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Binary options: Tips for successful trading

On April 7, 2014, the Dow fell more than 160 points by the end of trading as technology stocks slipped.
On April 7, 2014, the Dow fell more than 160 points by the end of trading as technology stocks slipped.
Photo by Andrew Burton/Getty Images

Trading binary options has become increasingly popular over the past few years, especially for people who constantly follow the financial markets and business news. Investors find these options attractive because of their simple yes/no proposition for potentially getting returns on their capital.

What Are Binary Options?

This type of option reflects the significant compression of investment horizons. It caters to people who want to act immediately on insights obtained from news sources, company announcements, industry trends, and other data points that can affect the valuation of an asset.

As with other forms of investing, the correct interpretation of information is how an individual makes money.

With binary options, an investor must anticipate whether a financial instrument will or will not have a specific price on a certain date. For example, will Disney stock (NYSE: DIS) trade at or above $80 a share on Tuesday at 1:30 pm?

If an option holder makes the right choice, he'll receive a predetermined amount of cash. Thus, binary options have reduced maturity dates to minutes, not years.

Keeping Emotions in Check

Here's advice on the mindset of successful binary options traders: Keep your emotions in check.

When risking your capital, it's extremely important to remain sober, detached, and intellectually composed. Emotions will negatively influence your trading decisions because your choices won't be based on valid information.

You will occasionally lose money, and that not every trade will go your way, indeed, there will be times when you hit a losing streak and nothing seems to go your way. Likewise, excitement is also a liability.

Binary options may be traded on platforms regulated by the U.S. Securities and Exchange Commission and other regulatory agencies. Many are also traded over Web platforms that exist outside of regulations.

Investors will need to exercise caution per this SEC investor alert. Some complaints come from "the refusal of certain Internet-based binary options trading platforms to credit customer accounts or reimburse funds after accepting customer money."

Make sure you work with a reputable provider.

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