Options trading is a great way to make a lot of cash as it takes little to no effort. However, you need to know a few things before you take the leap.
We have run through everything you need to know about the investment means and its difference between binary options. If you’re interested, read ahead.
What Is Options Trading?
To a lot of people, it’s one of the easiest things you could as it requires little-to-no research. In the end, it’s a guessing game as you’re betting on whether the options will rise or fall below the strike price.
A strike price is the amount you’re buying and selling the stocks for. They’re predetermined. So, even if the stocks increase in value, the amount you pay isn’t affected.
What exactly are the options? There is a range of securities. They can be anything, including:
- Gold
- ETFs
- Stocks
- Indexes
To get hold of them, you’ll have to pay a premium.
When it comes to options trading, there are call options and put options. Call options are where you buy the securities, while the latter is when you sell them.
Call Options
You can pay a premium of $5 for a call option. The stock is $300 and you’re buying it for a strike price of $5 within 30 days. In the end, you will buy the stock and it’s $320. Your return would be $20, and you would have made a profit of $15.
When you buy the contract, you’re not buying just one stock. You’re agreeing to buy a number of them. It is usually 100. As you make $15 return off one, you would have a $1500 profit in the end.
There are many investment apps that let you get started with a minimum deposit.
Put Options
In terms of put options, you may have paid a premium of $5 for a contract. The stock might be $300 and you’re selling it for a strike price of $5 within 30 days. In the end, you will sell the stock for $280. Your return would be $20, and you would have made a $15 profit. This is because your strike price is above the market value. If you sell 100 stocks, you will make a profit of $1500.
What Are Binary Options?
Binary options are similar to traditional options. However, trading with them is more like gambling. You place your money on whether the security would rise or fall below a certain value.
A trader may believe that a $30 security would be traded for $45 by the end of the week. As a result, he would bet $100 on it. If he was right and the security traded above the value, he would get a predetermined rate. He may have agreed on 60%. So, he would receive 60% of his 100, which is $60.
If the security doesn’t increase in value by that time, he would’ve lost his $100.
Trading binary options are lucrative as the security could rise by 2-5% while you’re making a 60% return.
What Are the Differences Between Binary and Traditional Options?
Periods
When it comes to traditional trading, the period to buy or sell options is known to be longer. It’s usually a month.
When it comes to binary options, the period is much shorter. The longest is usually a week. Sometimes, it can even be a couple of minutes, even hours.
In terms of binary options, you’ll have to wait until the given period expires to know if you’ve made a loss or a profit. This isn’t the case when trading traditional options as you’re supposed to make a move before the given period ends.
Fixed Rates
Traditional options trading lets you make a lot of cash. The rate is not fixed, so it depends on how volatile the market is. When it comes to digital options, the opposite takes place. So, you know how much you’re going to make or lose.
The fixed-rate can go both ways. If you agree on a 40% rate, the price of the security might go up by double, even triple that. This doesn’t matter as you’ll only make 40 dollars.
Regulations
Traditional options are more regulated. Trading can take place anywhere and can be traded on SEC-regulated platforms. If you’re new to trading, this is more secure. This isn’t the case with binary options. They are usually traded outside the US and are rarely on SEC-regulated platforms.
Risks
Binary options are riskier as you never know if the security will appreciate or depreciate. It can all come down to luck.
What Brokers Should You Work With?
There are many brokers you could work with. However, we have looked at the very best. HighLow is a great platform for Binary options, and IG is a great one for trading traditional options.
IG
The platform has a detailed educational center. This makes trading a breeze.
They’re known to not charge any fees. IG doesn’t charge anything when you withdraw or deposit cash. That being said, you’ll have to pay an inactivity fee. This isn’t the end of the world as a lot of brokers do it.
Thankfully, you don’t have to pay a minimum deposit. There are 6 base currencies at your disposal.
IG is a highly regulated broker with its headquarters in the UK.
HighLow
HighLow is better known for its Binary options.
Although IG has a great mobile app, the ease of use in HighLow’s is much better. Its web version is also easy to navigate as it doesn’t have much clutter.
Unfortunately, you’ll be charged a minimum deposit. Once again, this isn’t the end of the world as many brokers do this. When it comes to binary options, there are many instruments to work with, so pick your poison.
Conclusion
Traditional and binary options are great ways to make cash. Although they’re quite similar, they have a few differences that set them apart. If you want an easy way to make cash, binary options are your best bet as they’re a guessing game at the end of the day. They give you a better return as well. However, traditional trading is more popular, and more brokers let you trade them. If you’re someone new to investing, this information can help you find the perfect platform.