What are binary options?
Binary options are the latest method for people with no experience of financial trading having the opportunity to make money. The term binary means zero or one and a binary option is one where the trader knows the outcome of his investment as soon as he purchases the asset, with the result being all or nothing. When you trade in binary options you are actually predicting if the asset you have purchased will be higher or lower than the price you paid for it (strike price) at the time of expiry. If you have predicted correctly you will receive the payout that was agreed when you purchased the asset, however if you predicted wrong you will lose your investment.
How does a binary option trade work?
It is a very simple procedure to trade in binary options with still enough of a choice to make it possible for personalized trades. The first thing you need to do is choose an asset you wish to trade. There are four main groups of assets to choose from: commodities, currency pairs, indices and stock with many of the trading platforms now having over 100 assets to choose from. There is a choice for investors from all parts of the world as the assets cover the American, Asian, European and Middle Eastern markets. You have a choice of expiry times such as end of hour, day, week, month and some platforms are now offering 60 second options. When you have chosen your asset and expiry time you then need to predict in which direction your asset will move, if you think it will increase you will choose a Call option, and if you think it will decrease you will choose a Put option.
Call: The call option is chosen when an investor believes his chosen asset will be higher than the purchase price at expiry time.
Put: An investor will choose the put option if he thinks the price will be less than the purchase price at time of expiry.
Binary Option’s Outcome:
When you have purchased your binary option you do not need to do anything more apart from wait until it has expired to find out if your prediction was correct. If you have predicted correctly you will receive the pre determined payout known as being “in the money”. However if your prediction was wrong you lose your investment which is known as being “out of the money”. For example if you made a call option and your asset expired higher than the strike price you will be “in the money”, but if it expired below the strike price you will be “out of the money”. Also if you predict the price will be lower than the strike price you will choose a put option and you will be “in the money” if it expires below the strike price.
You will be told the percentage you will receive if your option expires “in the money” at the time of purchase. This percentage varies from one platform to another but it is generally between 65-71 per cent. You will lose your investment if your option expires “out of the money” however there are some platforms that will return as much as 15 per cent of your investment on losing trades.
Because trading in binary options is a simple process, it is not necessary for traders to have an in-depth knowledge of financial markets. If you keep abreast of what is happening in the financial markets by checking online or by newspapers it is possible to be successful at binary options trading.