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Binary options: Mistakes new traders make and how to avoid them

The internet today is littered with adverts promoting binary options trading as a way to make "big money" within a short period . Some will even entice you with adverts teaching you how you can make 200% in less than a day. But behind those adverts, there are hard truths which the brokers do not want you to know as a prospective options trader.

What is options trading

It is the process of "investing" in your prediction that the price of a particular commodity or index will rise above a certain price within a certain time frame. If your prediction is correct, you earn some percentage of your investment as commission else you lose your entire investment for that prediction. Sounds more like sports betting right? Sure it does. It is much more like predicting the outcome of a football game.

Do people make money from options trading? 

My answer is yes! The Brokers, advertisers and experienced traders make money. But it is not a quick fix to your financial problems as those adverts promotes that is why I did not add new traders to the list of those who make money from the trade. If you want to trade binary options because you are in a financial problem and you need quick money to solve it, I will advise you to use that start-up capital to solve that problem first instead of "gifting" it to binary options brokers.

Why new traders are doomed to fail... 

The problem is that binary options brokers attract new traders with unrealistic expectations, in their adverts, they portray the possibility of making 100% to 200% profit in a short period. They promote options trading as a quick fix to financial problems. This expectation makes new traders jump into trading with little or no experience resulting in massive failures and loses. The experience trader does not earn that much. He knows that targeting 200% is a death trap for him. To him, 30% profit per month is a good deal so, he trades with caution.

The options trading "field" is filled with "broken bottle" and to survive there, you need to tread with caution. To enable you to tread with caution, you need good knowledge about the field you are venturing into and part of that knowledge you need is Money management. From my definition of binary options trading, you will observe that options trading is a 50-50 game, the variable is LUCK and loses are inevitable. Money management protects your capital and delays your "doom day". For instance, if you start with a capital of $100, and you risk $1 per trade, it will take 100 loses to take you out of the market but if you risk $5 per trade, it will take just 20 trades to take you out of the market.

Another knowledge you need is a good strategy. As the saying goes "He who fails to plan, plans to fail". Binary options may be a game of chance but putting your hard-earned money on the double-faced "god" called LUCK is a misadventure. You need an edge, you need a plan and you need a reason to enter and exit a trade. If you have a strategy that gives you at least 70% win and 30% loss, you are more likely to survive the market and make a profit in the long run than the trader who hangs his trading hope on luck.

Having a strategy is good but following the strategy is the key that opens the door of profit-making in binary options trading. It takes discipline and experience to stick to a strategy even in the face of great losses. This is where new traders have problems. To make a profit in the long run, you need to stick to your plan, and not let your emotions get a better part of you. But the real truth is that discipline is not built overnight. It takes years of hard work and experience to master the art of "ruling" your emotions.

 Binary options just like any other discipline are profitable but, you need to invest a lot of time and resources to be successful in the "game".

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