to win big, step away from the computer and donít trade today. If youíre a gambler at heart, binary options are probably not what you should be investing in.
Donít invest money with a broker that you will need in the short term. Getting money out of the contracts or out of the brokerage may take time. This is similar to Dave Ramseyís advice not to invest the money for your emergency fund, because you need to be able to access it when you have an emergency.
Donít buy a binary options contract without understanding what it is and how it pays out.
Factors to Consider
Do understand the terms and conditions set by the broker. This will tell you the rules on withdrawals, bonuses, deposits and fees. A failure on your part to read the rules does not give you an out if you donít like them later.
Donít accuse the broker of being shady or immoral. Even if this is true, doing this will make it harder to get your money out and, if theyíve been given permission to control your account, it gives them an incentive to make bad trades to punish you. You can prevent this problem in the first place with thorough research in advance regarding the trading platform or using trading platforms like Stern Options that have been in business for years.
If youíre going to invest in binary options, donít get emotional in your trades, guess, try to ride or time the market or assume youíll always win. However, do your research on trading platforms, the types of binary options, the rules and terms of service of the trading platform and the underlying type of investment. Start small so you can afford the losses, and learn as much as you can before you invest anything in binary options to reduce the risk of losses in the first place.