What is day trading with binary options? and where can you sign up for the best broker account to become a day trader? Compare all the top brokers that accommodate day traders and learn what types of trades and assets are the most profitable day trades.
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What is Day Trading?
Day trading is a speculative trading method of buying and shorting securities or derivatives within the same trading day. All positions are closed at the end of the trading day. It is based on the prediction of financial instruments going up or down in price. Day trading can be achieved in any market, worldwide, it is most commonly practiced with the trading of Foreign Exchange (Forex), Stocks, Options and Futures.
Now we know what day trading is, who or what is a day trader? Well, day trading is an exclusive practice, reserved for people who work in financial firms while thinking of themselves as ” professional speculators “, or classifying it as a lucrative hobby.
However, nowadays, anyone can become a day trader.
The rise of electronic trading and margin trading software has become available to individuals from all over the world. So, if this trading method is available to everyone, how does a beginner get involved, and is binary a good starting point?
Chart
Charts, technical analysis and patterns are essential tools for day traders. This chart is set to show the Bitcoin / USD exchange rate, which is a great market for day traders – there is a lot of volatility and action driven by news releases and trader sentiment.
How to Start Day Trading
The first step for a day trader is to determine which market you will trade with the most popular Stocks / Shares (Apple, Samsung, Tesla etc), Indices (Hang Seng, FTSE, Nasdaq, S & P), Forex, and Futures . Commodities such as gold, oil or goods such as grain prices can also be traded. Cryptography such as Bitcoin and ethereum is a huge market for traders today as well.
The Forex market is quite popular among beginners due to the low initial minimum deposit account of around £ 250. Binary options deposits can be lower (from only £ 10), but are traded without margin.
Futures require more and stocks require the most money to invest for day trading. Binary options offer low cost entry for anyone looking to day trade. However, their weakness is a lack of leverage. Whether this is a big factor or not will depend on the trader – leverage increases market exposure, so the fixed price element can actually help in terms of risk management – but also limits potential profits.
Equipment & Software
Once you know your assets, as a day trader, you need the right equipment and software to start day trading. As a new day trader, you need a fast and reliable computer, it doesn’t have to be top of the line, but not the cheapest. In addition, day traders need a fast internet connection. You want to keep your tables and charts up to date as quickly as possible.
Along with all this, you need a trading platform and a broker to start trading. As a trader starting out, you will want something that is easy to use and not too complicated. We recommend traders try demo accounts associated with most day trading platforms to get a feel for which software platform is best. For brokers to go for, make sure they are reputable and regulated, with low fees, tight spreads and maybe even bonuses.
Learning through virtual accounts is superior to books or courses. Hands on experience introduces the psychology of trading (although this is greatly enhanced with a real money account). The same learning curve is difficult to achieve just by licking ” Trading Day For Dummies” or a hastily written pdf.
Market Hours
Another important aspect to consider before you actually start trading is the time of day and how many hours a day you will be trading. As a day trader, it is important to trade the same hours every day to successfully execute and manage your strategy. The best trading hours are usually around the opening and closing time of the market.
Forex in particular provides interesting opportunities in terms of trading hours. Currencies are traded around the clock without a central market. This means multiple volumes and troughs when new areas are raised or closed. The London market could be closed – but the GBP/USD pair may still be driven by traders in Indonesia, New Zealand or Hong Kong.
Time zone cycles are equal to cryptocurrencies. Day trading on Bitcoin or Bitcoin cash will continue worldwide. Lesser digital currencies such as Ethereum, Ripple or DASH are also traded 24/7. Cryptocurrency has added a new dimension for day traders.
risk management
The risk for this type of trading needs to be managed in two ways, trading risk and daily risk. Trading risk is how much you are willing to lose per trade. An ideal standard is to risk 1% or so of your trading capital on each trade. The fixed risk of binary options can help manage risk because the amount of risk is known at the outset.
A trader will manage it by choosing an entry point and setting a stop loss. A trailing stop will remove you from a trade if you reach a certain loss level for that trade.
Daily risk is like trading risk in the simple fact that they both limit the total amount of losses; only daily risk limits the total loss for a day. In doing this, bad days are prevented from becoming too bad and can be recovered by regular winning days.
Tax
There is no obvious tax charged for day trading. Different regions see different taxes – and binary options differ again. for example, in the UK, binaries are classified as “speculative” and income tax is not payable. In the US, Singapore and India, the rules are very different.
Taxes also depend on whether you view your day trading as a career or a hobby. Professionals may be taxed on profits as ‘income’ while aspiring beginners may not. For this reason, it is important to seek local advice.
Binary Day Trading Strategy
Day trading can be very complicated and it’s easy to get wrapped up in all the flow strategies and complicated chart analysis. One thing to remember is that you don’t have to know everything. All you need is a strategy to focus on, and execute it over and over again. Try the strategy on a demo account first to see how it stacks up.
Top 3 Day Trading Tips
- Just be reminded, Always look for Opportunities!
Track the latest stock market news and trends in the economy. Do your due diligence and research and the market they serve. If supply is low and there are still enthusiastic buyers, prices may soar. If there is too much supply and fewer buyers, the price will fall. When staying informed and knowledgeable about certain companies and their performance, great opportunities will arise, resulting in profitable day trading. - Become a Disciplined and Consistent Day Trader.
Set a reasonable trade size and manage your trade bank. Most successful day traders risk 1-2% of their trading capital per trade. Follow these rules consistently, as if there were no other way. Trading the same asset, at the same time of day, also provides a quick learning curve that allows you to spot more opportunities or wrong prices, intuitively. - Be Realistic and Stay Patient
When you are looking for a proven trading strategy. It doesn’t have to win all the time, in fact, most strategies only have to pay 60-65% of the time. So the key is to keep up with market news and the companies you are betting on. Also, sticking with a strategy requires patience. There will be times when the market takes you for an emotional rollercoaster. It’s important to make your decisions based on logic and not emotion, and stick to your plan.
Momentum
One of the most widely used and well-known day trading strategies is the “ Momentum Trading Strategy ”. This strategy depends on market volatility. It can be used in conjunction with technical indicators and other tools you find on our trading platform because they depend on the trend they detect.
In short, where a trader analyzes the market and finds the best asset in a certain period. It involves buying and instead selling worse assets. Being well informed and knowledgeable about current market moving news is essential to the success of this strategy.
News such as company earnings, new deals or product launches, or some type of recent news related to the company can force prices to jump. There are many aspects involved with this strategy, and before implementing it into your routine, learn all about it to fully understand its intricacies. Even practice on a demo account first to get to know yourself without risking your capital.
Day Trading vs Binary Options
Some people see “day trading” as CFDs or spread betting. Binary options however, work just as well, if not better than intraday trades. Here’s a breakdown of how binaries differ from more traditional trading tools:
- Risk management . Binaries offer constant risk. Other tools require traders to make assumptions about the amount of volatility they face – and assess risk accordingly. Although possible, the fixed risk of binary makes risk management easier.
- Payment. This can work well – due to leverage – but binary options can deliver payouts of 90-95% profit with just one pip one way or the other. Other trades may require a significant price move to move into profit, and a larger move to show the same level of profit.
- Tax. Binary profits are usually not subject to income tax because they are seen as highly speculative trades. Day trading in other vehicles may be considered ’employment’ and taxed accordingly. Again, this is not clear cut, but in general binary options are more efficient.
- Cost of participation. Binaries generally require a lower entry cost to get started. Likewise, trading, and the increase in trade size along with profits – easier with binary as a starting point is much lower.
The conclusion
So there you have it, all you need in day trading is to be consistent with the trading hours and times, a set level of risk that you observe, and a strategy that works most of the time. Binary options can certainly be used within that framework. It is important not to complicate these things and stick to a plan that is consistent with all aspects of day trading, ruling out emotional factors that can hinder your trading.
For in-depth Day Trading information, try these resources:
Further reading: