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How To Trade Stocks Using Binary Options Contracts

Date Added: December 18, 2012 04:47:12 PM
Investing in stocks is a traditional route used by many people who are looking to increase their wealth use. Both retail investors and major financial institutions make use of this investment path and it is commonly used by mutual funds. For this reason the term 'investment' is often thought of as simply purchasing stocks. There are however a number of other ways in which to profit from stocks that provide additional benefits for the investor over this method. Using binary options to profit from changes in the prices of these assets is one such vehicle that can be used to make profits without the need for direct investment. It also offers wide range of additional benefits.

Mutual and pension funds provide a collective vehicle for investment in individual stocks. They are popular as not only do they place the stock selection in the hands of experienced financial managers, they also help to reduce the level of risk that is taken with the investment. This is as a result of the broad spread of holdings within each fund. This provides a method whereby investors of smaller means can gain exposure to a balanced portfolio of stocks which they would not otherwise be able to do with only limited funds to invest. With low dealing charges on these collective investments, they have proved popular with all levels of investors.

However there is no denying that you need rising markets in order to be able to make money when investing in stocks and shares. They are regarded as a 'long' only investment vehicle. This means that you have to wait for rising markets to be able to see a good return on your investment. Furthermore the time it takes to see these returns will vary. You should not expect your wealth to increase overnight. The reality is that if you want to make money from investing in this way then you should be prepared to put away your money for the longer term and not worry about the day to day fluctuations of the markets.

You can however make use of other investment approaches to make money from changes in stock price valuations and see a return over a much quicker period of time. With binary options contracts you can speculate on the short term price movements of an asset price and make money in only a matter of a few hours or minutes. You will also not be limited to a 'long only' investment approach as you can also make money when a stock price goes down.

When making investments with binary options you are not actually buying into the underlying asset. Therefore you won't be 'purchasing' a holding in the stock when trading in this way. Instead you are opening a contract with a broker from which you will receive a payout if your prediction of its price movement proves to be correct. So that you have a chance to earn this pay-out you pay a premium which is known as the contract price. This can be anything from the minimum that the broker will accept right up to several thousand dollars. The return that you earn when the contract expiries, provided you have correctly forecast its movement, will be a fixed percentage of the purchase cost.

The key benefits to making money from stocks via this method are that you won't have to worry about the long term movements of the stock price. Furthermore you don't even have to select the big winners. The profit earned on a binary option binary option is fixed no matter how much the price of the asset rises or falls. Losses are also limited so you can never face a loss of more than you invest in the contract. Add in the fact that you won't need a lot of money in order to get started, and you have an excellent method of profiting from stock prices by using binary options contracts.