What is binary options
A Binary Options is a financial exotic option in which the payoff is either some fixed monetary amount or nothing at all. With binary options, all you have to do is to trade where you think the market is heading over a fixed time period. Binary options are investment means that have an expiry time and pay out a pre-determined amount of money. The minimum amount that most binary options brokers allow you to invest is $50.
Binary options have similarities and differences with traditional options. Binary options are based on an underlying asset. Additionally, when you trade binary options, you can choose the strike price and expiry time that suits you. You have the choice of attaching a Higher or Lower to binary options. By the expiry time, if you choose a Higher, then if the price of the underlying asset closes above the chosen strike price, then you would receive your initial investment that you placed on the binary options, plus the profit. On the other hand, if the underlying asset closes at a price that is below the strike price at the expiry time, you receive nothing.
If you choose a Lower, then if the price of the underlying asset closes below the chosen strike price, then you would receive your initial investment that you placed on the binary options, plus the profit. On the other hand, if the underlying asset closes above the strike price at the expiry time, you receive nothing
One of the most eye-catching advantages of binary options is that as stated earlier, even if your binary option expires on the other side of the chosen expiry time that you forecast, you are still entitled to a fixed return. This feature is absent with traditional options and other investment types.
When you do actually trade binary options, you will see that you have plenty of assets to choose from. The great advantage that binary options have is that you aren’t actually purchasing the asset when you trade binary options. For those of you that are familiar with the stock market, purchasing an asset would be very expensive indeed. Therefore, let it be known that binary options are a very unique means of investment that is available for individuals of all trading levels.
When you trade binary options it is very important to educate yourselves with regards to the markets. This is important as the binary options that you invest in are based on where you expect the market to move by a certain expiry time. So as you can probably understand by now, judgement is a key skill when it comes to binary options.
If you are looking for a way out of risky investments, such as stocks, commodities and forex, then binary options may be right for you. On the plus side it is only $50 to start trading with most binary options brokers. As the binary options trading platform is web-based also has different trading platforms, you can trade from any computer or from smartphone at your convenience. So whether you are at home, or have some free time at work, you have the opportunity to trade binary options
Binary Options Trading
Binary Options Trading is when a buyer enters into a contract to purchase an underlying asset at a fixed price at a pre-determined time in the future. The owner does not buy the asset itself, rather the option to buy it. The fixed price at which the owner buys or sells at, is known as the strike price.
In binary option trading, the potential gain or loss is known at the onset of the contract and it is determined by the amount invested by the owner. So, there are only two possible outcomes: or the option expires in-the-money and the owner receives up to 90% payout;
There are 3 aspects to the trade: the underlying asset, the expiry time and the direction the asset will move in.
The underlying asset is the item which is being traded. This could be a range of products: currencies (e.g. EUR/USD), commodities (e.g. Silver, Gold), stocks (e.g. Microsoft, Coca Cola, Apple) or indices (e.g. Nasdaq, FTSE 100).
The expiry time is the pre-determined time which defines the option’s end. The option can end at the end of the second, minut, hour, day, week or month.
The direction the asset will move can either be up (known as a call option) or down (known as a put option). A buyer purchases a call option, if he or she thinks that by the expiry time, the asset will be above the strike price. He places a put option if he believes that by the expiry time, the asset’s price will be below its strike price. This makes binary option trading very flexible.
The buyer can control the asset, expiry time and predicted asset direction. Due to the fixed return nature of options, the buyer also knows the potential gain or loss from the trade – he or she must only wait to see the direction the asset will move in.
A trader can trade binary options on an online options trading platform such as IQ Option.com, Binary.com This means that anyone can start trading immediately. Just by opening an account, deposit money and follow the steps:
- Select the currency pair which will be traded on e.g. EUR/USD, GBP/USD.
- Choose the investment amount for the selected binary option. This can be anything from $1 to $20,000 (or equivalent), though multiple trades can take place simultaneously.
- Decide if the asset is likely to increase or decrease. If increase then select a call option, if decrease then select a put option.
- Choose an expiry time – end of the second, minute, hour, day, week or month.
All a trader must do is then wait for the expiry level of the chosen binary option to be finalized and displayed in the trading box. If the option expires in the money then the trader makes up to 90% profit.
There are several reasons why trading in binary options is rising in popularity:
- The risk involved is totally controlled and known by the option trader.
- There must only be an incremental change in asset price for the trader to profit – a move of only a 6th decimal point can render the option in-the-money and yield profits for the buyer
- A trader does not need in-depth knowledge of the market in which he’s trading – he requires a sense of direction of an asset, since magnitude of the asset movement is not important
- Binary option trading is extremely flexible, with a trader able to select the asset, expiry time and price direction to suit his or her needs.
Guide to Binary Options and Binary Option Trading
A binary option is a fixed return option because there are only 2 possible outcomes which are fully realized at the onset of the contract
A binary option is a contract which gives the trader (known as the owner) the right, but not the obligation, to buy an underlying asset at a fixed price within a specified time frame.
The items being traded are known as underlying assets and they could be a range of products: currencies (e.g. EUR/USD), commodities (e.g. Silver, Gold), stocks (e.g. Microsoft, Apple, Coca Cola) or indices (e.g. Nasdaq, FTSE 100). The fixed price at which the owner buys or sells at, is known as the strike price.
When trading binary options, the trader of the option chooses whether he thinks the underlying asset will hit the strike price by the selected expiry time.
The owner places a call option on his binary option trade if he thinks that at the expiry time the option will be higher than the current price. He places a put option if he thinks that at the expiry time the option will be lower than the current price.
In this respect binary option trading is extremely flexible. The asset, expiry time and predicted asset direction can be controlled by the owner of the investment who can select each one as he desires. The only unknown factor is if the asset will expire higher or lower that its existing price.
The returns from binary option trades are set from the onset of the contract. If an option expires in-the-money then a buyer will receive up to 90% profit on the investment amount. The certainty of binary option trading makes it a preferred method of trading for many investors since not only is the potential gain known from the offset, but more importantly the potential loss is fixed and they will not be called upon for cover an investment which ended out-of-the-money.
This is how trading binary options would work: Investor A invests $100 on a call option on Oil, with a 70% return rate, with an end of the day expiry time. The current rate of Oil is 43.5001. If at the end of the day the price of oil closes at 43.5002 or above, then Investor A will receive $170. The simplicity of binary option trading makes it an attractive and desired way of investing for many investors.
The difference with trading binary options to traditional trading is that in binary option trading, a buyer is just trading on the performance of an asset – they will not actually own the asset itself. For example, in a stock option trade in Microsoft, an investor is not literally buying Microsoft shares, but rather opening a contract on whether the shares of Microsoft will increase or decrease within a specified time period.
Due their uniqueness, binary options have several advantages.
There is a controlled risk which is known from the onset of the contract - the 2 possible outcomes are pre-determined and set by the trader depending on how much he invests in the option
For a binary option trade to be profitable, the option must only move in the predicted direction – the magnitude of the move is not relevant hence it is easier to receive a payout
Binary option trading is extremely flexible, due to multiple expiry dates and times, the range of underlying assets on offer and the ability to trade online without the need for a broker
So, whether you are a investor new to the world of trading options or a old-time trader used to the traditional trading market, you can try binary option trading and see how it could work.
How to Trade Binary Options
There are so many different ways that you can trade binary options. Depending on which strategy you decide to use, the choice is yours. The founders of online binary options trading made it possible that there are a number of possibilities of how to trade binary options. If you haven’t heard of binary options before, binary options are one of many types of online trading. The options part of binary options might sound a bit familiar to you, because regular everyday options themselves have been traded before by many investors. Simply binary options are just the latest up and coming investment type for your benefit. That’s why you are almost required to know the strategy of how to trade binary options. Therefore, when you do make the right decision to trade binary options, the process of trading will be easy for you.
You can trade with currencies: e.g. EUR/USD, GBP/USD, EUR/JPY. Additionally, there are also many energy stocks to choose from. You will be trading these all through a binary options trading platform. There is so many other ways of how to trade with binary options, as they are such a unique form of trading. When you do finally have your favorite binary options to trade with, you will come to realize that there is a lot of choice. Some platforms are offering up to a 1000 assets to trade with. This means that in order to have all that choice and luck on your side, you need to find the binary options trading platform that offers this great amount of assets and trade with.