One of the most common terms you will come across as you familiarize yourself with binary options trading is the expiration time. In simple terms, the expiration time is the instance that a trading session comes to and end and the results of the trade are revealed.
What Is The Expiration Time in Binary Options Trading?
When you decide to enter into a binary options trade, you will select a predetermined period, which will signal the end of a trade session. When the trade session is over i.e. when the expiration time is realized, this is the time when the expiry rate, also known as the asset’s value, is analyzed to determine whether your trade was successful.
It is important to distinguish between the strike time and the expiration time. The strike time is the instant a trade starts or the time you initiate a trade.
Once you initiate the trade, you will choose an asset to trade such as a currency pair, a stock, commodity, or index. You will then be required to predict whether the value of the chosen asset will appreciate or depreciate on its current value. If you estimate the value of the asset will appreciate, you would undertake a call option. On the other hand, if you determine that the asset will depreciate, you would place a put option.
As you choose your financial assets, your binary options broker will also present to you a set of expiry times to choose from. Some expiration times can be hourly; others can be daily, while others can be monthly.
Why is the expiration time important in binary options trading?
In the world of trading, a lot can happen in a matter of seconds. Stocks can lose value, currencies can become stronger or weaker against other currencies, or the value of commodities can increase or decrease. You can see that the period of time you choose for a trade to end can affect the results of your trade.
Before choosing an expiration time, you need to make an informed decision by keeping track of market news. This way, you will have an idea of how your chosen asset might react in an hour, in a day or a couple of days, or in a month or more.
For example if, according to prevailing financial news, the stock market is looking volatile or certain events are affecting the technology industry, you might be able to predict the most probable time it might take for a specific asset in the technology industry to appreciate or depreciate according to the option position that you take.
Let’s now have a look at a more elaborate example to see how the expiration time works in binary options trading:
Say you want to trade on oil, whose strike price is $60.98. The strike price is the original or prevailing price of the asset.
So you want to place trade at 14.00 EST on Thursday and you opt for a 3 day expiration time. Let’s say you believe that the price of oil will fall when the expiration time arrives, so you place a put option. In this case, the expiry time for this particular trade would be 13.59 EST on Friday. Your option will expire in the money if indeed the price of oil declines by 13.59 EST on Friday. On the other hand, your trade will expire out of the money if by the expiration time, the price of oil increases instead.
To sum it up, the expiration time is an important element of the binary options trading process. The expiry time is simply the instant upon which a trade ends and the outcome of the trade is determined. Learning how to analyze the financial news and keeping track of market analysis can help you make better decisions about the most appropriate expiry time for any given option.
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