Trading options for beginners has great potential, but also a high level of risk. Unlike other trading methods, options trading requires high analytical skills and a basic understanding of options trading terminology.
In this article we go through all the necessary aspects of options trading for beginners, explaining what options trading for beginners is, how the options market works and which best options trading platform for beginners can help you get started.
An option is a contract that allows you to buy (call) or sell (put) an underlying asset (commodity or security) in the future at a fixed price (strike). Its peculiarity is that the holder of such a contract may or may not use his right to buy (sell).
For the opportunity to use a “put” deal you have to pay a certain amount, called the option premium, which becomes the price of the contract. The amount of time for which the trade is deferred is called the expiry time.
Trading options for beginners – what you need to know before
The principle of making money on binary options trading for beginners is simple: the trader has to determine the direction of the price for the chosen instrument in the given period and place the corresponding bet. All a trader needs is to make a correct forecast.
Binary options trading for beginners is optimal because of their simplicity and accessibility. There are no complicated technicalities, there are only two buttons – “Up” and “Down” – which indicate a rise or fall in price, respectively. Also, it does not matter exactly how much the price changes, because even a slight shift in the direction of your forecast will bring profit.
To really make money with binary options trading for beginners, you have to set yourself up for the following aspects from the very beginning:
- Huge possibilities: almost every best options trading platform for beginners offer different services and the challenge for a beginner is to choose the most reliable and convenient one. Then you can earn without regard to external circumstances, and it will really be real money;
- Painstaking work and long practice: have patience and a training plan. Experienced traders say it will take at least six months.
How do I analyze the market?
Market analysis is always about analyzing the underlying asset – stocks, commodities, indices, currencies. Market analysis can show not only the current position of an asset, but also its prospects.
An important part of success and earning on binary options trading for beginners is knowing how to analyze the market and the chosen asset.
Most people invest at the suggested prices and take them for granted. But among experienced traders there is such a concept as “expensive” and “cheap”. In order to understand when an asset is expensive and when it is cheap you need to understand the pricing of the asset. Using this information for options trading for beginners is crucial.
If the price of an asset is at the peak of its growth, then the price is expensive now. If the price of an asset is in decline, then the price is cheap.
But in essence the price is a relative value, so if the price of an asset is now at its peak, but you know that the potential of the asset is even greater and it is just about to start developing to its full potential – then at the moment that asset is still cheap and worth buying.
But within a day or a week or a month the price of a stock can fall, and when there is a clear drop in price – it means that the price is not just cheaper, but it is cheap – a signal to buy in order to earn on the rise of the stock next month, for example.
If you can understand why an asset has fallen in price or risen sharply, it means that you know how to analyze the market and can assess whether an asset is expensive or cheap, overpriced or undervalued. In order to determine all this, you need to study fundamental and technical analysis.
This type of analysis uses only the price chart of an asset and the history of its past price movements. In this case, you study the history of price changes and the emergence of trends on the chart.
Based on years of observation, analysts have been able to find some common patterns or patterns, which has increased the importance of technical analysis and allowed it to affect the value of the underlying asset. In doing so, technical analysis has the greatest impact on highly liquid assets such as currencies.
Technical analysis became the basis for the creation of indicators – tools used to analyze binary options under different conditions.
This type of analysis is based on so-called fundamental news and events, the ratio of global supply and demand. But when it comes to specific assets, fundamental analysis shows the current state of affairs in a particular industry on the basis of performance indicators.
When it comes to company stocks, every company is obliged to publish reports on profits, stocks, debt, production volumes and so on. You can find all this on the official websites of these companies. Fundamental analysis has a long-term perspective, because the impact of really important events is not limited to a couple of hours or even days.
Trading options for beginners strategies
As a beginner, wanting to earn extra income from binary options trading for beginners, you will have to find a way to extract this income from the market. As well as selecting the exchange asset on which you will be binary options trading for beginners, you’ll need to determine a strategy for making money, enabling you to correctly predict the price of the selected asset.
Binary options strategies for options trading for beginners are a collection of proven tactics and actions that have been tried and tested by various traders and observed to be effective when trading in the financial market. Binary options trading strategies for beginners for options trading for beginners can be with or without indicators.
1. Going with the trends
No matter what market you’re in or what asset you’re trading, one of the best ways to make money is to go with the trend. This is probably the best strategy for binary options trading for beginners.
Asset prices usually move in line with trends. The price will rise or fall along with the associated assets as the market is constantly speculating and in real time.
You should remember that a trend rarely has a straight line up or down. You usually see the price movement of an asset in a zigzag pattern in a general direction – up or down. Pattern recognition allows you to estimate whether the price of an option will be higher or lower at expiration.
There are two options trading strategies for beginners to trade with trends: you can trade with general trends or you can trade with fluctuations.
2. After the news events
Although after the news is one of the most basic options trading strategies for beginners, it can make you good profits. It’s easier than deriving technical analysis, but it requires you to read the news and stay informed all day, every day.
Online news is just the beginning. You have to pick up the newspapers, tune into the news stations, and use as many other sources of information as you can. The idea here is to understand the asset as deeply as possible before assessing whether its price will rise or fall. We recommend using the “economic calendar” where daily news and events are published.
You should also bear in mind that news you find positive may not be seen as good news for the rest of the market.
One of the disadvantages of using options trading strategies for beginners based on news to make trading decisions is that you cannot tell how far up or down the price will go or how long the price movement will last because of a particular event.
3. The Straddle Strategy
This strategy should be used in conjunction with the news strategy. Straddle trades should be made just before an important announcement.
The value of the asset can increase within a short period after the announcement, but you must buy the option, estimating that the price will go back down again.
When the price starts to fall, you can call another option, expecting the price to rise again.
The Straddle is one of the options trading strategies for beginners which take advantage of fluctuations in the trend. You will make money whether the price goes up or down. The straddle strategy is known among traders as one of the most consistent ways to profit – even in an unstable market.
But keep in mind, using options trading strategies for beginners requires good analytical skills and experience in the market.
Best options trading platform for beginners
You can use advices for beginners in binary options by registering on the IQ Option broker’s website.
This broker is at least one of the best options trading platforms for beginners:
- One of the leading brokers in the market for binary options trading for beginners
- Convenient and user friendly trading platform
- Prompt customer support in different languages
- A variety of tools for trading in different financial markets
- Free online trading education
- Qualitative market analytics
- Free demo account