Trading binary options is a very simple form of trading, but that doesn’t mean that it is an easy way to make money. The concept itself is very simple: you guess whether or not an asset will go up or down in value. If you are right, you earn the previously agreed upon amount. If you are wrong, you lose all that you risked.
The difficulty in this lies in the fact that you will lose more than you gain if you have an average of being right 50 percent of the time–which is what is statistically expected. An average binary will return just under 80 percent when you are correct, and you will lose 100 percent when you’re wrong. That adds up to a very big discrepancy over time if you are just average, so therefore you need to be above average to make money.
This makes sense. To be successful anywhere, you need to be above average, and financial trading is no different. The difference here is that most people think that they are very talented at this, when in reality, they are not.
Let’s look at the math quickly. If you risk $100 over 100 trades, and you are right 50 percent of the time with an 80 percent profit rate, you will earn $4,000, but lose $5,000. That’s a loss of $1,000. In reality, at this profit rate, you need to be right 56 out of 100 trades in order to make just a tiny profit of $80.
In order to make a sizeable amount of money, then, you need to either risk a lot more, or be right more often. Risking more defeats the point, since your profit rate will stay the same. Instead, you should focus on increasing your correct trade rate. When you do this, no matter how much you decide to risk, you will be earning much more. Even an increase of 10 percent will take your profits from $80 per 100 trades up to $1,880–a much more respectable number.
The question remains: how do you do this? The best way is to better yourself as a trader. Educate yourself on the assets that you trade and learn as much about them as possible. There are so many trading techniques out there, you just need to find one that works for your style and financial background, and then work on perfecting it. Practice will help, and risking small amounts until you have some expertise is going to be in your best interest. The more you do this, and the more time you spend doing it, the bigger your profits will be over the long haul.
There are exceptions to the above, of course. There are a few brokers out there that offer rebates on losing trades, sometimes as much as 15 percent. This might seem like it makes a big difference, but the truth is, you still need to focus on your correct trade rate. The brokers that offer rebates seldom will offer rates of return as high as 80 percent, which skews data quite a bit. So, instead of looking for these things, try and focus on the skill set you need to be successful. This is a much more transferable skill and will help you out far more than trading at the right broker at the right time.
Of course, this doesn’t mean you should just choose a random broker. You need to spend some time researching who is the best for the trades you will be making in order to make your money go further. Why should you settle for $50,000 a year in profits when you can make $55,000? That extra $5,000 could be the difference between 2 percent in profits–which might seem like a tiny amount. But over the course of a year, this tiny amount adds up to thousands of dollars. Doing little things, like finding the best broker for the assets and the timeframes that you will be focusing on, is one of the easiest ways to stretch your trading capital further. Not only does it make your profit rate higher, it makes it more sustainable when you are wrong occasionally.
The Right Timeframes
As you will soon see, binary options come in a variety of different timeframes. Some last up to a year, some as short as 30 seconds. The longer timeframes typically return more, but then your money is tied up for longer. Focus on the timeframes that are easiest for you to predict first, and then figure out how to maximize the amount you have coming back to you. Making money is the most important thing, doing it often is the second step. Finding a balance between these things will help you to go from an average trader to a great one.