Choosing an Asset
Assuming you have already chosen a broker and made yourself comfortable with a trading platform, the first thing to decide when trading binaries is the underlying asset. A selection of assets will generally be available, often in a number of separate classes. While the number and range of financial assets in question differs greatly from broker to broker, most brokers offer four distinct classes.
– Commodities such as gold, silver, coffee, oil, and sugar
– Stocks such as Google, Apple, and Coca Cola
– Currencies on the Forex market, always in pairs such as EUR/USD and GBP/USD
– Indices such as the DOW – United States, FTSE 100 – United Kingdom, and CAC – France
Choosing an Amount
One distinct advantage of binary trading is the flexibility offered in terms of both account and trade size. This makes it easy for new traders to start slowly when they graduate from a demo account, with some traders risking just one percent of their account on each trade. While your risk management plan will become a major part of your wider trading system, in the early days, less is most definitely more. Even seasoned traders limit their potential losses to a small and defined amount, with different systems calling for different levels and ratios of risk vs reward.
Choosing a Time Frame
Once you have decided on an asset and amount, it’s important to choose a time frame for the trade to take place. While traders are generally advised to be aware of all time frames and how they affect price movement, binary options trades are based on specific time frames of reference. In effect, this is what defines a binary options trade above all else, because every trade you make will have an outcome either in your favour or not at a specified point in time.
Binary options time frames can vary from one minute to one week, with different platforms offering different types of trades to market participants. The time frame you use will depend on many things, including the asset in question, your underlying analysis, and your personality. For example, while a short one or five minute time frame will be appealing to some people, others will be unable to analyse data due to market ‘noise’ and ‘spikes’. On the other end of the spectrum, while some people are happy to wait patiently for a week long trade to play out, others are more likely to go insane as their funds are tied up for such a long period.
Choosing a time frame that works for your personality and trading system is definitely critical in binary options trading, with the amount of funds available to you and type of analysis used also directly affecting this decision. Lots of traders will flip between different time frames as they learn to trade binary options, with some experts also choosing different time frames based on the analysis of each individual trade.
Choosing the Trade Type
With binaries trading, it’s also necessary to choose a trade type that matches your analysis. While basic High/Low trades are the most popular, particular markets or market structures may call for One Touch/No Touch, Boundary/Range, or Time based trades. While more exotic binary options do offer higher payout amounts, it’s important to realise that they also come with a higher level of risk.