Managing a binary options investment portfolio can be a big undertaking. So how can you make sure your efforts are successful?
Trading a single binary option is easy. On the other hand, managing an entire binary options investment portfolio is several notches higher in difficulty.
The former can be performed with very little thought – the latter requires deliberate planning and a deep appreciation of the instrument’s various intricacies. It demands consistency, decisiveness and unforgiving logic. Individuals who would like to get serious with binary options should understand exactly what they are dealing with, what they are risking, and how they can reach their goals.
The Advantages of Binaries
1. Low Barrier to Entry – The minimum deposit for members is often just a few hundred dollars. A lot of brokers entice beginners with even less. Anyone can afford to join and start right away. Those who are aiming to satisfy their curiosity can sign up whenever they wish and begin trading to see if they like this method of investment.
2. Simple Concept – It doesn’t take a rocket scientist to understand binaries unlike some other financial instruments. A novice can complete a deal within minutes. Basic contracts have only 4 variables to fill which are the underlying asset, the amount at stake, the expiration date, and the price forecast. The last one need not even be specific. Investors only need to guess whether it will go UP or DOWN.
3. Potentially High Profits – The payout for wins can be quite high when compared to traditional investment vehicles. People wait for a long while for stock prices and currencies to rise significantly.
With binaries, payouts of up to 90% are possible within a few minutes. Those who want to maximize their time and double their money quickly may find binary options too tempting to resist.
4. Flexibility – Investors have a wealth of choices to keep things exciting. The biggest brokers offer over a hundred assets from commodities to stocks, indices to currency pairs. It is easy to shift from one to the other depending on interest and market conditions. If there is a strong trend developing for Microsoft stocks, then people can take advantage of it. Once trading goes sideways, attention can shift to the next opportunity.
The Disadvantages of Binaries
1. Big Loses – Binary options have only two outcomes: either you win or you lose. It’s an all-or-nothing
game. While it is true that wins are richly rewarded, the losses in turn are devastating. Payouts are generally in the range of 70% while failures result in 85% or more of the stake being taken by the broker. Clearly, the setup favours brokers and investors have to step up their winning rates just to stay even.
2. Low Odds – Another thing that traders have to contend with is the reduction of odds as the likelihood of winning increases. The strike price should be placed far from the current price and the expiration date should be set way off into the future to get a high payout. Pairing a conservative strike price with a close expiration date may lead to a sure win but it will also come with paltry profits.
3. Minimal Resources – Rare is the broker which puts great effort into providing its members with helpful resources and tools for better technical analysis. Most have basic glossaries, articles and charts but lack the indicators and other elements that are needed for advanced studies. The good news is that such tools are available elsewhere on the Internet and are oftentimes accessible for free.
4. Few Simulations – Even more rare are simulation tools that allow members to practice their skills before using real money in their trades. This situation may change eventually as the competition among brokers escalates and they are forced to improve in order to attract investors.
How to Make Solid Profits
There is no other way around it. In order to make profits on a consistent basis, a person has to exceed the breakeven point which requires a winning rate of over 60% in most cases. This means that random guesses will not cut it. Every decision has to be deliberate and finely tune to increase the chances of success. This can only be accomplished with the help of proven prediction strategies like technical, fundamental and sentimental analyses.
Technical analysis is based on the study of price charts. Certain movements are known to trigger corresponding effects and this knowledge can be invaluable when making predictions. Fundamental analysis, on the other hand, is more focused on why prices move the way they do. Traders examine the underlying reasons for strengths and weaknesses. Finally, sentimental analysis shines a light on the human side of things. The market does not always behave rationally. Sentiments can play a big role in markets.
Let’s take the GBP and the EURO as examples. In 2005, £1 was equal to roughly €1.50. When the global recession hit around 2009, the Sterling pound crash until it was almost equal in value to the Euro.
Charts reveal that it has slowly climbed in value over the last few years as the UK’s economy recovered. Recently, the Sterling had its 3-week low against the Euro because of a record low inflation rate in the UK. The central bank did not have any reason to increase interest rates.
How to Minimise Risk
Minimising exposure to risk by binaries can be tough but it is essential for long-term growth. Investors must diversify their portfolios, allot a reasonable sum for each trade, and know when to pull out to mitigate loses. Beginners should take a conservative approach until they feel confident enough to risk more when a good opportunity arises.
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