Our Goal Chapter Three
The goal of Chapter 3 is to recap the basic Call and Put options followed by a detailed explanation of the other trading strategies. You can also get a feel of those trading strategies using our video courses and hone your skills. In this chapter we will also cover some very important money management tools provided by the brokers to either maximize your profits or to minimize your losses. You will also learn about the mobile trading platforms and get a few important tips about successful trading. So, if you are ready for another lesson stashed with loads of information, let us begin!
Digital Options Trading Process Recap
We mentioned before that the most basic forms of trading are the Call and Put options. Together they are called Binary Options or Digital Options or Fixed Return Options or All-or-Nothing Options and sometimes referred to as Classic Options. Call and Put in turn have different names which are:
- Above and Below options.
- Over and Under options.
- High and Low options.
- Up and Down options.
Irrespective of the names, they refer to the same thing. Call, Above, Over, High and Up refer to the speculations of the asset price ending above the strike price while Put, Below, Under, Low and Down refer to the speculations of the asset price ending below the strike price at the end of the trading period.
The trading process in Digital Options or Binary Options is very simple and the steps involve the following:
- You enter the market and select an asset.
- You predict the direction in which the price will move. If you think it will move up, you will click on Call and if you think it will move down, you will click on Put.
- The moment you select Call or Put, the prevailing market price of the asset is locked as the strike price.
- Now you select the amount you want to invest from the predefined set of investment amounts given by the broker.
- Next you select the expiry period for the trade from an already given set of time frames. These time frames are also predefined by the broker.
- The final step is to click on ‘start’ or ‘apply’. The moment you do so, the trading beings and the trade will automatically close at the end of the expiry period you chose. If your prediction turns out to be correct, you win or else you lose.
Want an example for better understanding? Here it is:
- You enter the market and select to trade in a stock.
- After your market analysis, you predict the price will increase or decrease. You select the Call option if you thing the price of the stock will increase or if you think that the price of the stock will fall, you select the Put option.
- Whether you select Call or Put, the existing market price of the stock will be locked as strike price. Let us assume that the prevailing market price of the stock when you selected Call or Put was $10. So, $10 becomes the strike price.
- Now you select the amount you want to invest from the dropdown menu you see on the screen. We assume that you select $10 investment from the allowed investment amounts of $5, $10, $25, $50, $100, $250 and $500.
- Now you select the expiry time for the trade from another dropdown menu you see on the screen. We assume that you selected 5 minutes from the allowed time frames of 5 minutes, 10 minutes, 15 minutes, 30 minutes, 1 hour and 5 hour.
- Now you click on ‘start’ or ‘apply’ and your trade starts at say exactly 10:00 AM EST with the following parameters: Expiry Time = 5 minutes, Strike Price = $10, Investment Amount = $10, Option = Call or Put.
The trade will automatically will be terminated after 5 minutes. So, the trade ends at exactly 10:05 AM EST. If you selected Call option, the price of the stock you were trading in should end above $10 strike price after 5 minutes of trading for you to win the trade. If it falls below the strike price after 5 minutes of trading, you will lose.
If however, you selected Put option, the price of the stock you were trading in should end below the $10 strike price after 5 minutes of trading for you to win the trade. If it ends above the strike price after 5 minutes of trading you will lose.
The amount of profit you make for the winning trade will be predefined by the broker and even before you start the trade you can see the potential returns on the trading screen. This will be the amount of profit you will make in case you win. In case you lose, you will lose your money. The amount you lose will also be predefined by the broker and will generally show on the trading screen before you begin the trade. Should you lose, you will lose exactly what is being shown on the screen.
Let us assume that the predefined payout percentage for winning trade was 80% and the payout for losing trades was 0%, So if you win, your profit according to the above example will be 80% of $10, which is equal to $8. So your total payout will be $10 (your initial investment) + $8 (your profit) = $18. If you lose, you get 0% payout which means that you will lose all the money you invested. In this case, you will lose $10 invested amount in case you lose your trade because of incorrect prediction.
Throughout this example, you must have noticed that we were not at all concerned about the magnitude of the price change. All that matters is the price either increases (Call) or decreases (Put) compared to the strike price. Whether it increases or decreases by $1 or 1 cent, it hardly matters.
With this same topic been covered twice in two lessons, you are actually ready for trading in binary options market using this basic trading strategy. You don’t really need to do a market research for this form of trading. You can use the ‘Trader’s Choice’ tool available on the trading platform and get a fair idea of where the market is heading and you can actually follow the leading crowd. Most (if not all) of your trades will end in-the-money and you can start earning profits!
So, if you think you are ready for this basic form of trading and you haven’t yet opened an account because you don’t know which broker to trust, you can always visit our site to get hold of our top broking partners. We only list those brokers who are the best in business. All you have to do is to open an account with any broker you want. Registration for new accounts is completely free. You can then deposit money with one of the methods listed with the broker of your choice and start trading and start making profits. Good Luck!