What are Binary Options?
Congratulations! You have taken your first step to really ‘understand’ the world of ‘binary options’. You must have heard of the term “binary options” from your friends, co-workers, relatives or from day-to-day talk with someone else. Perhaps, you have never heard of it. Maybe, you are an experienced and successful trader or someone aspiring to be one. Whatever your background is, BinaryTrader.net will explain the essence of Binary Options in the forthcoming lines for you.
What exactly are Binary Options and How do they work?
Simply put, a Binary Option is a type of financial instrument which allows an investor to make financial gains by predicting the market price of an asset (rise/fall) within a certain time period. These assets include but are not limited to stocks, indices, currency pairs and commodities. Let us begin to understand ‘Binary Options’ by understanding what its name implies.
The word “Binary” stands for 0 (FALSE) and 1 (TRUE) as it represents the two outcomes of trading with binary options. The consequences for the outcomes are disclosed to the investor before the option is purchased and therefore, an investor is always aware of the risk and reward involved in binary trading. The word “Option” is a common lexicon for someone with a background in Finance and Investing. However, for starters, let us think of an Option to be an equivalent of a contract between the owner and the buyer. The only thing to keep in mind while purchasing such a contract is that it cannot be resold before it reaches its Expiry Time.
Every Binary Option has a predefined expiry time and the outcome of the binary option trading is evaluated only after the expiry time of the Binary Option is reached. Therefore, Binary Option Trading is nothing but an exchange of contract between the buyer (the investor) and the owner (broker) based on the speculation of the market price of a particular asset, which is evaluated at the Expiry Time of the option.
It is the perfect time to introduce an example. Imagine, you are monitoring the stock prices of Apple –which trades on NASDAQ. You see that the current market price of a unit stock of Apple is $440. Now, you predict that the stock price of Apple will be above or equal to $450 by the end of the day. Convinced with your instincts and calculations about the stock, you purchase a $100 binary option with us. If you are correct then the broker will offer you 85% return on your investment.
At the end of the day, if the Binary Option outcome is 1 (TRUE) then it means that the price of the stock of Apple is higher than when the option was purchased. Therefore, the broker will pay you 80% return on your investment which will be a payout of $180. The situation, in which the Binary Option outcome is 1, is also known as in-the-money. On the contrary, if the Binary Option outcome is 0 (FALSE) then it means that the price of the stock of Apple is lower than when the option was purchased. Therefore, you will not have any Return On investment (ROI). This situation, in which the Binary Option outcome is 0, is also known as out-of-the-money. However, in most cases the Binary Option Broker will refund a certain percentage of your original payment if you are in an out-of-the-money situation.
Advantages of Binary Trading
Before your skepticism steps in, we would like to make sure that you make an informed decision about how binary trading market easily scores over traditional and other contemporary trading markets based on the numerous advantages it offers.
The three major advantages offered by Binary Trading are as follows:
Simplicity: Online trading is as simple as it gets. You can trade from anywhere, anytime. All you have to do is just predict the direction of rise/fall of prices of the assets and you can reap the profits easily. Compare this situation with that in Forex market. It is true that Forex trading allows you to trade anytime, anywhere. However, you have to be experienced to realize the optimum leverage you will use to invest in the Forex trading. The beauty of Binary Options trading is that you never have to buy any asset. Therefore, unlike stock market, you don’t have to worry about any accrued losses that you may accumulate over the ever-changing trend of the price of stocks. Always remember that the Binary Options trading is all about the trend of the market price of an asset and it is not about purchasing the asset literally.
Flexibility: With Binary Options trading, you are not limited to just one market. You can trade Forex, indices, commodities etc. The options are endless and therefore, you are not relying on a single market to make profit. Compare this situation with the stock market. In the stock market, you can only make profit if the prices of the stocks go up. Similarly, the ROI in the stock market for a single transaction may not be as fast and quick as in Binary Options market. Binary Options trading is flexible and therefore, you can choose a binary options strategy for your customized needs.
Transparency: Binary Options trading helps you avoid undesirable surprises and unwanted risks. It is transparent as it helps you assess your potential risk/return ratio in advance. You will always know the consequences of the outcomes of the Binary Options trading before you purchase an option with us. This will help you manage your money well and let you stay in control as opposed to the stock market –where you may be a helpless spectator if the market breaks down.
Is Binary Option Trading the right financial instrument for me?
It is not only the right but it is one of the simplest financial tools around. Are you an avid news reader? Do you feel that your instincts are stronger than others? Are you that cool and smart person in your office whose core strength is ‘statistics’? Do you hate statistics? Are you a stock trader? It does not matter. Binary Options market is open for people of all skills and background and you can easily merge into this market with a bit of practice and time.
For reasons more than one, it is only evident that Binary Options trading volume is expanding at an exponential rate each year and it is here to stay for a long time. Start early and open a free account with us. It only takes 60 seconds to get started. What are you waiting for?
If you remember the dot com bubble as clearly as I do and are a technical analyst then you will recall the month which the NASDAQ broke down and confi... Read more