The history of financial markets shows us that there are pairs of stocks whose prices evolve together. This means that when the price for one stock goes up, it triggers a price raise in the second one as well. The analysts explain this coupled movement by the proximity in the economic field these stocks belong to as well as by geographical position. If they are traded within the same market and there are national factors influencing stock prices, both stocks will increase or decrease in value accordingly. The same goes for the economic area of activity.
What is cointegration trading strategy?
Cointegration trading strategy is based on this paired evolution of stocks prices. As noticed in the past, there is a short period of them when one stock price goes up and the second on decreases in value, just to re-evaluate itself shortly in accordance with its peer stock. The cointegration trading strategy actually consists of identifying that very moment when the first price rises, and speculate on the second stock waiting for its price to go back up and close the gap or at least narrow it.
This means taking advantage of a temporary anomaly that appears in the ration established between two stock prices which balance each other on the long run. Such an anomaly appears, the first stage is characterized by an overpriced asset and a under priced one. This is the moment to sell the first stock and buy the second one. The opposite actions close the cycle. The profit results from the short term discrepancies between the two options.
How does cointegration trading strategy work?
Cointegration trading strategy is implemented in three simple steps. However, it requires trading experience and a great deal of flare.
Step 1 consists in identifying the evolution movement within a pair of stock options. This is where your trading experince is involved. If you are at your beginnings with financial markets, it is advisable you study past statistics and try to spot on the graphs patterns of evolutions that stock options have.
Step 2 refers to the first trade – selling the stock whose price has just risen and buying the one that aparently goes down.
Step 3 and the final one consists of the opposite trading actions, and it is performed when you have signals that the gap is closing.
While lack of experience and sense of the market can put your profit in jeopardy, this trading strategy can be turned into a powerful profit making tool, if handled properly. Without taking any unnecessary risks, you can make a lot of money on financial markets just by observing the trends and spotting the right time for a selling or purchasing transaction. Timing is a very sensitive issue with cointegration trading strategy, but experience and attention to market trends will help you identify the correct moment.
Long time regarded with distrust, binary options scam is not encountered as often as it used to be, but it still represents a danger you have to watch out for. This is why it is advisable you analyze a broker’s profile attentively before making a deposit, looking for particular signs that clearly show you whether you are dealing with a scam or not.
What is a Binary Options Scam?
If you want to stay away from binary options scams, you should first understand the forms they can take. When trading on an online platform, you could be scammed either by not getting your money made as profit following your transactions, or by basing your trading decisions on incorrect financial information that the platform delivers intentionally in an erroneous form. Both actions are considered scams because the platform’s owners and managers make deliberate actions to trick traders and give them less money than what they actually deserve.
How to Avoid Binary Options Scams
With the availability of online reviews nowadays, it is very easy to find information and understand which brokers are reliable and which are not. Although still regarded in most cases as a new field of activity, binary options trading has already developped its history and there is plenty information available on the various operating platforms. However, you should pay more attention to the negative ones as the glamorous ones can be fake, written by the company itself and not by real users.
Another way to make sure you stay away from binary options scams refers to checking the financial data with reputable and reliable sources like Reuters. However, you should first try to understand which vendor’s data feed the platform uses in order to have clear picture and be sure you have the right financial data.
You should also give a thorough reading to the Terms and Conditions section of each side in order to understand how that particular platform operates. This page is considered in legal terms a sort of contract binding you, the trader with the broker. If the broker respects what you have agreed upon when joining the site, you cannot blame them of scamming you. Here are a few examples of common practices that are not binary options scams:
Did you read the FAQ section of the online platform? Most of them don’t process payments on a daily basis. If you fear you are dealing with a scam, first check the Terms and Conditions and find out how long after issuing the request you will be paid. Only if this deadline is passed with no prior warning from their site, you can accuse them of scamming you.
Bonus funds usually come with special rules like being active on the platform for a certain period of time prior to withdrawing them.
Minimum withdrawal threshold & withdrawal fees
Some binary options trading platforms impose minimum amount restrictions. Some also charge a certain amount or a percentage upon withdrawing the money. This information should also be stated in the FAQ section or in Terms and Conditions.
This is a relevant question that pops to your mind when you are a beginner in binary option trading. How to choose a binary options broker? First of all, you should know that the choice of a broker is very important for anyone interested to deal in online financial markets online, as the wrong decision may result in heavy losses. Not choosing the right broker can make you lose a lot of money, and this goes much beyond some companies being “ghosts”, or only up there to steal your money! Here are a few points to consider if you want to make sure you choose the right binary options broker:
Regulation is most probably the most intricate issue a binary options trader faces when looking for a trader. A well regulated platform ensures the trader that he is in good hands, that his money is safe and that the will get paid his fair share of the profits.
Having an efficient customer service department is a must for any binary options platform willing to provide its clients with professional services. This is an important point to consider, and in order to figure this out, it is advisable to read the reviews other customers wrote about the respective platform. When trading short term transactions, you will want your questions to be answered promptly and in detail as any piece of information is important in making a correct trading decision.
Range of trades
When dealing in binary option, you will encounter three main types of trade: the so called “all or nothing” options, digital options – more frequently encountered in Forex markets, and fixed return options. However, this does not mean that all brokers offer them. If you want to benefit from as fewer restrictions as possible, it is best you look for a broker offering all types of binary options trade.
Before choosing your binary options broker, you should investigate the usability aspect of their trading platform. If you have to waste your time navigating your way around the trading software, this will results in a lot of frustration and fewer trading transactions made. Difficult to manage trading platforms can greatly contribute to loss of money and less profits. There are many binary options trading platforms out there and some of them have easy to use software in place. It would be a pity to choose an outdated one.
Payouts can vary a great deal from one broker to another and they can go up to 80% per transaction. When picking your broker, check the payout percentages first as this is important for the amount of money you can earn while dealing on that platform. The higher the percentage, the better it will be for you.
While each binary options trading has its own strengths and weaknesses, checking the points above will help you choose a better broker and will give you a good start on financial markets.
As with any other type of commercial activity, binary options trading has better chances of success when working with a strategy. It provides you with the line of action and gives you a direction to follow. However, this does not mean that you will be able to eliminate all risks. Any plan has its strengths and its weaknesses and it is up to you to make the most of it. While a well thought strategy will help you make profitable transactions most of the time, it does not guarantee success in 100% of the cases. Binary options trading is famous for the great role luck and flare play in, but chances of getting lucky and winning big can always be improved with a good strategic plan in hand.
How to come up with a binary options strategy?
Each trader uses his own binary options strategy, but there are several commonly accepted ways of building them. A part of those dealing within this area of the financial market operate on specific betting models. This means that they develop certain investment patterns, trading only a specific amount of money or at a certain time of the day. There is no scientific proof that this strategy helps you generate more profit, but traders base their patterns on their own experience.
Trading in small amounts can also be a risk assessing strategy. If you don’t want to venture into risky transactions, especially if you are still a beginner in binary options trading and on the process of building your own strategy, this is the safer way to go. On the other hand, the timing can have an impact, particularly is calm periods, when there are only small ups and downs, no huge differences in prices. For instance, stock prices on the specific geographical market can go up during the day and down during the night and traders can speculate on these differences because binary options work on a short time frame.
A more widely used strategy refers to predicting market trends. Using statistics and analysts’ reports, most traders try to understand where the market is heading. While sometimes big events like a recent listing, a merger or an acquisition can help you forecast the evolution of a company’s stock price better, most of the time there are no such signals. Therefore, traders try to get a sense of the market using their own experience and their better judgment.
Which binary options strategy to pick? This is a question most traders ask themselves. Even the most experienced ones have their own doubts in that area. There is no right or wrong answer to it, and as you will get to understand more in binary option, you will see which strategy better suits your trading style and which type of market fluctuations you are more likely to catch. After all, this financial activity is all about luck and flare.
A term we encounter more and more frequently in the last few years, binary options trading is a specific type of financial activity whose subject are call options that can pay off either at a maturity date or when reaching a specified price level called strike price. Let’s take, for instance, the example of an investor in Microsoft shares. When buying binary call options, the contract will state a strike price (of $30 per share, for example), a maturity date as well as a binary payoff (of $300). If, when the maturity date is reached, Microsoft stock is trading above $30, he will cash in the $300 payoff stipulated by the contract. However, if on that specific date, Microsoft stock is trading below his strike price of $30 per share, he won’t receive anything and he will even lose the initial amount he paid when buying those call options.
Also known as binary betting, binary options trading is often categorized as gambling because of several features this form of financial investment shares with the gaming field. First of all, like in gambling there is a risk involved and traders often take pleasure in gambling smaller or greater amounts of money for the chance of winning a multiplied sum. The dream of winning a as a sequel of the betting activity is another very well known gambling trait, and this triggers a lot of excitement and rush. Unlike other forms of financial investment, binary options trading are closer and more similar to games because their contracts expire soon after the bet was placed (it can be even something like an hour or an hour and a half). This similarity to the gambling field is one of the reasons for which binary options trading has been enjoying an increased popularity during the last years.
Another reason for which binary options trading is so popular refers to the lower level of financial knowledge this kind of activity requires. You don’t have to follow a company’s activity throughout the fiscal year, read earnings reports and consult with financial analysts in order to buy and sell stock. This makes binary options the perfect place to start trading. You can make good money and start to get a grip of how financial markets work, in case you are interested into taking it to the next level and learn how to trade more advanced options. However, this is true only if you have a nose for trading and financial trends. Binary options trading is all about understanding which direction the market is going to, what is the next hype and when the prices are going to drop.
In a nutshell, if you like the gambling side binary options trading features, this can be a good investment activity either for building the capital for your future more serious stock trading activities or for learning your way into financial markets. On the other hand, if you don’t have a flare for these things, it is better you don’t venture into binary options betting as this can be very risky as you can lose all the money you invested. One thing is sure, binary options are not for each and every one of us. While some can make fortunes trading, others can go bankrupt in no time.