1. A trader must learn the two outcome options. A trader needs to anticipate the expected direction of the price movement of the underlying asset. In contrast to traditional options, knowing the trend of the price movement, as well as degree of the movement, is not necessary. If the investor or trader has a view about an underlying asset and wants to place a trade, he or she can trade Binary Options.
2. A trader must decide his or her position. Buy if you believe the market price will go up or the economic event will take place. Sell if you think the opposite. If your guess is correct, on the expiration date, your payoff is the settlement rate of your contract.
3. A trader must know how the price is determined. The price of a Binary Option agreement is equal to the possibility of the event happening. Take for example, if the settlement value has a value of $100 and the last trade of the contract was at $96.00, it is a sign that 96% of the market believes that the occurrence is going to happen and the contract will end up in-the-money.
4. A trader must know the advantages of trading Binary Options versus Traditional Options. Binary Options is a lot simpler to trade because they require only a sense of direction of the price movement of the underlying asset, whereas traditional options require a sense of direction as well as the scale of the price movement.
Binary Options have controlled risk to reward ratio, which simply means that the risk and reward are pre-set at the time the contract is acquired. Traditional options have no defined limitations of risk and reward and therefore the gains and losses can be immeasurable.
Binary Options offer nearly all the trading and hedging techniques that are possible while trading traditional options. Binary Options sustain a level of trading classiness and functionality.
Not like a traditional option, the payout amount is not relative to the amount by which the option ends up in-the-money. As long as a Binary Option settles in-the-money by even one tick (regardless of how much in-the-money it is), the winner receives the full fixed payoff amount.
Binary Options offer contracts with short-term durations. In various markets, Binary Options contracts close numerous times throughout the trading day, while others may last as long up to a quarter. This provides the trader with quite a few investment opportunities and flexibility as markets change over time.
5. Learn where binary options are practiced. Binary Options have been very much popular in Europe and are widely traded in major European exchanges, like EUREX. However, in the United States, there are not many places where Binary Options can be traded. The Chicago Board of Trade (CBOT) offers Binary Options trading on the Target Fed Funds Rate. To trade these contracts, traders must be members of the exchange or investors are required to trade through such members to perform a trade of which the value of each contract amounts to $1000.
Binary Options Trading Guide 