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One of the most common questions amongst online traders is whether or not it is really possible to make money trading binary options. The short answer to this question is “Yes”, but it is important to stress that when we delve into more details, the answer is often a “No”.
Now, basically every binary options broker out there will tend to tell you that people are making thousands of dollars every day or every week trading binary options, however the part that they mostly leave out is that there are some traders that are losing thousands of dollars every day, or every week depending on their trading activity and invested capital.
You can always find out how traders are really doing when trading using a particular broker by checking out what traders are posting on their social platforms like Facebook, twitters and Google+ among others.
However, if you really want to make money trading binary options, then the first step is to try to find out how not to lose it in the first place. Of course you will lose some trades at the end of the day, but the most important thing is try to record more winning trades than losing trades.
As you will realize it may actually require you to register win-rate of 65% to 75% in order to pocket meaningful profits.
How to avoid losing money trading binary options
The best way to get started is basically to have a sound trading plan. Most binary options traders lose money because simply they do not plan ahead, which means that when they begin trading, they only think of profits.
However, wise traders know that it is important to plan for losses as well. This means that you come up with a good risk management plan. In binary options, potential profits/losses are predetermined prior to opening a trade, which makes it easy to manage trading risk.
For instance, if you are planning to invest $1,000 in binary options, you can come up with a plan whereby you only trade with a maximum of $100 per day, and a maximum of $10 per trade. That makes it 1% risk allocation per trade, which is recommended especially for beginners.
Most brokers offer a payout of 70%-85% depending on different trading assets, which means that every winning trade of a $10 investment is likely to return $17-$18.50 upon option expiry. However, most of these also result in 100% loss for trades that expiry out of the money. As such, assuming a win-rate of 50%, a trader would still not be able to break even.
There are also other brokers who offer a payout of 65%-72% on winning trades, while offering 10%-15% compensation on losing trades. This means that for a winning trade, a trader would expect a return of $16.50 to $17.20, while a losing trade returns about $$1-$1.5 from a $10 investment.
Experienced traders often go for high payout for winning trades and zero compensation on losing trades, while inexperienced traders opt for lower payout on winning trades and some compensation on losing trades. This is simply because they do not fancy their chances of increasing win-rate, which means the compensation available on losing trades helps towards breaking even.
The other thing is making sure that you make use of the available trading materials to enhance your trading experience and knowledge. For instance, some brokers do provide guides and eBooks as well as webinars and YouTube videos, accessible via their YouTube channel, which traders can use to learn more about binary options. Others also provide daily and weekly market analysis via these channels that can also act as resourceful trading tips.
How to make money trading binary options
After establishing a plan on how to avoid losing money in binary options, the next step is to determine what you need to do to make money.
There are a couple of ways that can help you make money trading binary options. But first, you need also to determine whether you are a full time binary options trader, or a part time trader just looking to top up your regular income.
For a full time trader, you obviously have the time on your side to study the markets well and conjure your own trades that you feel will likely expire in the money. This requires understanding of technical and fundamental analysis, and thus you would have to study these well in order to make it.
However, for the part time trade that does not have all the time to tackle cumbersome analysis, there are third party service providers who specialize in providing binary option trading signals. These signals are quite similar to forex trading signals and simply tell a trader what asset to Buy/Sell, when to buy and what expiry time to target.
The signals are simple to understand and can provide win-rate of about 70% amongst most signal providers. They also send 3-5 quality signals (likely to result in a win) per day, but traders looking to engage in more trading activity can always check out the rest of the signals that are sent. Some providers actually send hundreds of signals per week.
However, it is also important to avoid the possibility of being scammed. While many charge about $99 subscription fee per month, not all actually leave up to their promised win-rate, so be careful.
The bottom line is that there are shortcuts to making money trading binary options, but most traders prefer the long and assured route of learning the art themselves. There are also automated trading systems that traders can use, but again, not all are legitimate and scam systems are plenty.
But in summary, in order to make money trading binary options, you must really aim for a win-rate of 65%-75% depending on the payout offered by your broker. The higher the payout, the lower the win-rate, is required.
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