Binary Options Basics Nigeria: Binary Options 101 for Dummies

Traditionally, there is/was a system of trading called binary options trading.

An option is a contract to buy or sell financial assets – stocks, indices, forex – at a particular price, during a specified period upon payment of an amount, called Prime. As an option buyer, you have a right, which you can use for a specified period of time until the maturity of the option.

It is important to note that option contracts, as their names indicate, are optional, that is, until the expiry date, the buyer of the contract has the option to buy or sell the underlying asset at the agreed price. If the market conditions are favourable to the realization of the expectations of the buyer, then he will decide to exercise his should to the purchase or sale.

In this case, the seller of the contract will have the obligation to sell or buy the underlying asset, according to the standards of the negotiated contract. The buyer of the option pays a premium to the seller who is definitively acquired to offset the obligation.

There are two main types of binary options: call options and put options.

A call option allows the buyer to purchase a certain amount of underlying asset for a period and at a price agreed upon in advance. When the buyer exercises his call and asserts his right of purchase, the seller of the call is obliged to deliver the underlying assets at the price fixed in advance.

A put option, on the other hand, allows the buyer to sell a certain amount of underlying asset for a period and at a price agreed upon in advance. When the buyer exercises his put and asserts his right of sale, the seller of the put is obliged to buy the underlying asset at the price fixed in advance.

The above description is that of the traditional options trading system. Options trading itself dates back to several decades ago, but just became formalised on Wall Street in the early seventies. Till date, option trading still exists but in its traditional form, it is largely a game of large institutional fund managers with only a few wealthy individual traders involved.

However, innovators have tried to break this barrier and have made options trading available via the Internet. Using apps like Robin Hood, Webull, TD Ameritrade and ETrade, investors can trade options.

Unfortunately, these are largely not available to traders outside the US.

It is a bid to democratise this form of trading that binary options Nigeria were developed.

Binary Options For Dummies

The traditional options trading (either online or offline) that we have in the United States is largely not available in other parts of the world. This is the case in Nigeria. But Nigerians can very well trade binary options. In fact, Nigerians are one of the most active binary options traders out of Africa.

Trading binary options can be very profitable, as you can earn as much as between 75% to 90% of whatever you put up as risk capital per trade.

On the flip side, however, binary options trading is as well highly risky, and you can lose substantial sums of your risk capital, if not all. And in fact, a very wide majority of active binary options traders record consistent losses. When you visit the website of a broker or get access to any of their information materials, you see the information that some particular percentage of traders who use their platforms record losses. The numbers you see range from around 65% to as high as 80%.

You can however avoid this by investing in quality trading education.

By investing, we mean committing considerable time and resources.

You can learn via trading courses, either free or paid ones. Free courses are great; especially if you are just starting out and want to understand how the market works. You can also learn some advanced trading techniques as well.

Places from which you can get quality free courses include your broker’s education platform, as well as education websites like Udemy.

However, it has to be stated that you can only learn so much from free courses. To learn advanced, profitable binary options trading, you might have to sign up for paid courses. This is because ideally, almost no profitable trader will teach his strategies for free. Even at that there are number of binary trading Nigeria education scams out there. Scams in which a person compiles a paid course full of lessons that you can get for free elsewhere. One of the most famous one is Bitcoin Loophole Nigeria.

In order to avoid this, you should properly conduct some research by checking for reviews of the whatever paid course you are interested in.

Furthermore, we strongly advise that you practise for some time on a demo account. The demo account is a risk-free way for you to practise whatever your trading skills and strategies.

Finally, it is recommended that you commit to constant practice and review of your trading from time to time.

Binary Options Nigeria For Beginners

For every decision, you make when trading binary options, it has to be backed up with carefully done analysis. There are 2 types of analysis you can carry out to arrive at trading decisions:

Technical Analysis

When you open a typical trading platform, you see some lines and charts; navigating the platform, you discover some add-on tools, called indicators. Together all these can be combined to forecast likely future price movements. This is what is known as technical analysis.

Technical analysis involves such things as candlesticks and chart patterns, indicators and oscillators as well as mathematical calculations to properly guess future price movements.

Fundamental Analysis

News and events in real life have strong impact on the ongoings in the financial markets. This is because these happenings do bear implications on the underlying assets traded in the markets. For instance, decrease in interest rates by the Bank of England, will most likely boost the British Pound (GBP) against other currencies because lower interest rates mean citizens of a country can borrow cheaper, and therefore will be encouraged to spend more. This will on the overall boost the economy and strengthen the currency (the British pound in this case).

Similarly, news of violent unrests in a major oil-producing country can lead to an exponential spike in the price of oil, as this news suggests that there may likely be scarcity in supply of oil. And scarcities raise prices.

As such, you have to pay attention to market news, analysis and expert reports before you enter trades.

Furthermore, it is well recommended that you carefully combine both systems of analysis and not go for one. Ensure your trades agree with both technical and fundamental analysis.

Nevertheless, no matter how accurate your analysis is on paper, you can make or mar your trading with the state of your mind. Trading is a psychological game, and your emotions can tamper with your sense of judgement. There are 3 strong emotions that can tamper with your judgement and prevent you from making good/objective trade calls. Then even if you make good calls, these emotions can make you wrongly time your trades and exit correct trades at the wrong time.

These emotions include:

  • Greed – this is by far the most dangerous, as it makes you want to get the “most” out of the market, but in the end, you hurt your trading account.
  • Fear – another powerful emotion; it can cause you to lose out on profitable trading opportunities because you are scared to lose your capital.
  • Hope – feeling unnecessary hopeful can be bad in the market. The market does not always work out your way; you should acknowledge that and take your losses.

In order to avoid the above, you should develop a trading plan and painstakingly stick to it.

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