Chances are you grew up being told not to put all of your eggs in one basket.
If that sentiment sounds familiar, then you are most likely interested in diversifying your investment portfolio, creating more income, and figuring out ways to make more money.
We can do all of this in many ways.
For example, most young investors partner stocks with cryptocurrencies. Or, some will open up a business(s) and start a side hustle instead. However, if you want to try something new, then you can always look towards the direction of binary options.
You may have not heard about binary options, but they're one of the fastest rising means to make your money grow aside from cryptocurrencies. More and more investors are starting to trade options but as with any investment plan, you need to be smart about your next decisions.
It’s always best to study your options after all. So, if you are looking to start trading options right away, here are a few things that you may want to know first.
Starting with the basics, what are options anyway?
What Are Options?
In layman's terms, options are basically investment options that are based on the value of other securities.
Those securities can be various things such as stocks, currencies, and even commodities. When you are getting an options contract, you are actually buying the chance to buy or sell the option and not the asset itself.
With regards to buying options, you can lose any amount of money to it as long as it is over $1. Your return will depend on what’s stated on the contract as well. Generally speaking, however, returns can range from somewhere between 70-99%. For investors, this is actually quite a deal.
However, options are essentially a high-risk/high-reward financial instrument. While the gains are generally higher than most other investment plans, your losses can be far greater as well. When you make the wrong call, you basically lose all that you invest and you don’t get anything in return.
The main difference between options and other financial instruments is that there’s a shorter return time with options. Some trades can be as fast as a minute but it can be as long as weeks as well. It’s the perfect investment option for those who are looking for short-term investments.
Call And Put Options
There are two primary types of option contracts that you can buy and these are the call and put options. When you get a call option, you are allowed to buy the asset at the price it is set at during a specific timeframe. Put options are basically the same but instead of buying, you are allowed to sell.
Where Can You Start Trading Options?
This is quite possibly the most important part you should know before you start trading options. In truth, there are many brokers that are already available and proven safe with regards to handling your money. However, there are those that are scams and are obvious threats to your financial security as well.
Before you trade with an exchange, it’s a must that you check out reviews first. Luckily, these details are readily available online and all you need to do is search for reviews.
Aside from authenticity, you should also check if the broker has fair rates. Trading with a broker isn’t exactly a fee and you are often asked to pay a fee when it comes to transferring money into your account and out of it. Some brokers have better rates than others so it’s a must that you weigh your options heavily.
>> Related: How to Win in 2021 With Investing & Saving
Strategies For Trading Options
There are various strategies for trading options and it all really depends on what you are comfortable with and what you are used to doing.
Of course, your capital is also a factor in helping you choose the right strategy. Generally speaking, however, you can choose between long and short-term investing.
Long-term investing is a lot like long term thinking:
It is great as it allows you to make the right calls based on previous price movements. This is often the best option if you are confident about the price movement of a certain option. As this is the case, checking in on the news is also helpful in helping you make the right choice.
Short-term investment can yield higher returns at the expense of higher risks. The good news is that brokers come equipped with various indicators that help you try to get a feel at how the price of an option will move within a given set of time. It takes a lot of practice to make short-term investing lucrative.
Options trading could be the next financial instrument that can help secure your future. As with other forms of investing, it is a must that you study more about the practice of options trading before you make any major decisions. Luckily, most brokers also give you access to trial accounts that you can practice with.
You have probably heard some of the same investing advice I have:
- Buy low, sell high
- Ride the wave
- Don't listen to your friends
- Use robos like M1
- Invest in GameStop (just kidding)
- Be cautious with Bitcoin
- Just use investing apps
- Check out dollar-cost averaging
- Learn about swing trading
- Or, just save your money
Point being – there is no exact or proven way that is best when it comes to investing, stocks, and making your money work for you! As you quickly read over that list, you may have snickered at some of the “Investing Advice” above or nodded your head in agreement.
The same goes for binary options trading.
For some people, it makes perfect sense and it is a great route for them to pursue. As Investopedia says, binary options depend on the outcome of a “yes or no” proposition, hence the name “binary.” But knowing that binary options set a fixed payout and loss amount can make it a worthwhile investment strategy to diversify.
When it comes to trading options, be sure to do your homework, don't invest emotionally, and don't just listen to what everyone is saying you should do. Consider your own personal finance goals and do your best to avoid investing hype.
Josh writes about ways to make money, pay off debt, and improve yourself. After paying off $300,000 in student loans with his wife in less than five years, Josh started Money Life Wax and has been featured on Forbes, Business Insider, Huffington Post, and more! In addition to being a life-long entrepreneur, Josh and his wife enjoy spending time with their chocolate lab named Morgan, working out, being outside, traveling, and helping others with their finances! I got serious with money when I used Personal Capital to track my finances.