As per the market experts, binary options trading and stock trading are some of the great ways to make money in the global financial markets. However, you should not consider them as the same things.
Why? Well, in Binary Options trading, the profit and loss will depend on the outcome for the No or Yes decision. In such type of trading, the investors can make a fixed loss or fixed profit.
Speaking about stock trading or day trading, under this, the positions open and close in the same trading duration. Here, your profit and loss will depend on different factors. For example, exit price, entry price, number of shares you have purchased, and more.
But is it possible to trade Binary Options stocks? Well, Binary Options are available on different assets, such as commodities, indices, events, currencies, and stock. So, the traders can trade stock using Binary Options.
In fact, some have also suggested using Binary Options to trade stocks for more profit. However, before that, you need to learn how to trade stocks using binary options? Keep reading to get your answer.
Is it possible to trade stock with Binary Options?
Stock is one of the most popular asset derivatives that can be easily traded on the global binary options market. In fact, a trader can easily access thousands of stocks when using a professional Binary Options broker, as the broker will list different stocks from various stock exchanges.
You should keep in mind that a perfect spread will cover different stocks from the London stock exchange, three American exchanges, stocks from the Middle East exchanges, and stock exchanges from Switzerland, Spain, and more. So, the traders will enjoy an unbelievable spectrum of stocks.
Understanding the process
Stock investors always face major challenges while choosing where to invest. Reviewing data available on different companies is crucial for understanding the quality of the stock and to know whether those stocks are suitable for the portfolios. To trade Binary Options stocks, the traders need to consider some important factors. These factors are:
- Current as Well as Projected Profitability
When it comes to choosing Binary Options stocks, it is crucial to consider the financial fundamentals of the company. Besides, you also need to consider cash flow, operating margins, earnings, and more. When you combine all those factors, you can come up with a reasonable picture of that particular company and its financial health.
In terms of earnings, the investors also need to understand how stable the earnings can be and how the stocks are trending. Most of the experts suggest choosing a stock with higher operating margins. So, keep all these things in mind to decide on a good stock.
- Asset Utilization Factors
Here, you need to consider favorable asset utilization. For this, the investors need to understand the ratio of total revenue earned for every dollar of the assets that the company has. Let’s understand this with an example.
If a company’s asset utilization ratio is 40 percent, then the company’s earning is 40 cents for every dollar of the company’s assets. Well, you should remember that this may vary from one industry to another. By calculating the asset utilization ratio is an effective way to measure the company’s efficiency in the market.
- The Earnings Momentum
Recent earnings can show the company’s current financial condition at a certain point in time. In order to understand the company’s current growth directions, it is important to know the earning momentum.
In general, the earning momentum from one period to the next period is depicted by different patterns. You should look for the patterns by evaluating the earning reports for the last eight quarters.
- Conservative Capital Structure
What does it mean? It shows how a firm funds its operations. It includes both equity and debt. A better conservative capital structure suggests the company uses its capital in such a way that it can create sufficient short-term liquidity to easily cover its various operating costs. Besides, it also suggests that the company will not face any long-term debts.
- Follow The Intrinsic Value
Apart from the market value, the intrinsic value of a company is generally determined by the market experts. For this, they use relative and absolute valuation models. Every investor can easily get this value online, and it can help them to know the real value of the stock.
Factors that can influence stock prices’ movements
It is a good idea to consider all the above-mentioned points. But it is also important to understand the elements that can affect the stock price’s movement negatively and positively. Here are these factors.
- Earning Reports
A bad or goods earning report can make the stock price fall or rise. If a company’s earnings report suggests a loss, then it is a bad thing. However, if the loss is much less than the loss that the company suffered in the previous year, then it can be considered a good thing.
It shows the company is improving, and that will increase the stock price. Investors should keep in mind that profits should be considered as a good thing as they can go down anytime.
So, what should you do here? The traders who want to trade on Binary Options stocks should consider checking the earning reports of at least the last five years. However, there is a limitation of this factor. Earning reports are seasonal.
- Market Sentiment
As per the market experts, if you are seeing a gloomy market sentiment, and worried about the global economy, then you should hold your cash. But this action can also make the stock price fall sharply.
- Government Policies
Well, this can influence the stock prices positively or negatively. For example, if the import duties increase on the raw materials, it can affect the profit margin. And that, in turn, can negatively affect the company’s ability to remain competitive in the market.
On the other hand, if the import duties go down, it can increase the profit, make the stock price rise sharply.
- Merger and Acquisitions
Different studies have proved that mergers and acquisitions can greatly improve the competitiveness and standing of the firm. As it enhances the overall performance of the companies in the market, it can make the Binary Options stocks prices go up.
Traditional stock trading vs. binary stock trading
Speaking about the basic type of stock trade is, here you only buy and sell stocks of a company. When you buy a stock of a company, you bet that the particular company will do well in the future.
As a result, you can sell the stock at a higher price in the future, making some profits. Well, it is possible to sell stocks within a short time, the trading process is very convoluted, and sometimes, it can be very risky. This is the process of how people make profits when the market looks bearish.
On the other hand, Binary Options stocks trading lets the traders forecast whether the stock price will rise or fall. For that, you don’t have to buy the stock of the company. If you think the price will go up, you can go for the Call option and go for the Put option if you think the price will go down.
In Binary Options stock trading, the price movement’s levels will not be a factor in the payout amount. With this type of trading, you will either lose or win. No matter how big your winning is, your payout will be the same as if you bet on one pip win.
But in the case of stocks, the magnitude of stock prices’ movement will greatly affect how much profit you will earn or what will be you lose amount.
Trading Binary Options stocks
For this, your first step should be identifying the direction towards which the stock will move after the new release. Once you are done with this, you can choose any binary options trading types based on the outcome, but make sure that it fits your trading profile.
For instance, the earning reports of a company can create sustained responses that can last for a few days. In such a case, you can go for the Touch/No option.
If you have some news that can increase the stock price, you can choose any high-return option type. For instance, if a company recently acquires a firm to speed up the production process, then consider this as good news as this will make the price rise.
Move carefully while trading
Traders can look at Binary Options stocks as a specific type of stock option. Instead of buying and selling during the stock’s expiration period, here you decide when to make a put or call.
The best thing about this trading type is, you can easily enter the trading market with fewer funds, and you can also make a good profit in the bearish or bullish market.
Trading in binary options comes with large risks and spreads, but by analyzing the market condition, you can make your trade profitable. Just like other trading types, you should approach binary options trading with some effective and proven methods.