If you are new to trading or trading binary options, read on this article is for you. Binary options are essentially short term options contracts in which you can trade stocks, indices, bonds, commodities, forex, etc. The appealing nature of binary options is due to its short term existence with the potential to walk away with a 80% return on your investment. However, losing trades claim 85% of your initial investment so it is important to have prior trading knowledge.

As I have stated before, since binary options are short term, technical analysis is probably the better way to analyze potential trades. Furthermore, it is ideal that a trader new to binary options trades only indices and individual stocks. The reasoning behind this is that there is a lot less volatility in stocks and indices than in forex and commodities. Less volatility means less rapid changing prices, which can lead to big losses or big gains. Prior knowledge in trading stocks is a must. Prior knowledge in trading traditional options will help but is not required. In fact, the only options information you need is what a call and put is, along with the meaning of in the money and out of the money. If you are not familiar with these terms, have no fear I will explain them.

Prof. Binary’s Trading Tip: I personally prefer trading indices to stocks. The reason is simple: There are many different stocks pooled in one index and so my risk is diversified. If I would trade one single stock, I’m depending on one single company.One great Binary Options Broker for trading indices is IQOption. Read more about IQOption in our review.

Lets say you are interested in trading Boeing (BA) and after running the stock through your technical analysis system or any other method of analysis, you find that the stock is on the move after solid earnings report. The optimal choice would then be to purchase a call option. If our analysis told us that Boeing was due for a fall, we would have purchased a put option. After 30 minutes, the option expires and we hope that the expiration price is above the call purchase price. If it is, the option has expired in the money and you will receive an 80% return on your money. If the trade expired below the purchased price, the option expires out of the money and you would lose 85% of your initial investment.

From the example above, a pretty clear picture starts to form and the trader begins to realize that research is the key between a solid return and a potentially crushing loss. Luckily, you are able to trade smaller lots in binary options than if you were to trade traditional stocks. This will limit and lower potential risks and grow potential gains. Bottom line is do solid research and keep initial investments to a minimum until you are confident enough to raise the amount of money to invest.

Much like traditional stocks, there are risks involved. Since you are relying on traditional stocks and their price action, you must pay attention to important government data, earnings, etc. These reports affect stock prices, which, in turn, affect binary option trades. Prior to opening a trade, make sure there are none of these reports due out while your trade is open, otherwise you could be exposing yourself to unnecessary risks.

The bottom line here is that traders new to binary options should stick to just individual stocks and indices. The lower volatility will help build your confidence and your trading strategy. Another important fact to consider is good research. The way you analyze potential trades will ultimately decide whether your trade will expire in the money or out of the money. Since there is an 85% risk to your initial investment on losing trades, keep initial investments small. Some binary option brokers allow you to open a position with as little as $10. There is no reason why you should be risking a chunk of money if you are inexperienced in this type of trading. Get educated, find a strategy that works for you and limit your risk; that’s how you will position yourself favorably in trading.

See also this article at TraderXP.

If you have traded commodities, you know that volatility can be a concern. Not to mention the margin requirements to trade commodities require you having access to margin usually well over $1000. However, this trend is changing since the introduction of commodity binary options. Most binary option sites now offer such commodities as oil, gold, corn, indices and bonds. Like the rest of the binary options available, commodity binary options have the same goals: expire above/below the purchasing price in a fixed amount of time.

Like the rest of the investment vehicles available on binary options, you must have a solid background in order to be successful. This means you must have prior knowledge on commodities and their price action. Similarly, you must also have some knowledge of fundamental and/or technical analysis. However, since binary options are a short term investment, technical analysis would be the more ideal way to analyze trades.

In order to place a trade, you must login to your broker’s website. Once there select your commodity and analyze that particular commodity’s price action. If we see oil, for example, has some downside pressure we may elect to purchase a put. Conversely, if we believed oil was positioned to rise, we would buy a call. Once we have opened a trade, we must wait 30 minutes to see if our position expires in the money (profit) or out of the money (loss). Remember, binary options that expire in the money walk away with 80% return on investment. However, losing trades can see 85% of the initial investment disappear.

Commodities do face some risks that other investments do not when it comes to binary options. One fact is that oil for instance is the fact that the US Department of Energy releases inventory updates every Wednesday. Similar reports come out for other commodities such as natural gas as well. If you trade commodities you must find out whether weekly reports are published and when. Unless you are a seasoned trader, I would avoid trading commodities during report releases. However, once the report has hit the markets, you may be presented with a trading opportunity.

For a beginning trader interested in commodities and futures, binary options are the way to go. As I stated before, high margin requirements (assuming they would be approved for margin use) really limit what sort of commodities you can trade. The margin requirements to open 1 contract of crude oil come in at $6,885. Most new traders do not have this sort of capital available, which closes the door to commodity trading in the traditional sense. However, binary options for oil require no margin.

The bottom line here is that binary options have opened up another investment vehicle to new traders and traders who do not have large accounts. Be warned, commodities are much more volatile than stocks which can be a little overwhelming for those who are not used to it. This sort of volatility requires that you have strong prior knowledge in technical analysis at the very least. Additionally, new traders should keep their binary option positions on the smaller side. Do not risk all your capital on one trade or it could destroy the entire account. Remember, a losing binary options trade takes away 85% of the initial investment. This means if you traded $100 of oil and the option expires out of the money, you only have $15 after that trade. That’s why you must take the proper steps to preparing yourself for these types of trades. They can be lucrative but they can also be destructive. In the end, if you properly prepare yourself, there is a world of potential gains at your disposal.

Also interesting is this article at Optionsellers.

Getting started in trading can seem like a daunting task. The odds are certainly stacked against you but that doesn’t mean you will not be successful. The only way to set yourself up for success is by coming up with a trading plan. This includes such information as what type of investment you will be trading, what form of analysis, timeframe, risk management, etc. These are important guidelines that you must set up before you start trading. However, this article will be focusing on charts and their potential role in your trading strategy.

Firstly, a trading strategy that primarily uses charts is considered to be a trading plan that focuses on technical analysis. Charts are important because they can tell you where the price has come from and where it could be heading in the near term and long term. However, there are a number of different types of charts, which could have some new traders asking, “Which chart is right for my trading”?

Charts are broken up into timeframes. There is a 1 minute, 5 minute, 15 minute, 30, 45, 60, 90, Daily, Weekly and Monthly. For the most part, unless you are day trading, you will be using primarily daily and weekly charts because they are the most popular timeframes and the most widely used. However, as your trading progresses, you can use faster charts to determine the intraday trend, which could lead you to better entry and exit points in your investment. This is key because it can give you an extra little bump in your overall return.

To provide an example, if you are using the daily and weekly charts, always look at the weekly first. The reasoning is because you get the overall longer term trend right and you move to the daily to find an entry point that works well with your trend findings from the weekly. Think of the weekly chart as your strategy chart and the daily as your trading execution chart; where you decide to place trades. Getting into a habit of doing this can help save you from big losses down the road. If the daily is showing bullish signals but the weekly is showing bearish, wait for the daily to turn bearish before you place a trade. That way, there will be less of a chance of the trade going against your position resulting in a loss.

Prof. Binary’s Trading Tip:

Unfortunately Binary Option Brokers provide charts just in a very poor quality. The charts are not suitable for advanced trading and chart analysis and you have to find another resource if you take this business serious. A good and simple solution is a free eToro demo account. eToro is one of the biggest Forex brokers in the world and the broker offers an advanced charting tool including real time quotes even for demo traders. Please note that trading involves risk.

A lot of new traders ask me what kind of indicators I use for my charts when I am trading. Honestly, it is simply personal preference but moving averages, stochastics and MACD are the basics that you should start off with to get comfortable. Once you feel that you have a good understanding of these indicators and you can easily identify trading signals, move on to other indicators such as the ADX, Commodity Channel Index, etc. It is important that you not jump the gun and overload your charts in the beginning. Remember, a clean chart is easier to identify trading opportunities.

The disadvantages of using charts are over-reliance, not understanding the charts, take time to learn and not all that easy for beginners. Beginning traders tend to rely too much on the charts, which can get them into trouble. Remember, it takes time to learn the trade set ups and how to incorporate charts into your trading strategy. It is always recommended that new traders open a “paper” trading account that allows you to place trades but not risk your own money. This will help you painlessly get past the learning curve involved in trading.

The bottom line here is that learning a new strategy takes time. Charts are a very useful tool and a key to success in trading but if you are not properly educated on their use, it could lead to some key popping losses. Educate yourself, open a paper trading account and begin to slowly use charts to trade and see how you do. If after a few months your record is satisfactory, you may be ready for the real world of trading.

This is also a good article at Tradefair.

Somewhere along the way I am sure most of us have heard the saying “mistakes are okay as long as you learn from them”. Well, this is preciously the reasoning behind starting a trading diary. A trading diary is usually a record of your trades; price that you entered, exited the trade, return, etc. However, one of the most important parts of a trading diary that often go overlooked is the reflection section. This is where you write a few sentences about the trade and what you learned.

“Why can’t we just make mental notes instead of a trading diary?” Rarely can someone make meaningful money with laziness but additionally it is a great visual log of your trades that can tell you in a glance whether or not you need to tweak your strategy, etc. Performing these checks on your strategy every few months is a great way to check in on your performance and how your trading strategy is working. Furthermore, your reflection section can help you learn from prior mistakes made in trades and avoid them in the future.

The trading diary is a gift when tax season comes around as well. Since you record your trades and the specific prices that you entered and exited the trade, entering your tax information should take no time at all. However, this is simply a perk, the real reason why we have trading diaries is to make ourselves better investors and/or traders.

Prof. Binary’s Trading Tip:Nowadays, a very easy and comfortable way to keep a trading diary is to simply setup a blog. You don’t have to be an Internet expert and purchase your own hosting. There are several online blogging platforms where you can setup your trading blog for free. I recommend WordPress or Google’s blogging solution Blogger.

For serious traders, I recommend a little more work for your trading diary. Each night, analyze the markets you trade and come up with a consensus of where the price action could be heading. This could be labeled the forecast section. If you have a longer time horizon, analyze your markets using the weekly charts to get a more longer term picture of the market strength. Regardless of the timeframe, this section will be your blueprint as you trade throughout the day, week, etc.

Another important section is the watch list section. Depending on what you trade (stocks, forex, futures, bonds, etc), analyze some specific trades that are showing a potential trading set up. This section will help you keep better track of your individual research. If I am trading futures, it can be hard to remember the specific commodity and the specific contract. Make it easy on yourself and write down some notes on what you saw in the charts and refer to it at a later time.

Another good section to have is a rules section. This section is where you can visualize your rules when comes to trading. These rules should include your risk tolerance or risk management. This will remind you of your allowed capital per trade and where to place stops to protect your capital. Furthermore, it should have your specific rules in trading. Refer to this section often to make sure you are following your own guidelines. This will help you monitor your trading to make sure there is no violation of rules.

As you can see, it does take some time to tend to your diary but it is an important tool that all traders should have. If you are serious at becoming a successful trader, then you absolutely must have a trading diary. When you are trading, emotions can sometimes trump reasoning and that is why it is good to have your journal to use as a reference and a reminder of your goals. Trading is all about giving yourself a probable advantage of success and a trading journal will help give you that advantage.

Trading is extremely rewarding once you find your preferred style and indicators. Truthfully, you are able to use any form of analysis you wish, such as fundamental analysis and technical analysis. For the purposes of this article, we will be touching on technical analysis. Technical analysis is the preferred study of traders because it focuses on charts and price action rather than efficiency ratios.

After deciding that technical analysis is right for your trading strategy, you must decide how to read the charts; patterns or indicators. Pattern traders look for familiar patterns in the chart of the asset to be traded. Some popular patterns are double top, head and shoulders and multiple bottom. On the other hand, we have indicator-based technical analysis that does not rely on patterns. Instead, the strategy uses indicators such as MACD, ADX and stochastics. As far as charts go, resistance and support are the main focus.

Both routes can not be learned overnight but pattern trading can be misleading. In order for the pattern to move the way you are expecting, the pattern must be pretty darn perfect; otherwise it’s a botched trade. Indicator-based trading is much more reliable when it comes to trading signals and the strategy calls for analyzing indicators not searching for patterns.

Whichever route you choose, be sure to make sure you thoroughly understand the concepts before continuing. Many new traders hear about a new strategy and try to implement it right away and, in the process, hurt their account balance. Confidence is needed to be successful in this business but it is healthy to have a little bit of skepticism in place to keep your confidence in check.

Prof. Binary’s Trading Tip:

A lot of traders prefer technical analysis to fundamental analysis, especially when it comes to binary options. Charts and proper chart analysis is the key to trading successfully in a technical way. Learn more about charts in this article.

Another important way to boost your confidence in your trading strategy is to use “paper” accounts, which allows you to trade on an account with fake money. These accounts will help you be able to focus on your strategy rather than making money or watching your account shrink. I understand that I bring up paper trading a lot but it is a major key to success. I am repeating myself in the hopes that you the reader will heed my warnings on the potential dangers involved with just jumping into a new strategy.

The key to success with technical analysis is learning the trading signals. If your moving averages have a downward cross, this is a sign that you should be looking for a trend change to the downside. This same is true when moving averages show an upward cross. If you are a pattern trader, you must become extremely familiar with the different patterns and be efficient enough to be able to pick the patterns out of the chart. Remember, the actual patterns are not going to be as clean and neat as the examples. Furthermore, if you use indicator trading, you must get used to the indicators and really learn when they give off signals. Being able to identify the trend will help you stay above the rest of the pack and grow your returns. In either case, “the trend is your friend”. Do not trade against the trend, unless your system is giving you signals that the trend is weakening and vulnerable to a correction.

The bottom line here is that technical analysis can be a very rewarding strategy when done properly. You must first educate yourself and determine whether pattern trading or indicator-based trading is your preferred strategy. Whichever path you choose, you must open a paper trading account and educate yourself. Go to the bookstore or an online retailer and pick up a few books on technical analysis, this will help you get off the ground and running. I wish you great success in your trading quest.

Scalping is another form of trading that has been around for some time now. Scalping is a form of day trading but much faster paced. Scalping is a very short term based strategy that focuses on small gains. Once a scalper opens a trade, it is usually closed within the hour. Over time, these small gains add up to become a nice chunk of profits. Scalpers defend their style of trading as limiting risk because there is such a short period of time that they are in trades. On a typical day, the scalper can trade anywhere from five to hundreds of trades per day. However, there are some risks you must consider.

Scalping is considered to be an advanced strategy and not intended for those without a trading strategy or some sort of plan. Additionally, you must have an exit plan established prior to entering the trade. This will help you visualize your exit goals and limit our greed tendencies. Also needed is a fast executing broker, confidence and a grasp on technical analysis. Once you have these attributes down, take a look at scalping to see if this strategy fits your financial goals.

Prof. Binary’s Trading Tip:

The best assets for scalping are assets that have excellent liquidity. The reason is simple: If you are a scalper you don’t want to get surprised by sudden spikes. Therefore, the best assets for scalping are currencies. Read our article about Forex binary options to get more information.

This strategy can be used in other situations even if scalping is not your primary strategy. For instance, if you are trading a financial asset that is in a “sideways” market, meaning the price action is currently neutral, scalping could be a great way to capture short term moves as you wait for a trend to develop. Similarly, a trader with the long term in mind can deploy a scalping strategy along side the long term holding. This way, you will be able to defend yourself against any downside and profit from any additional upside in a short term environment. Traders also tend to turn to scalping for breakout trades, range bound trades or chart patterns. Either way, if you are an experienced trader, take a look at scalping to use along side your long term holdings to juice up your returns.

Unfortunately, if a trader does not have a solid plan in place, one bad trade can whip out all of those small gains. This is why stops are essential in your trading, as they will help defend your small gains from evaporating. Another point where new traders fail is that they go into a trade with the idea of scalping but then end up holding it for an extended period. When you enter a trade under a form of analysis, stay that way do not jump over to a new strategy mid-trade. This can lead to disaster results and can hurt your confidence in trading.

If you feel that your trading is on an advanced level, I urge you to do additional research on the topic not only to make sure this strategy is for you but also to make sure you understand the criteria and how to be successful. This leads me to the point I continue to try to make: paper trading. Paper trading is an account where a trader is able to place trades without risking their hard earned money. This is a great way to help establish your strategy and build confidence in your trading.

The bottom line here is that scalping is not for new traders. Even for advanced traders, it is imperative that you understand the basics and have a solid trading plan already established. Do not try to change your trading strategy mid-trade unless absolutely necessary. Similarly, it is important to get educated and trade on a paper account to make sure you understand the basics and what scalping entails.

Binary options are a new way to profit in a short time period in a variety of different financial assets, including forex. Most binary options sites allow you to trade the most popular currency pairs with the potential to make, on average, 80% in 30 minutes to an hour. This is possible because you are trading options essentially which is a leveraged security. This can help you amplify profits and losses as well.

The binary options work in the following way: once you have opened your broker’s trading platform and chosen a pair, lets use EUR/USD for example. After some basic analysis, you have concluded that this is upside pressure on the pair, which has led you to buy a “call” option. The easy way to explain it if you believe the pair you are looking at will rise, buy a call. If you believe the price is going to fall or in the case, the US dollar will rise, buy a put.

Once you have bought your call option, a countdown clock will begin from 30 minutes and your hope is that at the end of the 30 minutes, the price action is above where you bought it. If so, your option expires “in the money” and you receive a return around 80%. However, if your option expires below the price you paid for, your option expires “out of the money” and you lose around 85% of your investment.

As you can see, it is pretty important that you have some good research sources because if you are wrong, 85% of your investment is gone. Furthermore, since binary options take no time at all to get the hang of, it is imperative that they are not treated like a poker game. In other words, do not use binary options as a gambling tool! You will be sorry!

Prof. Binary’s Trading Tip:

Many novice traders don’t know which currency pair is best to start with in Forex trading. I absolutely recommend currency pairs that have high liquidity and low volatility. So, you don’t have to be afraid of slippage and sudden market spikes. In my opinion these reasons make the EURUSD the best currency pair to trade for beginners.

Binary Options are great to start in the Forex market. However, you might prefer to trade currencies directly: I recommend eToro for trading the Forex market directly. Please note that trading involves risk.

Maybe you are asking yourself right now why you would use binary options to trade forex instead of the traditional spot trading. For one thing, most binary option brokers allow you to open an account with as little as $100, possibly lower for some sites. Additionally, binary options are extremely simplified and take only a matter of minutes to figure out. Next, instead of worrying about pips, all you have to worry about is your currency pair closing above or below your purchasing price (depending on whether you bought a put or call). As long as your trade closes in the money, you receive 80% return, even if the expiration price is just above your purchasing. In traditional forex, a trade does not have a preset time limit and can not yield you over 80% return in about 30 minutes on a consistent basis.

Getting back to the trading method, I recommend using scalping methods for trading binary options. Since the time limit is extremely short, utilize short term charts to determine the best way to trade your pair. More specifically, if your option expires in 30 minutes, look at the 30 minute chart of that pair. There are no stops in binary options, once you place a trade the only way to get out with a return is the price action expiring above/below your purchasing price.

The bottom line here is that binary options can actually be a good way for a beginner to trade forex. Since you can risk as little as $10 per trade, it is a great way to learn the ropes before diving into a more traditional style of trading forex. For more serious traders, use scalping methods and short term charts to help give you a picture as to where the currency pair could be heading. However you decide to trade, remember that binary options are not meant for gambling so save yourself the hardship and use only as another way to trade.

A lot of new traders ask me what I think is the best to begin a trading career, meaning what kind of analysis, tools, etc. Unfortunately, I could give that new trader a way to position themselves for success but at the end of the day, you must make the choices of which analysis and tools that you will utilize. However, for the purpose of getting started, we will go over trend following and breakout trading.

Have you ever heard the saying “the trend is your friend”? If not, commit this to memory because it can help save you and make you money over the long haul. The point of this saying is to remind us to not trade against the trend. A trend is when the price action of your investment is rising, falling or sideways. The way the price action moves creates trends. Strong upward trends lead to upward price actions while strong downtrends show up as a negative sloping price action on a chart. Furthermore, the simplest way to determine the trend of an investment is by looking at moving averages. Moving averages are an indicator on the chart that essentially shows the average price action over a specific period of time. The most popular moving averages are the 50 day and 200 day moving averages (however, you may adjust the number of days to any level you wish). An upward trending investment will see its 50 day above the 200 day and a down trending market will see the 200 day above the 50 day. Luckily, these moving averages also tell us when the overall trend is changing, giving us time to wind down positions and moving into the opposite trade. For example, say we are trading Apple Inc (AAPL) and currently the 50 day moving average is above the 200 day. After a string of down days we begin to see the 50 day moving average beginning to angle down and soon its crosses below the 200 day. This now means that Apple is in a “downtrend” but, be careful because the price action could easily revert. As long as the 50 day remains below the 200 day, the stock is in a downtrend and a short candidate.

Prof. Binary’s Trading Tip:

1. The trend is your friend.

2. Don’t jump on the running train (trend). Wait for a pullback to enter the market.

3. Take care of the momentum. A decreasing momentum might signalize the end of the trend. If you can’t spot a decreasing momentum on the charts you can use an indicator like the MACD or the RSI. Look out for divergence! (read more about the basics of technical analysis).

4. Take care of support and resistance zones. Don’t buy into resistance and don’t sell into support.

5. Be patient!

Another form of trading is called breakout trading. Breakout trading is when an investor places a trade on an investment that is up against its support or resistance areas and showing signs of breaking above or below their respective trend lines. Usually, when the price action breaks through its support or resistance, it is followed by a sharp rise or fall as the price action looks for a new trading range. Unfortunately, investors must watch out for false breakouts, which is when the price breaks through the trend line, only to fall or rise right back into the old trend. This could leave you with significant losses if you are ill prepared. If we are looking at a price action that is up against its resistance level, be on watch for a breakout. Conversely, we must also watch out for resistance holding its ground, sending the price closer to support levels. The best way to find breakout trades is by looking for investments that are trading at or near their support or resistance with big news attached. It is the news that drives the investment to breakout in either direction.

The bottom line here is that trend trading and breakouts can be a lucrative way to trade but you must protect yourself from any downside. Remember, follow the trend, do not place trades against the trend or you may be putting yourself in a position to lose. Breakouts need news to help push the price action above or below trend lines. All in all, education and knowing your risk tolerance will help you become a better trader no matter what style of trading that you do.

Binary options are a relatively new investment vehicle that was founded in the United States only a few years ago. Binary options are designed to be short term option contracts that have the potential to have big yields. Most brokers allow binary option trades for major indices, large blue chips and some commodities. Essentially, once you login to your binary option brokerage site and place a trade, that trade will have 15 minutes to an hour to expire “in-the-money” (price expires above the price your purchased for) and you could have a return of 80-100%. Binary options can be a great way to make some fast money but it can also be a great way to lose a lot of money fast. Unfortunately, binary options are so easy to trade that even someone with zero investment knowledge could place a trade and get into the game. This has lead many financial professions to shun binary options because they seem to hold a closer resemblance to gambling than to sound investing or trading. However, just because some people have chosen to use it as a gambling tool does not mean that they are useless and only a new casino game. In fact, they can be quite rewarding.

I have found that individuals with a sound trading plan tend to be better performers in binary options. If you already have an established way to trade, you can bring that expertise into the world of binary options and use your strategy to place trades. In the prior article on charts, we touched on the different time intervals of the charts. Since binary options are only 15 minutes to an hour long, we can use that respective chart to determine where the price could be heading in that timeframe. For example, say we are trading Coca-Cola and I have purchased 1 Call contract for $30 and the contract expires in an hour. I would pull up a 1 hour chart of Coca-Cola (KO) to determine what my indicators are showing me and in this case since I bought a call, there must be some bullish aspect to the chart. After 1 hour, the option expires at $30.30 and I get to keep the advertised return of 80-100%. Not bad for only an hour’s worth of trading!

Prof. Binary’s Trading Tip:

Binary Options are a profitable, fast and speculative investment opportunity. However, it is a fact that many people can’t control their emotions when it comes to trading and they tend to increase their risk to earn even more money. In my experience this is the beginning of their financial eclipse more often than not.

The key in successful trading is disciplined money management. In fact, as a rule, do not bet more than 2% of your trading capital every single trade.

Read this article for more useful tips to avoid binary options gambling.

The important topic that I really want to touch upon is the fact that traders could be sucked into greed and end up using binary options as a gambling tool. If gambling is your thing and you understand the risks, go for it but as a general rule avoid the use of binary options as a gambling tool. You will see how easy it is to potentially make money (and lose money) that you could end up taking bigger risks than you are accustomed to and in the end, you could be posting large losses. Do not let this be you! Come into binary options the same as you would with stocks, forex, options, etc and you will have a higher chance of success. Remember, it is always important to have a trading plan, as it will lead to higher probabilities of success.

The bottom line is that binary options could be used as a gambling tool but you are exposing yourself to a world of losses and pain. Close out of your brokerage and come up with a trading plan. Once you feel confident to use your own money, try again and I bet you will see the difference as you start making money and limiting your losses.

Arbitrage traders look for a disparity in price and value and profit from the difference. The price/value disparity can be in a particular stock, index, commodity, buyout, merger, etc. Unfortunately, as our technology advances, arbitrage opportunities continue to slip away and become less common. These days with advanced computing, any disparity in price and value is quickly corrected, often times before an investor is able to capitalize on the situation.

The only real arbitrage trading situation that comes up every so often is between stock indices and futures. For instance, S&P 500 index could be down 10 points while the S&P 500 futures are only down 5 points. Since these securities match each other, there is currently a 5 point disparity that will eventually be corrected. Typically, this when a trader will sell the stock and buy the future. That way you are locking in that 5 point disparity while buying the future to gain that 5 point disparity. Keep in mind that these corrections tend to happen pretty quickly and if you are too slow to the punch, it could cost you.

Since arbitrage trading has changed and become more difficult, I do not recommend it for new traders as it is faster paced and difficult to catch those gains if you are inexperienced. Furthermore, as I stated earlier, advancing computer technologies make it difficult and leaves you with no room for error. This is why arbitrage trading can be damaging for new traders. Not to mention, most arbitrage trades are for only a small price/value infraction and usually does not yield high enough gains for a beginner to bother. A large trading account is needed to make any meaningful money with this strategy.

If you are still interested in arbitrage trading, I recommend getting educated and practicing before you risk your own capital. This is another example of why paper trading accounts are so important. If you fail to properly learn the tactics involved, the speed at which you must place trades and the confidence to place trades, you could be putting yourself at an unnecessary disadvantage. Another tool that could be of some use are arbitrage calculators. These will help you better identify opportunities and where to place trades. However, these calculators have been known to be wrong from time to time because of the fast paced correcting and market price action movement.

Similarly, there is software available on the web that boasts of successful arbitrage trading. Yet, most software only works in one kind of market condition and not reliable on a regular basis. Furthermore, these companies often charge a pretty penny for access to the software, adding to your cost, which makes it harder to realize gains.

The only situations that are somewhat still available from a arbitrage standpoint are merger or buyout related. Company A plans on buying Company B at $20 a share. Currently, company B is trading at $15, that is a $5 disparity between the acquisition price and current price. However, if company B does not jump to $20, often times company A will lower the bid or find some way to close the price/value discrepancy.

The bottom line here is that arbitrage trading is extremely difficult in this day in age. Technological improvements make it especially difficult as companies and other financial entities try to close the gaps. Furthermore, trading is fast paced and leaves little room for error. Again, this is not a recommended strategy for beginners as it requires a lot of discipline and knowledge of the situations. If you still wish to try arbitrage trading, get educated and practice on a paper account before adventuring out with your real money.