What are Binary Options?
Binary options are trading options in which the payoff is a preset fixed amount that the trader knows before buying it. The Binary option is structured with only two possible outcomes or two options that where its name came from. This trading option is based on two simple question for the investor. The investor needs to think if the price of an asset will be over a preset price or under it, at a specific time. Now, if he selects the correct alternative when the maturity is reached he receives a profit, which is usually between 60 to 100 % of his investment. On the other hand, if he selects the incorrect outcome he can receive only a percentage of his initial investment or nothing at all depending on the conditions of binary options selected.
This trading option is one of the fastest growing trading modality around the globe because is a rather simple system. The binary options have been around for more than 30 years. However, just recently in 2008, the Security and Exchange Commission of the United States approved it for exchange trading on US Stock markets. The binary options are trade differently in the USA than in Europe but the system is similar. The binary options market is regulated in the same way that any other legitimate trading system.
How Binary Options works ?
1.The investor needs to answer a simple Yes or No question about the assets in which he wants to invest. He needs to select if the price of an asset will be higher than a preset amount at a very specific time, or not. The opposite question can also be answered. If the price of an asset will be lower than the preset amount at the very specify time or not.
2.If the investor selection is correct, he receives fixed amount payoff. That means that is trade is profitable the investor will receive a profit for 80 to 100%
3.If the investor selection is incorrect there are two possible scenarios. In some binary options trading, the investor will receive the 30 or 10% of the invested amount. In others binary options, the investor will not receive anything. when the trade is not profitable the investor will lose the amount invested
4.The time at which the price have to be met or its maturity is disclosed before any offer can be made as well as the specific time frame for buying it.
5.The fixed amount payout is preset and fully disclose with the asset offer
6.The investor has to hold the assets until maturity is reached, it cannot be sold before it.
7.The specific Yes or No question is made in advance when the initial information of the binary option is made public
8.The starting capital to star trading binary options is very low in some cases it starts around 50 USD, you can pay it with any credit card.
9.Binary options trading are available in almost any commodity or asset trade globally.
10.Binary options make clear the invested capital, the preset payoff and the associated risk of the trading before you accept any trading contract.
Binary Option in Real Life ?
In a real-life example, let’s imagine that investor X thinks that the share price of GADU at 12:30 pm on May 4th will be higher than 14.7 USD. And he buys a 50 USD binary option with a 100% fixed payout. He is right. At 12:30 pm on May 4th the GADU price is 14.72. Now he gets a 100 USD. He got a 100% profits from his binary options trade. 50 USD that he initially invested and 50 USD he made from it. the same system applies for the binary options with the Yes or No question about if the price of an asset will be lower than any preset amount at a specific time.
Understanding Binary Options
·A Call is the name of your binary option trade when you predict that the price of an asset will be higher at the time of the chosen expiration
·A Put is the name of your binary option trade, when you predict that the price of an asset will be lower at the time of the chose expiration
·At the Money is the final position of the option at the expiry time at the same price as it was purchased.
·In the Money is the final position of the option at the expiry time at the investor predicted position. The final price can be either Higher if the investor buys a call and he predicts increases in the price or lower if the investor buy a put and he predicts a decrease in the price.
·Expiration/Expiry time is the very specific time at which the binary trade option will expire. The Binary options trade expiry time is shorter than traditional investments, e.g. one min, 15min. 1hr, 24hr, 1 week, etc.
·Out of Money is the final position of the option at its expiry time at the opposite position from the investor prediction. The option doesn’t make any profit, the trader makes a loss. The final asset’s price can be can be either lower if the investor buys a call and he predicts increases in the price or higher if the investor buy a put and he predicts a decrease in the price.
·Return is the amount of money or percentage of your investment that you will get is your binary options is in the money, e.g. 80%, 90%, 100%. If you invest 50 USD and the return is 80%, you will get 90 USD at the expiry time is your option is in the money. 50 USD for your investment and another 40 USD for its profits.
·Strike Price is the initial price at which an asset is bought
·Withdrawal is when you take out your profit from your trading account and order a cash deposit or other withdraws method.
Why Binary Options Trading are so popular ?
Thanks to is simplicity most traders prefer this type of investment. There are a great variety of contracts. The investor can specify, the amount of money invested that they want to risk, the expiry time period, the strike price, etc. Additionally, the investor can buy an insurance just by opting for a lower return percentage in case the option ends out of the money, The starting capital is very low and some trader has made 10.000 USD profit from just a couple of hundreds in a pair of weeks.