A binary option is a very high risk financial instrument. Definitely not a option for someone afraid of a risk or looking for a risk free investment oppertunity, but with good potential returns in the case you win the majority of your trades!
Since 2008, binary options are available for the public, mainly though online trading platforms called binary option broker. The platforms do not charge their investors any fees or commission. So how do they make their money? BOT platforms’ see their profits based on the difference between the amount of options that expire in the money and the amount of options expire out of the money.
Binary Options Explained
Basically, an option is initiated by purchasing an option at a binary options broker at its current price (the price that the underlying security will be bought or sold at it, if the option is exercised). At the time of purchase, an expiration date is given as part of the contract specifications. There are two types of options available: Call and Put.
A call option allows you to buy an asset at its strike price. When the price is higher than the strike price when its expires, the option is considered ‘in the money’ or ‘ITM’. In this case, the investor receives a fixed amount. If the price is below the strike price when the option expire, the option is considered “Out of the money”.
If the option is ‘out of the money’ or ‘OTM’, once the expiration date has arrived, the option is worth nothing. Call options are bought in order to profit from a rise in option price. Put options are bought in order to profit from a decline in price.
Binary options are also called All or Nothing options or Cash or Nothing options. Cash-or-nothing options pay a fixed amount for the options finishing ‘ITM’. The beauty of a binary option is that there are only two possible outcomes, both of which are fixed: fixed gain amount if the option expires ‘ITM’ or a fixed loss amount if the option expires ‘OTM’.
Pro´s and Con´s of binary options
- Fixed risk and Reward -You know exactly what you can lose or win if you enter a trade!
- High Frequenzy trading – fast binary options offer expiration times as low as 60 seconds
- A price movement of 1 Pip (the smallest possible movement) is enough to win or lose an option (depending on the option and the direction of the price movement!)
- Up to 80-90% return for a Option expired in the Money (But 85 – 100% Loss in the case the option expires out of the money!)
- High risk (Its a form of trading, no investment)
- Knowlege and Practice is needed (Its not rocked sience of course)
- Emotions are working against you – Emotions are the biggest enemy for a trader, whatever he is trading!
In order to win more than half of your trades, it takes the right knowledge about technical analysis and trading basics to to have a chance to predict the next market movements. Without this knowledge, many people lose their first investments and more within a few years or less.
In order to trade binary options successfully, its needed to forecast market movements correctly in most cases ! So do not expect to become rich over night trading binary options, instead expect to first learn and practice before you see the first results!
Another very attractive trait of these options are the ability to draw a 70-90 percent profit in a minute for an option expiring in the money (You can also loose your entire investment if it expires out of money!)! Nowadays, binary options are available for the most assets traded online like for-ex, commodities or stocks for example!
As fantastic the reward is, we can’t forget about the risk of losing. A losing trade can cost as much as a 100 percent if the option expires. Essentially, in order to be successful you need to have accurate forecasting at least 50 percent of the time in order to break even, capital-wise. Depending on your chosen expiration times, its needed to analyze the charts quickly and act fast in order to profit from fast price movements.
How to start binary option trading?
Thats why its recommended that traders new to binary options try options that operate on daily, weekly or monthly expiration versus hourly or shorter expiration. Trends are easier to predict on long-term options and changes in growth rates and inflation will have time to positively affect your assets.
With all the pros and cons of binary options, it’s not hard to see why so many people are choosing to try out binary options. If you’re ready to take a gamble and ready to see equally high rewards in a fraction of the time, this is the opportunity you’ve been looking for. With some studying and advice from those knowledgeable in the field, you can benefit from a money making opportunity that only big business are accustomed to having and possibly be able to make this your new career or side-money venture. Don’t be shy, be smart and fearless and it will pay off.