You first binary option trade will not be easy. It might even be the scariest one. Nevertheless, you will see that once it is done, everything seems a lot simpler. Before your first binary option trade, you must definitely understand all the characteristics of a binary option and all the available functionalities provided by the platform of your broker. Once you master all the above subjects, you are ready to implement your first binary option trade.
Your First Binary Option Trade – Selecting the asset
You now need to select an underlying, a maturity and a direction (up or down). The choice of the underlying is something that depends on your personal financial market knowledge and background. Most binary option beginners only trade binary options on forex. It might be because this is the most liquid asset class and less volatile asset class. Once you have selected your underlying asset, EURUSD for instance, you need to formulate a market scenario based on your analysis of the asset price and the fundamentals behind it. For every trade, the objective is merely to estimate if the price of the specific asset is likely to be over or under the opening price point at the time the option expires. You can find below concrete examples of call and put strategies.
For instance, if you believe that the EURUSD will go up, meaning the euro will appreciate versus the dollar, over the next hour because the pair just bounced on a technical support; you need to build the following strategy. Buy a High Binary option on EURUSD with a maturity of one hour. As a reminder, High binary options are also named Call in the industry. If you believe that the EURUSD will go down over the next two days because the European Central Bank is about to cut its interest rate; you need to buy a Low Binary option on EURUSD with a maturity of two days. As a reminder, Low binary options are also named Put in the industry.
How do you make money on your first trade?
Fundamentally, a binary option trade is the estimation of whether the value of your chosen asset is likely to rise or to drop over the lifetime of the option. The asset price will have to be either above or under the entry price at expiry depending on if you bought a Call or a Put. If you selected the right direction, you will receive the return that was proposed at the inception of the trade. This return ranges from 75% to 85% for traditional binary options. If your option expires worthless, you will simply lose your invested amount. It is this clarity about the two potential outcomes that makes for easy money management with binary options.
The lessons to learn from your first trade
The first trade is always something special for any traders. It is the one that can open long string of other profit generating trades or that can create your first trading frustration. This frustration is likely to turn into fear and lead conviction less decisions. Whatever the outcome of your first trade, just remember one thing: you need to learn from it.
If it turns out to be winning trade, you need to analyse what helped you determine the correct market scenario. You then need to try to implement a similar transaction to check if your assumptions are solid or if it was just a lucky guess.
If it turns out to be a losing trade, you to analyse what went wrong with your assumptions and adjust your trading methodology to avoid the same mistakes in the future. You can read as many trading books as you want and take as many tutorials as possible; the above is the only solution to improve your trading skills. You simply need to learn from your trades, whether they generate a profit or a loss. A famous quote from Nelson Mandela explains the best way any investor should look at his own trades: “I never lose, either I win or I learn”.
All our recommended brokers will guide you through your first trades and can propose you a binary options demo account to avoid any risk on your savings. Don’t hesitate to have a look at our detailed reviews of the most reliable binary option brokers. 24option and Anyoption are the two brokers that propose the most extended list of educational contents. These tools will help you become a best trader and manage your risk more efficiently.