We often talk here on The Savvy Scot about ways to diversify your income streams. That is really important, because if you only rely on one source of income, such as your primary job, if that source dries up, you are in a tough position. I always try to have half a dozen streams at any given time. Right now, most of my income comes from online endeavors such as blogging and trading. I mainly trade forex, since I live abroad and have quite a good grasp on international matters. Trading foreign currencies can be done online, with a normal trading account or binary options.
How binary options work
Binary options offer you the possibility to trade a wide variety of asset, such as equities, currencies, or commodities.
I would rather focus on what I know, so in my case, I trade currencies and commodities. An option give you the right to buy or sell a currency pair or another asset at a price set in advance. This is known as the strike price. Options with a right to buy are called “call” options, while the ones with a right to sell are called “put” options.
If the pair has moved in your favor, you then collect a profit.
The term of the option can be short term, or long term. How much you will earn depends on how much you bet. Once you enter the terms of the trade in your trading account, your provider will tell you exactly how much you stand to earn if the trade works out. You can amend the term and the amount you are putting in, and see the potential reward updated.
Risks and rewards of binary options
Trading binary options can be very lucrative, but as any lucrative niche, there is a correlated amount of risk involved. If the currency pair or the equity didn’t move the way you expected it to by the end of your term, you will lose your money. So never invest any money you can’t afford to lose, or that would compromise your finances. I would advise you open a demo account first, so you can familiarize yourself with your provider’s platform and go through their learning tools. Once you have traded on demo for a few weeks, you can give it a try for real, placing a small bet. As you grow the size of your bets, always be aware of the consequences.
As a beginner, it is pretty easy to start trading. Options move quickly and it is a fast paced world, so make sure you are ready for it. Don’t place a trade before you go on holidays or you will be stuck checking your phone the whole time. Go slowly but surely and don’t let your emotions rule.
You can also use binary options as a bet-hedging strategy, allowing you to reduce your risk on an investment in that particular asset.
Check the Banc De Binary blog to learn more about binary options.