With binary options trading, an investor is able to know beforehand what is his potential gain or loss before he invests his money. In fact, he generally has two possible outcomes for his investments:
1. If the binary option expires in the money, he will receive a fixed predetermined payment between 60% to 80% return on his investment depending on the underlying asset that he is investing in.
2. If the binary option expires out of the money, he will not receive anything in return for his investments.
Nevertheless, a third possible outcome exists also for an investor depending on the broker he uses. For investors using some binary options Brokers they are able to receive a 15% payback of their investment even though their binary option has expired out of the money.
Trading in binary is fairly straight forward. A trader only needs to consider three aspects of trading before he invests his money:
– The underlying asset to invest with
– The direction of the price movements of the asset
– The expiry time of the binary option
The Underlying Asset
This is the asset which the binary option is linked with. It can range from stocks, commodities, Forex or even indices.
The Direction of the Price Movement of the Underlying Asset
Which direction the price will move will determine what kind of option that an investor will invest in. if the investor is of the opinion that the price of the underlying asset will go up, he should then purchase a call option. If he feels that the price will move down, he should then purchase a put option.
The Expiration Time
This is the predetermined time which a binary option will end. It can be hourly, daily, weekly or monthly based. Hence, the investor has some measure of control over his investment through selecting what types of asset to invest in, the type of option to invest in depending on the direction of the price movements and the expiration time.