$9.8 trillion of net worth was added to household values in 2013, and about half of it came through gains in the stock market. For traders, this could have been–and for many–was, a huge opportunity to increase personal wealth, too. The obvious reaction to big gains like this is to be cautious. But, is there any blatant sign that the markets are going to slow down? There’s no doubt that the movement over the past several months has been extremely strong, so we need to look at a variety of factors to try and figure out what is going to happen in the future. This is how short term traders make money, and it is how you can make the most out of your knowledge of the stock markets and related areas.
The first place to start for a short term trader is with the technical indicators. If you look at the moving averages of the S&P 500 over the last year or so, you will see that the 50 day, the 100 day, and the 200 day moving averages are all moving in a parallel motion–even despite the fact that January 2014 was a slow month for the market. Movement like this is indicative of a concentrated effort by the index to keep going in the dominant direction. Luckily for traders and long term investors alike, the current trend is upward and the technical side of things point to the fact that the S&P is going to keep going up.
How do you make money off of this? Well, there are several approaches. One of the easiest ways is to focus on the index itself. You can buy an ETF that focuses on the index in order to take advantage of movement over the short term. Or, you can look at other methods, such as trading the major stocks within the index itself. These are both powerful approaches, but they can be very costly and are only recommended for experienced traders with large trading accounts. The cheapest method is definitely looking at the S&P 500 SPDR (SPY), and this currently trades at over $189 per share. Buying one share could work and would be relatively inexpensive, but your profits with this would be minimal. Even on a fast paced day, you would make less than 3 percent per day. Over a long period of time, this could pay off, but it could take a year or more, even at today’s current pace of improvement here.
One alternative approach that is catching on in popularity is to invest in the S&P through binary options. This method of trading can net you a return of 74 percent or more in less than 15 minutes if your prediction is correct, and you don’t need to see a gain of nearly that much in the assets you are focusing on. So, if you think the S&P will go up and you purchase a 15 minute call option through a binary broker, and the S&P goes up by a single penny, you will still see the full return deposited into your account. A $100 investment can get you $74 in this particular scenario in a very short period of time.
Compare this to trading an ETF. A $189 ETF would need to see a change of almost $40 in order to replicate the same earnings. This is currently equal to a change in the S&P 500 of about $1,300! For this to happen in 15 minutes is almost impossible, but with a binary option, it happens on an every-trade basis. But that doesn’t take into account the fact that ETFs will have fees associated with them, and that means the increase in price would need to be even bigger–making it even more unlikely to happen.
Binaries are certainly not always the best choice for everyone, but they do provide a way to enhance earnings that is tough to come by in other instances.