Trading Binary Options
Risk is an inherent feature in whatever business you pursue. This is slightly more if you choose the financial trading as your business, since here the chances of losing a lot of money, very quickly, are high. However, there are many options, that provide business opportunities with the risks obviously being there but still to a level that can be absorbed. Binary options’ is one such instrument of financial trading, where the element of risk is there, but to an extent that is bearable.
As the name specifies, the options in the name binary options, lets the trader decide whether to carry on with the trade or not. The binary aspect of the instrument points to the fact that the outcome of a binary option is either all or nothing. This denotes that a trader speculates on the price movement of the underlying asset, deciding whether it will end up higher or lower at the end of a predetermined price. The correct speculation of the price movement earns a payout of nearly 65-75% profit on the investment, which is made if the pre-decided condition is met or else he gets nothing, hence the name binary. The binary options are also known as digital options for the same reason that the trader might get all or nothing at the end of the expiry depending on whether his option ends “in-the-money” or “out-of-money”.
Simple binary options are the easiest instruments to trade the financial markets and the beauty of them lie in the fact that they can be used to trade multiple markets like the forex, the commodity market, the stocks and the indices as well. The expiration of a binary option is generally an hour, which means that traders do not have to wait until the end of the day, week or month for the maturity of their contract.
The payout percentage, which generally falls in the range of 65-75% of the investment, is offered by the broker, which is based on the probability of the happening of the specified scenario. This is quite high a percentage of profit if the option expires “in-the-money”. Another thing of relevance to be noted here is that in binary options trading, the payoffs are fixed and predetermined. The payoff is not determined by the magnitude of the change in price nor by the number of points did the price rise. Therefore, if the trader’s prediction is correct, even by a single cent or pip, he is liable to get his payoff. Hence, magnitude of change is not important, but it is the direction of price movement, which holds importance.
Some brokers also offer a return of 10-15% of the investment, if the speculation regarding the price direction is incorrect. Theoretically, the trader is not supposed to receive anything for an incorrect speculation, but to attract new traders and reign in the existing ones, many brokers offer this return. Therefore, the traders have some assurance of lot losing all the money and a return, though very small, is made.
Binary options offer many features to the traders for a successful trade. Moreover, there are many types of binary options, which provide a varied horizon of opportunities for the traders.