Options trading for newbies

For quite a long time options trading remains one of the most popular ways to make money in the Forex market. We decided to cover the issue for those who have just started to wonder how to make money on options.

What is an option?

An option can be considered as a contract that gives you the opportunity to buy\sell a particular asset at a fixed price during the certain period of time. It is important to clarify that it is rather the right to buy\sale options and not the obligation. You will be working with two types of binary options: "Call", which is intended for the purchase, and "Put", which is intended for sale. Options trading is much easier than other kinds of money-making in Forex. Working with the options trading you have only two buttons: CALL (forecast for the price growth) and PUT (forecast for the price drop).

How to trade options?

In a nutshell, options trading looks like this: you place a bet on the growth or fall in value of the asset during a particular period of time. If your forecast is confirmed, you get 60-90% of the original amount of your bet. If you make a mistake, you lose the amount of money you have set. By the way, usually the amount of your first bet starts at $ 1.
So the algorithm of options trading looks as follows:
  • Choosing a broker;
  • Choosing the asset (at the website of broker);
  • Specifying the period of time;
  • Making the forecast (the growth\drop of price);
  • Placing your bets.
So, you can, for example, choose gold as an asset, predict its price drop for the next forty minutes, and place $100 bet. And the terms of your broker is, for example, 70% of the amount of your bet, if the forecast will be correct. If the price drops at least 0,001 point, you get $170, where $100 is your bet, and $70 is your profit. If the forecast is wrong, you lose your $100. Some brokers can set a critical level of losses in order for you not to lose all the money at once in case of failure.
One of the best advantages of options trading is a wide range of assets: besides traditional currency pairs, you can choose gold, oil, stocks of large companies.
You should also choose the style of trades. As a rule, it is one of the following:
1) European (the option may be exercised only at the expiration date of the option);
2) American (the option may be exercised at any time before the expiration date);

What you have to know before you start options trading?

Everyone knows that the Forex market works around the clock. However, this does not mean that you should start trading anytime you want. The great volume of trading makes the prices change more often. The largest number of trades falls on intercrossing of business hours of several exchanges.
There are the business hours of the exchanges (GMT):
London: 8 am - 4 pm
New York: 1 pm - 9 pm
Sydney: 10 pm - 6 am; 8 am -11 am
Tokyo: 12 am - 8 am
Thus, options trading is the most active during 1 pm - 4 pm, 12 am - 6 am. Besides we should mention one hour: 8 am - 9 am, when the business hours of the three exchanges intercross.
If you want to become a successful trader, you always have to watch the world news. Even the most uninteresting reports of some economic indicators may strongly influence the market. For example, some of them United States publish daily at 1:30 pm.
Another important factor is NFP (non-farm payrolls). This is the information on the number of people employed in the nonagricultural sector. It is published on the first Friday of each month. If this number is growing, then USD price will also grow. If it is not - the USD price will drop.
It is traditionally considered that the most successful days for the options trading are Tuesday and Wednesday. Friday is also a good day. And it is better not to start trading in the early hours of Monday and after 7 pm on Friday. At this time, the price of binary options is becoming more unpredictable.

In conclusion, we would like to say that options trading requires constant monitoring of news, analysis of the market trends and trading strategies. This is not the place where you can rely on your luck only. Otherwise, you can lose your money very quickly.