In order to trade the binaries you need a binary options contract with a broker. But what should you look for in researching your broker?
What are Options?
An option contract is a contract wich gives the buyer the right, but not the obligation, to buy an option for a specific price on or before a certain date. An option, just like a stock or bond, is a security. It is also a binding contract with strictly defined terms and properties.
The idea behind the (binary) option is present in many everyday situations. Say that you ran in to a house that you’d love to purchase. Unfortunately, you won’t have the cash to buy it for another three months. You talk to the owner and negotiate a deal that gives you an option to buy the house in three months for a price of $200,000. The owner agrees, but for this option, you pay a price of $3,000.
Options contract fee
Making profit is cool. But after making a trade it is uncool if you have to pay a fee or commission for closing a trade. Traditional brokers often ask a fee for opening a trade and again for closing this trade and this usually starts with a minimum of $10 (or €). To end up in the money you need at least a profit of $21. Option contract prices with binary options are almost always free. The option companies make a living on withdrawal fees or by offering extra services for which the customer has pay. Brokers can make a very good living from their traders and should therefor not ask for options contract prices
Options Contract Expiration
With binary options you can choose from a wide range of options contract expiration frames, compared to traditional options. Most used expiration frames are:
- 60 seconds
- 5 minutes
- 15 minuted
- 1 hour
- 1 day
It is also possible to choose an expiration time of one month, but since binary options trading is more about the short term trades this is not used often, but offerred to who would like to use it.
An options contract is not a contract like one for a cellphone carrier, but a contract in wich you pay a certain amount of money expecting an options rate going up or down and to have the broker pay you out when you have predicted the rate right. Meaning that every time you place a new (binary) options contract you are also ‘signing’ a new contract.
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Option Contract Size
The option contract size is the sum of all tradable assets provided by the broker. Usually this is around 50 different assets, but there are also brokers offering almost 90 different assets in the option contract size.
Your job is to determine what market you would like to participate in. For example: trading the Tel Aviv 25 best stocks GOptions is your broker. The South Afrika 40 Future is trable with 24Option.
Indices like FTSE, NASDAQ and more equally big indices are tradable with every broker’s options contract. Especially the NASDAQ is a popular one. When trading with a One Touch Binary Options contract a revenue of 1250% is possible when you end in the money with GOptions!
Stock Exchange Game
There is more than one game, but a virtual stock exchange game is a good way to start trading the stock market. To learn to read the stock charts a simulated or virtual share market game is great to learn technical analysis, fundamental analysis and more.
A virtual stock exchange game where you can start binary options trading is not yet available, but the best binary options brokers offer a free DEMO account, like Interactive Option and 24Option do.
What are Barrier Options?
Barrier options are a financial option whose value development depends on whether or not reaching a predetermined level – the barrier – of the underlying asset. If this level is hit, the option can be active (so-called “knock-in option”) or the option right expires (so-called “knockout option”).
The advantage of barrier options over standard options is that the price of the option is lower than in normal conditions by the options. The barrier options are among the basic building blocks of exotic options. Other exotic options are often composed of several barrier options. Also, the well-known click funds are constructed in this way.
Normal barrier options depend on achieving certain price levels during the term of the option. There are also two major variants of this.
Straddle is an options trading term. A straddle means that call and put options on the same stock, with the same expiration date and strike price are simultaneously bought or sold. We talk about “going long” if a put and call (straddle) is purchased, while selling the combination (which one does not own) is called “short”.
One can buy a straddle if one expects a movement of the value of the underlying stock, while it is not known whether this will be up or down. If the stock goes up, they exercise the call option, if the stock goes down, it exercises the put option, in both cases at a profit. The only risk you take is that the purchased straddle expires worthless if the expected movement is not provided or is very small.
You sell a straddle (go short ) to take advantage of a declining value (cost of the straddle). The value of the straddle decreases as the expiration date approaches. The premium is partly determined by the expected value. One can also buy or sell a straddle of a stock market index or the price of a bond.
Stock Option Contracts
Before deciding which broker you would like to sign up with, check their site to find out what tools they are using. Determine if these tools are sufficient for you or do you have to spend some money on additional software. Maybe Meta Trader 4 software (free of charge) is what you need to try and predict the forex with a options contract?
As a novice trader you have to develop a trading strategy for your own. It is not said that my strategy also works for you. The difference is that the person you developed the strategy knows it from the inside out and can blindly use the strategy.
In order to start trading binary options with an options contract, a deposit of no more than $1000 is good enough to find out how it works and what trading strategy you would need to gain some revenue.
Always keep in mind that whatever you want to trade with, don’t be afraid to lose the money. When starting trading stocks the first trade will almost always be lost. Hint: only invest the amount of money you could afford to miss trading binary options contract.