Binary Options Trading Basics

Best Brokers Anyoption | OptionBit | TraderXP | OptionFair | GlobalOption
Binary Options Brokers | Binary Options Trading Strategy

If you’re looking for a good way to grow your money without increasing the risk on your portfolio, then binary options is the best solution. With binary options, traders with little or no knowledge of the different financial markets can bet on the stock market, commodities, Currencies and even the main indices.

Of all investment tools, binary options are considered as the simplest of all. It is often called as “all or nothing” options because there are only 2 outcomes – the investor can either get a payout or not. Investing in binary options is pretty simple – the trader has to predict which direction the price of the asset is bound to go. If the reason to believe that prices will increase, then he/she has to purchase a call option. On the other hand, if the trader believes that prices will decrease, then he/she has to purchase a put option. If the trader correctly predicts the direction of the price change (for example, he/she bought a call option and prices increase) then he/she will be paid the maximum pay out. This situation is also referred to as “in the money”. One the other hand, if the opposite happens (prices decrease and the trader purchased a call option), then the trader will lose the premium he/she paid for the option. This is referred to as “out of the money”. As an incentive, some brokers offer cash back to all contracts with “out of the money” expiry.

Binary options can be classified into two – “cash or nothing” and “asset or nothing”. In the “cash or nothing” type, contracts which expire “in the money” will receive a fixed amount of cash (ranges from 60% to 81%, depending on the Binary option broker). On the other hand, in the “asset or nothing” type the value of the payout will depend on the value of the underlying security. Another name used to refer to binary options is digital options. Binary options contracts are typically available on a variety of assets such as stocks, foreign exchange, commodities and the main indices.

Investing in binary options has become popular in the last few months particularly because of the high volatility in almost all types of investment tools. Because the payout amount is not dependent on the magnitude of price change, binary options is so much simpler. Also, risk is limited to the amount paid for the purchase of the binary options contract. It can also be used to hedge risk on the other investment tools.