Binary options are a simple way to trade price fluctuations in multiple global markets. They are extremely simple to use and understand in terms of functionality. The word “Binary” stands for 0 (FALSE) and 1 (TRUE) as it represents the two outcomes of trading with binary options.
What are binary options?
Binary options have become the fastest growing segment of online trading over the past 6 years. As a mass market financial instrument binary options are extremely flexible and give e-traders options that didn’t exist with previous trading styles.
Providing access to stocks, indices, commodities and foreign exchange, a binary option can also be called a fixed-return option.
Whatever the nomenclature, a typical binary options trade has several components.
- The trade contract
- The traded asset
- The strike price
- The expiry time
When a binary option reaches the predetermined expiration date, your prediction will either be correct or incorrect. If it is correct, your option expires in the money and you will profit according to the payout percentage stated at the beginning of the trade.
Binary Option Example
A trader is watching the market, and based on his analysis predicts the market is going higher, except heis not sure by how much. The trader decides to buy a binary call option on the Apple stock. Suppose the index is 700 at the moment and there is a binary option through a broker that offers this strike price that expires before the end of the day. The broker offers a 80% payout if the option expires above the strike price (call option), but if the price is below 700 at the expiry time, the trader will lose 85% of the investment.
The trader can invest almost any amount. Anyway, this amount will vary from broker to broker. Generally there is a minimum such as $10 and a maximum such as $10,000 The trader invests $100 in a call that will expire in 60 minutes. After 60 minutes, the trader will know if he has made or lost money. Each broker will specify expiry price rules, and the trader cannot generally cash out or exit the trade before expiration.
Main Advantages of Binary Trading
- Simple Decision-Making Process: The option to call or put is a remarkably simple arrangement.
- Predictable Returns: Every trade has a defined outcome before it is ever finalized.
- Limited Outcomes: Traders decide whether the price of an asset will travel up or down by its expiry.
- Flexible Expiry: the typical binary trading period can be anywhere between one minute to one month.
- No Additional Software: Transactions occur through a secure online connection, and traders can get started right after opening an account and depositing funds.
- This system does not require extensive knowledge of the trading industry.
To begin trading binary options, seek out one of the reputable and trusted binary trading sites we promote on our site.
Whether you are looking to increase the value of your investments in the short term or long term, binary options trading can work for you.