What are Binary Options ? PDF Print E-mail

A binary option has now become fairly common term amongst traders. This option will deal with a kind of purchased asset where the buyer has the opportunity to gain a fixed payoff or low to zero. Using of binary options trading will allow an investor to have the chance to receive a great amount of returns in a short period of time.

 

Although there will be a potential of quick returns in this option, one need to keep in mind that this will be accompanied by a higher amount of risk. Here, the risk means that the asset will not going to grow in-the-money thus the only other payoff is "nothing". You will most likely to be advised by the binary options brokers that this kind of trading can be profitable but it is crucial to know your market beforehand. It is also important not to put everything on the table for one asset.

 

The Concept of Binary Options Trading

The most simple way to describe binary options trading is that it has a concept of "all-or-nothing" base. The basic idea is that if you call it right, then you win and win at a fixed payout. On the other hand, if you do not call it right then you lose literally everything. Forex trading is a perfect field to use Binary options trading since its speculation is conducted against fluctuations in currency exchange rates.

 

Call and Put Options

It is quite obvious to see that an advantage of using binary options trading is that you will be able to gain a profit if the price of the asset rises or goes down on the market according to which option you choose. If you think that the price of the asset is going to be higher than the price at the shutting time of maturity then your choice should be placing a call option. On the other hand, if you are sure that the price to go lower, your choice would be to place a "put" option.

 

Common Cases

Let us give you an example of how the flow of binary options trading goes. Let's look in the case where a trader decides to invest in crude oil stocks. He purchases 100 shares and he needs to predict if the price is going to be higher or lower at the expiry date. He  also has the opportunity to choose the expiry time. At the moment, he should be watching the current selling price (strike price).

 

If the strike price, or the price at maturity costs $50.00 per option and the trader wants to buy 20 options at $100 each, and he thinks the price is going to be over $50 when the option matures. In this case, the trader is going to receive the agreed upon percentage of return. So if the return is 85%, he will get $185 per option x20 totaling to $3,700 leading to a $1,700 profit. The trader will lose his entire initial investment if the price ends up above the strike price.

 

Now, he can also win if he decides to use a put option and the price of the stock is below the strike price. In the case where the predetermined settlement percentage is 75%, a profit will be $1,500 out of $3,500 payout. He will receive nothing if the the price is lower than the strike price.

 

Where to Begin

You can find our recommended binary option brokers with detailed review in here.

Binary Option Brokers Reviews

You can start your trading smoothly with these brokers because they make it easy for you to get signed up and fund your account. This strategy has a potential to make you earn money in the short period of time.

 
© BinaryOptionInsider All Rights Reserved 2007-2014