A digital option is a financial obligation whereby the expected appreciation value of an asset is projected on a future date. The term ‘digital’ implies that the investor either receives the predicted returns if the market favours his prediction, or loses his investment if he predicted wrongly. Let’s assume an investor anticipates the price of oil to be $110 dollars a barrel after 2 weeks. He proceeds to purchase 5 digital options at $25 dollars per option, with the knowledge that each option yields $100. After a fortnight, the price of oil per barrel shoots up to $115 dollars, how much does the investor receive in profits?
The total cost of the investment was ($25X$5) =$125
The total returns on the digital options ($100X5) =$500
Net Profit = Gross Profit-Investment ($500-$125) = $375
Below are practical and proven top 5 digital options beginner tips that will enable you to make sound investment decisions in South Africa.
1. Do extensive research
Gathering and analysing relevant information on a company’s product performance in the market and financial performance on the stock exchange provides clarity in decision making. It will also enable you to discover new commodities or currencies to diversify into for higher returns. Develop a habit of reading business newspapers because they provide in-depth, credible and current information on national, regional and global economic events.
Relying on comprehensive research findings will enable you to make accurate predictions of an asset’s future performance. Thanks to research analysis, you will become more enlightened on how economic forces such as inflation, booms and busts alter market cycles that are significant determinants of the future value of an investment. Carrying out effective research will enable you to discern false information meant to dupe traders because you can analyse information using the bulk of collected facts and statistics.
2. Sign up for a demo account
A demo account is similar to an ordinary digital options trading account except the investor uses virtual currency as capital. Any returns earned from successful digital options trades are also converted to virtual currency. Demo digital options accounts are quite affordable. Signing up for an online demo digital options account ensures you get a first-hand trading experience that’s unavailable on books and printed literature. It also enables you to implement strategies and witness real-life results compared to executing them theoretically.
Some digital options traders have found their preferred trading commodities after trial and error encounters with different items in the market. Potential digital options traders can use the demo account experience to hone their confidence for as long as they need until they are ready to step into the real market.
3. Avoid making unnecessary risks
digital options trading can offer high investment returns within a matter of weeks or days. Devious financial analysts provide fake statistics with the intention of dumping digital options traders for illegal profits. The lure of fast returns shouldn’t blind an investor’s decision to making uninformed purchases that will likely lead to high losses. Sometimes unnecessary risking is triggered by huge unexpected losses. This unfortunate event drives a devastated investor into making uninformed and hasty trades in an effort to recoup the lost capital.
All assets traded in the digital options market are subject to the push and pull of national and global economic forces. Financial consultants in South Africa have a greater understanding of how market dynamics work, and their economic impact on your investments. Always consult your investment broker to help you understand financial trends and formulate the best strategy for maximising returns on investment in South Africa.
4. Take advantage of short trades
Market options with expiry durations that are less than 24 hours are more likely to yield expected returns compared to offers with longer expiry periods. An expiry in digital options trading is the duration an investor has to either increase or reverse his digital options’ purchases. However, caution should be exercised whenever coming across new offers.
Dubious financial analysts willingly build up hype about high expected returns on a particular asset, with the intention of tricking investors into purchasing the options. These hyped trades have usually long expiry periods. When unsuspecting digital options traders invest heavily in the commodity, the dubious analysts patiently wait for the strike price to fall below the predicted value. When it finally happens, the victims mourn their losses while the conniving financial experts rake in huge amounts in the form of commissions.
5. Develop an unquenchable thirst for knowledge
Actively seek out veteran digital option South African brokers on social media and respective websites. One advantage of attending digital option seminars and workshops is they offer favourable opportunities to link with successful South African traders who may offer mentorship. Look for digital options websites that offer subscriptions for you to receive notifications on educational material such as podcasts, blog posts and webinars. This habit will enable you to formulate sound trading strategies that are based on current information that’s unavailable to complacent traders.
Networking with fellow novices in South Africa will enlighten you on the trading mistakes to avoid interactions. One also receives regular motivation from fellow members in the group. These groups can provide excellent platforms to share and equip potential traders with adequate information for successful trading.