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Binary Options and the Novice Investor

novice investorBinary options are also called digital options since there are two possible outcomes for each trade. It involves speculating the price movement of underlying assets which can be anything like stocks, equities, gold or currency pairs etc.

Since it is easily accessible through online trading platforms and has better risk/reward profile compared to other investments, it is the preferred trading method for many beginners. For a novice investor or young investor who does not know about technical analysis or fundamental analysis, it is difficult to invest in stocks, ETFs or commodities without having sound knowledge about them. Hence, binary options are gaining more popularly among such novice investors since it does not require much technical expertise or market knowledge to invest in binary options.

But beginners should be very careful about choosing the right broker who is licensed and regulated by a trading commission like SEC or CySEC before opening a trading account with them. Some beginners are not aware of the fraudulent brokers and scams prevalent in binary options and get stuck with such fake brokers. Some of these unregulated brokers attract beginners by alluring them with unrealistic payouts and free trading accounts with very low minimum deposits. Some beginners get fooled by such reward schemes and huge bonuses hoping that they can become a millionaire overnight. They tend to believe that making money is very easy with binary options and does not involve any risk. But the truth is any form of trading requires some dedication, hard work and continuous monitoring of the market trends in order to become successful.

Some beginners are too ambitious and start by taking big trading positions initially just to end up with huge losses. Since the payout in binary options is based on the outcome of the trade, there is always a 50/50 chance for a trader to win or lose the trade. You should never invest all your money in a single trade by taking huge positions which can only result in a big loss. You should start by investing small amounts and open trading positions with assets that you have better understanding about. You should open a trading account with a licensed broker by doing thorough research about them and reading testimonials of other experienced traders.

Don’t believe brokers who promote get-rich-quick schemes and suggest the use of automated robots to place trades without manual intervention. These brokers will use manipulated software to generate losing trades and will steal money from you. Also read the terms of the conditions of the broker thoroughly and get to know about any hidden fee or commissions involved. Try to understand and make use of various trading strategies like Hedging strategy, straddle strategy, risk-reversal strategy, correction strategy, Pinocchio strategy, Co-integration strategy etc. to minimize your losses and maximize your returns on investment.

You can also make use of paid signaling services and technical indicators to find out suitable trading positions. There are many technical indicators such as Bollinger bands, Relative strength index, Moving averages, MACD and candle-stick charts which can be useful to find out the correct trading positions and to predict market trends. Also you should do some fundamental analysis about the underlying asset before placing your bet on same. For instance, if you are trading against the stock of certain company as underlying asset, you should read the market news about that particular company and understand how it is performing currently in the market. This will help you to determine how the future price movement will be and enable you to make trading decisions wisely.

Another easier method for beginners to make money using binary options is the use of social trading platforms. Social trading involves copying the successful trades of other experienced traders which can be helpful for beginners without any market knowledge. There are some social trading platform which allows users to monitor the successful traders and ranks them based on their performance. Beginners can copy the trades of such successful traders and gain money without knowing about the market conditions.

As a novice investor, you should not take your losses personally and let your emotions control the trading decisions.  You should try to learn from your past mistakes and avoid them in future. You should maintain a trading journal to note down such important events and keep a watch on the economic calendar. Also you should read the market news and stay well-informed about the current trends in market.

 

Photo courtesy of: Maklay62

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Kayla is a mid-20s single girl living in the Midwest, USA. She is focused on paying off her consumer and student loans, while simplifying her life and closet. You can join her on her journey at ShoeaholicNoMore or follow her on Twitter.

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