I have recently began trading binaries on the Nadex exchange. Even after all of the warnings and advice to steer clear from them, I went for it. I'm not going to sit here and claim I making a mint doing it, but so far so good. The first thing you should know is not to open an account and run out of the gate playing with hard earned cash. Hell NO! Take some time before jumping in. Open up a demo account and trade there first. It operates just like cash, but you won't lose your shirt fumbling around while you learn. For example, on my first trade day with play dough I managed to lose $10,000 of my $25,000 allotment. Day two was better. I learned not to take too big a risk and more about the various offerings. By day three I had turned my $15,000 play account into $18,500. Not bad. But above all, it gave me time to learn the platform. Some of my mistakes were misreads, errant clicks, and misunderstandings of the types of trades I was engaging in.
Now it was time to play for realz. I funded my account with $250 and lost $190 of it in three days. Ouch! Sore, but not beaten. Those first losses were very important. There were two hard lessons in it. 1). Playing for real adds pressure. 2.) NEVER get emotional or over confident.
Binary trading is basically buying or selling an option at different risk levels. Every binary option pays out $100. The riskier the option, the cheaper it is. For example: EURUSD is sitting at 1.44. The options available that are less than 1.44 (ex: EURUSD >(greater than)1.42, >1.40) will be priced much higher (ex: $99.50) making it useless to purchase. After trading fees, you will actually lose money. Then options a little riskier (EURUSD > 1.44, >1.46, etc.) that will be priced cheaper ($10-$50), depending on where the market is going, could provide a nice payoff. Then more out of the money options (>1.48, 1.50, etc.) that are dirt cheap ($2.50). These options are virtual money losers barring a wild fluctuation.
It is a bit (OK, a whole lot) like gambling. But if you keep up with the markets, you can do pretty well. Be warned, you can lose a lot of money very quickly. A money manager once told me being successful in the markets isn't about making money, it's about managing your losses. It's true. Market logic is backwards. It's about baby steps, not huge scores. Build your bank and stifle the losses. The main thing is to trade another day. Never get in a trade with no floor, no set loss, or begin chasing a bad streak. The markets can be unforgiving.
Watch out for the spreads. A spread is bought into at a certain market point, and if the options closes lower than your buy in, you lose a percentage. If it closes higher, you gain a percentage.
Some options do not trade on the current market action, they trade on the futures market projections. For example, Us Tech 100 (Sep) would be trading at September's projected level, and could adversely effect your trade.
Be mindful of buying and selling. Selling places a portion of your money in reserve, and usually increases loss exposure. It's a good idea to check out the floor (max loss) and ceiling (max profit) values at the bottom of the ticket window before trading.
Beware a market in free fall. Will it fall THAT far? You bet. I choose to wait for a bottom before performing a trade.
Beware a market cycle nearing a top. The steam could run out at any second.
Wild swings happen. 10 bps can happen in an instant. When I'm feeling bulletproof, I buy where I think the market will be, and sell where I think it's a little high. One wild swing, bye-bye profit. Hello Loss.
These are few things I (think) have figured out in my time trading binaries. I'm enjoying it, and building a modest bank while doing so. Thank you for reading.