If you’re new to the forex binary options market, you’re in for a treat. Most people stay away from forex because of its complexity. And, while it is complex, it’s also a quick way to make some money in the largest financial market in the world. Binary trading simplifies a lot of the complexities of traditional trading and is suitable for those who just want to dip their toe into the forex waters. But, you can’t just jump in, like most people do, without a plan.
Narrow Your Focus
Coming from the world of stock markets, you might be tempted to “diversify” your trading or investment strategy. In binary options, this is a terrible idea. The more you can know about a particular currency pair, the better. Pay attention to the fundamentals as well as the technicals and really dig deep into the underlying mechanisms that drive the currencies. Focusing intensely on just one pair is not unheard of.
Even though there are only 18 popular pairs, you may only need to trade one or two of them. As long as you are really knowledgeable about them, you don’t need to worry about all of the others. Trading forex isn’t like trading stocks. Diversification doesn’t always reduce risk. In fact, it can increase risk because you’re less knowledgeable about all of the pairs you’re betting on.
Pick A Good Platform
Picking a good forex platform is probably one of the most important things you can do. Forex brokers are a dime a dozen these days, but good ones are a diamond in the ruff. First things first. It doesn’t matter how high-tech your broker is if it doesn’t have a great customer service behind the trading platform.
No platform is bug-free forever, and regular, scheduled, maintenance is just a fact of reality. There’s also the issue of help with both trading and logistics. If you’ve never done this before, you may want to know exactly how to set up your bets and the consequences of making certain bets in a certain way.
In binary options trading, there are three ways to trade (three major ways, anyway). Ask the broker about this – it’s not always obvious at first, so approach the company with an open-ended question like, “how many trading types do you support.”
If the company is open to discussing all three ways to trade binary options, this is a good sign.
Next is the software. A majority of the risks with currency trading are in poor-quality software – software that doesn’t support real-time reporting or that makes it more difficult to make quick trades. If the software is difficult to navigate, the charts confusing to read, and if you spend a good deal of time trying to just learn how the software works, this is a bad sign.
Manage Risks Intelligently
Most traders do not trade with all of their savings. They hold back most of their capital only risk maybe 5 or 10 percent. Sometimes, they only trade with 2 or 3 percent of their total capital. This is a good rule of thumb to follow.
A mistake new traders make with binary options is entering one trade, losing, and then giving up. You have to trade a lot to make money. Since there are no real trading fees per transaction in forex, there’s no danger in placing multiple bets. If you’re managing your daily risks, and not dropping below a set stop for your trading capital, keep trading until you make your goals.
Alex Fletcher is a longtime Forex investor who loves to write. When he finds a tool that works for him, he can’t wait to let others know about it, too. Look for his illuminating articles on many investing and stock market blog sites.