What are binary options?
What are Binary Options? This probably sounds like something right out of an algebra text book to you at first, but bear with us, it is nowhere nearly as complicated. Binary options are a great way to invest money and reap rich rewards. In fact there are thousands upon thousands of people who started out not knowing a thing and going on to make a killing with binary options.
With a limited investment and an upside potential of over 80% on each trade, is is no wonder that numerous people have taken to a trading Binary Options on a full time basis. There are also a number of strategies that can be implemented in order to make the most of the unique investment profile of Binary Options.
Binary Options in a Nutshell
Binary Options are considered the simplest trading products out there. They are also called all or nothing options, which means that the payout is either all or nothing. Another term for them is Fixed Return Options because their payoff is fixed. The trader (you) simply needs to decide whether the value of the asset is going to go up or down in a specific time frame which is usually between 1 minute to 1 hour. If the trends that occur before the trade expires rhymes you’re your prediction, you will have won it and earned the pre decided payout. Because of their straightforward approach, Binary Options are the fastest growing simplified trading products out there. They are also considered as a mass market financial instrument as a trader with a fairly simple and straightforward approach can make profits without needing to get into the technicalities of traditional option trading.
Binary Options are also best suited for people who are looking to make some money quickly and are a great way to diversify your trading portfolio. Since the payouts are high in short periods of time, they are a great way to make some cold hard cash really quick, which accounts for their popularity.
How Do Binary Options Work
Binary Options are available for a number of different underlying assets, including – Commodities, Currencies, Stocks and Indices. Unlike most other forms of trading such as stock broking and Forex, the payouts in Binary Options are fixed, which means if you win a trade, you either get the payout or you don’t. This is very much different from traditional trading where payouts depend on the value of the underlying asset. There are only two ways this can end, either the price goes up or it goes down which is why it is called Binary Options. When you buy a trade you place a Call Option and when you are selling one, you will place a Put Option.
If your prediction is correct then you will win the trade which is usually in the range of 70% to 80% of the invested money instantly making you a respectable profit. If your prediction does not come to pass, then you lose the trade. Since the specified time is so low, you can get away with some money pretty quickly.
Advantages of Binary Options
Unlike traditional financial instruments, Binary Options are a lot simpler to understand and trade as you only need to consider which direction the price of the asset will take. While the payout is no doubt limited, so is the risk which makes it an ideal way to enter the rather complicated world of financial trading. A fixed payout also means you know exactly how much you stand to lose should the trade not go according to your predictions, this is not possible with traditional options where neither the rewards nor the risk are known at the onset. Also, since the payout is predetermined, you will receive that amount even if the contract is successful by merely one pip.
Binary Options are also issued 24/7, allowing you to trade through multiple time frames. Most brokers will also offer you a wide variety of different underlying assets to choose from.