Investing in binary options is becoming very popular all over the world. The reason is simple – high return possibilities. In short, binary option is a type of the option where a trader can earn a predetermined profit when option expires. On the other side a trader can also lose the initial investment if a trade ends ‘out-of-the-money’. These are also called fixed return options, digital options or all-or-nothing options. But how to invest 5000 dollars? Is it safe to invest in binary options such amounts?
Binary trading deal example
There are various types of binary options but the most popular is High/Low or Call/Put type of options. Usually brokers pay around 65% – 85% if a trade expires in-the-money (it’s when a trader has predicted a price movement of an asset correctly). I.e. if a trader believes that Apple stocks are going to rise during the next hour or few, he buys a call option.
Lets assume that in this case a trader has decided to buy a call option for $500 with an expiration time set to 1 hour. Usually it depends on a broker and features of the platform, but traders can choose to trade: 60 second, 15 minutes, half an hour etc., options. After 1 hour, if a trader have guessed correctly and the price did increase, he’d get his initial investment back + profit. I.e. if the broker offered 75% payout, trader would have gotten back $500 + $375. If it turns out that Apple stocks dropped in price, trader would have lost $500 or small part of the initial investment (some brokers offer a refund of 5% – 15%). Traders always know how much they’re going to get if they are right and how much they are going to lose if they turn out to be wrong.
Lets compare two situations:
- You invest 5,000 USD in standard stock market deals
- You decide to invest in binary options
Example #1 – Investing in standard stock market deals
Lets assume that you find two companies that could increase in value and you decide to invest in their stocks. To make it easier for calculation, lets assume that both of them are successful and after one year their price has increased for 20% and both of their stocks cost $40 each in the beginning and $48 after one year.
In such situation you could buy around 120 shares. Total in value: $4,800 and around $200 you would need to pay in fees to complete the purchase. After one year the new value would be $5,760. If you decide to sell them you would also need to pay a fee as well as taxes etc. In the end you would get a pretty small profit. Although 20% profit a year is a very good investment and most people can only dream about such ROI when investing in stock market.
Example #2 – Investing in binary options
You choose to trade binary options and deposit the same 5,000 USD into your binary options trading account. As you are new to this type of trading you are cautious and buy only 3 trades per week by choosing different expiration times and investing $200 per trade. Total 12 trades per month and $2400 in value. In this example we’re going to assume that a broker pays 75% if trade expires in-the-money and offers 5% refund if trade expires out-of-the-money. Also, most brokers don’t take any commissions. If it turns out that you are right in 66,66%, which in this case would be 8 trades out of 12, you would get a solid profit of $440 in one month. And the best part is – without even touching all of your money. You can calculate more examples by using binary options profitability calculator.
So, what to do next and how to begin trading binary options?
- Find a broker.
- Deposit available funds.
- If you need help from aside you may also look for professional trading signal providers. Usually brokers also have learning materials for newcomers.
- Choose what to trade. You can trade many assets at once.
- Begin trading process.
Useful tips for binary option trading beginners
- In the beginning – learn basics by trading small amounts while you get comfortable with the new type of trading.
- You don’t have to open account and invest all your available funds. With most brokers a minimum deposit is around $200.
- Each of your trades can be as low as $20 – $30 per trade.
- Be aware of bonus offers. Once you accept a bonus, you agree to its terms and conditions. Read it carefully before.
- If you don’t have enough time to trade on your own, look for additional options like binary autotrader.